Thut ng k

ton bng
ting Anh
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MC LC
Thut ng k ton bng ting Anh.......................................................................................1
MC LC...........................................................................................................................2
A&E can mean either Appropriation & Expense or Analysis & Evaluation.
A&G is Adminstrative & General.
A&M is Additions and Maintenance.
A&P is an acronym for Administrative and Personnel.
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ABA (Accredited Business Accountant or Accredited Business Advisor), in the
!, is a national credential conferred "y Accreditation #ouncil for Accountancy
and $axation to professionals %ho speciali&e in supportin' the financial needs of
individuals and small to medium si&ed "usinesses. ABA is the only nationally
reco'ni&ed alternative to the #PA. Most accredited individuals do not perform
audits. Generally, they are small "usiness o%ners themselves. (n addition to
'eneral accountin' %or), #PAs are also heavily schooled in performin' audits*
ho%ever, only a small fraction of America+s "usinesses re,uire an audit. (n
'eneral, a #PA has ma-ored in accountin', passed the #PA examination and is
licensed to perform audits. An ABA has ma-ored in accountin', passed the ABA
comprehensive examination and in most states is not licensed to perform audits.
ABATEMENT, in 'eneral, is the reduction or lessenin'. (n la%, it is the
termination or suspension of a la%suit. .or example, an a"atement of taxes is a
tax decrease or re"ate.
ABC see A#$(/($0 BA!E1 #2!$(3G.
ABM see A#$(/($0 BA!E1 MA3AGEME3$.
ABOVE THE LINE, in accountin', denotes revenue and expense items that
enter fully and directly into the calculation of periodic net income, in contrast to
"elo% the line items that affect capital accounts directly and net income only
indirectly.
ABOVE THE LINE, for the individual, is a term derived from a solid "old line on
.orm 4565 and 4565A a"ove the line for ad-usted 'ross income. (tems a"ove the
line prior to comin' to ad-usted 'ross income, for example, can include7 (8A
contri"utions, half of the self9employment tax, self9employed health insurance
deduction, :eo'h retirement plan and self9employed !EP deduction, penalty on
early %ithdra%al of savin's, and alimony paid. A taxpayer can ta)e deductions
a"ove the line and still claim the standard deduction.
ABSORB is to assimilate, transfer or incorporate amounts in an account or a
'roup of accounts in a manner in %hich the first entity loses its identity and is
;a"sor"ed; %ithin the second entity. .or example, see AB!28P$(23 #2!$(3G.
ABSORPTION see AB!28B.
ABSORPTION COSTING is the method under %hich all manufacturin' costs,
"oth varia"le and fixed, are treated as product costs %ith non9manufacturin'
costs, e.'. sellin' and administrative expenses, "ein' treated as period costs.
ABSORPTION VARIANCE is the variance from "ud'eted a"sorption costin' of
manufactured product. !ee also AB!28P$(23 #2!$(3G.
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ACAT (Accreditation #ouncil for Accountancy and $axation) is a national
or'ani&ation esta"lished in 4<=> as a non9profit independent testin', accreditin'
and monitorin' or'ani&ation. $he #ouncil see)s to identify professionals in
independent practice %ho speciali&e in providin' financial, accountin' and
taxation services to individuals and small to mid9si&e "usinesses. Professionals
receive accreditation throu'h examination and?or course%or) and maintain
accreditation throu'h commitment to a si'nificant pro'ram of continuin'
professional education and adherence to the #ouncil+s #ode of Ethics and 8ules
of Professional #onduct.
ACB normally refers to +ad-usted cost "ase.+
ACCELERATED DEPRECIATION is a method of calculatin' depreciation %ith
lar'er amounts in the first year(s).
ACCEPTANCE is a dra%ee+s promise to pay either a $(ME 18A.$ or !(G@$
18A.$. 3ormally, the acceptor si'ns his?her name after %ritin' ;accepted; (or
some other %ords indicatin' acceptance) on the "ill alon' %ith the date. $hat
;acceptance; effectively ma)es the "ill a promissory note, i.e. the acceptor is the
ma)er and the dra%er is the endorser.
ACCOMODATION ENDORSEMENT is a) the 'uarantee 'iven "y one le'al
entity to induce a lender to 'rant a loan to another le'al entity. ") a "an)in'
practice %here one "an) endorses the acceptances of another "an), for a fee,
,ualifyin' them for purchase in the acceptance mar)et.
ACCOUNT is the detailed record of a particular asset, lia"ility, o%ners+ e,uity,
revenue or expense.
ACCOUNT AGING usually refers to the methods of trac)in' past due accounts
in accounts receiva"le "ased on the dates the char'es %ere incurred. Account
a'in' can also "e used in accounts paya"le, to a lesser de'ree, to monitor
payment history to suppliers.
ACCOUNT ANALYSIS is a %ay to measure cost "ehavior. (t selects a volume9
related cost driver and classifies each account from the accountin' records as a
fixed or varia"le cost. $he cost accountant then loo)s at each cost account
"alance and estimates either the varia"le cost per unit of cost driver activity or
the periodic fixed cost.
ACCOUNTANT'S OPINION is a si'ned statement re'ardin' the financial status
of an entity from an independent pu"lic accountant after examination of that
entities records and accounts.
ACCOUNT DISTRIBUTION is the process "y %hich de"its and credits are
identified to the correct accounts.
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ACCOUNT GROUP, in accountin', is a desi'nation of a 'roup of accounts of li)e
type (for example7 accounts receiva"le and fixed assets).
ACCOUNTING is primarily a system of measurement and reportin' of economic
events "ased upon the accountin' e,uation for the purpose of decision ma)in'.
Generally, %hen someone says ;accountin'; they are referrin' to the
department, activity or individuals involved in the application of the accountin'
e,uation.
ACCOUNTING CONCEPTS are the assumptions underlyin' the preparation of
financial statements, i.e., the "asic assumptions of 'oin' concern, accruals,
consistency and prudence.
ACCOUNTING CYCLE is the se,uence of steps in preparin' the financial
statements for a 'iven period.
ACCOUNTING DIVERSITY is the reco'nition that many diverse national and
international accountin' standards exist in the %orld.
ACCOUNTING ENTITY ASSUMPTION states that a "usiness is a separate le'al
entity from the o%ner. (n the accounts the "usinessA monetary transactions are
recorded only.
ACCOUNTING EQUATION is a mathematical expression used to descri"e the
relationship "et%een the assets, lia"ilities and o%ner+s e,uity of the "usiness
model. $he "asic accountin' e,uation states that assets e,ual lia"ilities and
o%ner+s e,uity, "ut can "e modified "y operations applied to "oth sides of the
e,uation, e.'., assets minus lia"ilities e,ual o%ner+s e,uity.
ACCOUNTING EVENT is %hen the assets and lia"ilities of a "usiness
increase?decrease or %hen there are chan'es in o%ner+s e,uity.
ACCOUNTING PACKAGE/SOFTWARE, usually, is a commercially availa"le
soft%are pro'ram or suite that, %ith little customi&ation, %ill satisfy the accountin'
system needs of the purchasin' entity.
ACCOUNTING PERIOD is the time period for %hich accounts are prepared,
usually one year.
ACCOUNTING RATIO is the result of dividin' one financial statement item "y
another. 8atios help analysts interpret financial statements "y focusin' on
specific relationships.
ACCOUNTING STANDARDS BOARD (ASB) ma)es, improves, amends and
%ithdra%s accountin' standards. Many of A!Bs speciali&e in the various fields or
sectors of accountin'.
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ACCOUNTING THEORY tries to descri"e the role of accountin' and is
composed of four types of accountin' theory7 classical inductive theories, income
theories, decision usefulness theories, and information economics ? a'ency
theories7 a. #lassical inductive theories are attempts to find the principles on
%hich current accountin' processes are "ased* ". (ncome theories try to identify
the real profit of an or'ani&ation* c. 1ecision usefulness theories attempt to
descri"e accountin' as a process of providin' the relevant information to the
relevant decision ma)ers* and, d. $he information economics ? a'ency theories of
accountin' see accountin' information as a 'ood to "e traded "et%een rational
a'ents each actin' in their o%n self9interest.
ACCOUNTING TIMING DIFFERENCE is the effect that a defered accountin'
event %ould have on the financials if ta)en into consideration e.'., the release of
a deferred tax asset to the income statement as a deferred tax expense (ie the
reversal of an accountin' timin' difference).
ACCOUNTS PAYABLE (AP) are trade accounts of "usinesses representin'
o"li'ations to pay for 'oods and services received.
ACCOUNTS PAYABLE TO SALES measures the speed %ith %hich a company
pays vendors relative to sales. 3um"ers hi'her than typical industry ratios
su''est that the company is usin' suppliers assets (cash o%ed) to fund
operations.
ACCOUNTS RECEIVABLE is a current asset representin' money due for
services performed or merchandise sold on credit.
ACCOUNTS RECEIVABLE LEDGER is the "oo))eepin' led'er in %hich all
accounts for %hich cash assets o%ed to an or'ani&ation is maintained.
ACCOUNTS RECEIVABLE TURNOVER is the ratio of net credit sales to
avera'e accounts receiva"le, %hich is a measure of ho% ,uic)ly customers pay
their "ills.
ACCRETION is the ad-ustment of the difference "et%een the price of a "ond
purchased at an ori'inal discount and the par value of the "ond* or, asset 'ro%th
throu'h internal 'ro%th, expansion or natural causes, e.'. the a'in' of %ine or
'ro%th of tim"er?trees.
ACCRUAL is the reco'nition of revenue %hen earned or expenses %hen
incurred re'ardless of %hen cash is received or dis"ursed.
ACCRUAL BASIS OF ACCOUNTING is %herein revenue and expenses are
recorded in the period in %hich they are earned or incurred re'ardless of %hether
cash is received or dis"ursed in that period. $his is the accountin' "asis that
'enerally is re,uired to "e used in order to conform to 'enerally accepted
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accountin' principles (GAAP) in preparin' financial statements for external
users.
ACCRUAL CONCEPT see A##8AB BA!(! 2. A##23$(3G.
ACCRUED ASSETS are assets from revenues earned "ut not yet received.
ACCRUED EXPENSES are expenses incurred durin' an accountin' period for
%hich payment is postponed.
ACCRUED INCOME is income earned durin' a fiscal period "ut not paid "y the
end of the period.
ACCRUED INTEREST is interest earned "ut not paid since the last due date.
ACCRUED INVENTORY functions as a ;clearin'; account to esta"lish a lia"ility
for inventory physically received into the %arehouse, "ut for %hich a vendor
invoice had not yet arrived.
ACCRUED LIABILITY are lia"ilities %hich are incurred, "ut for %hich payment is
not yet made, durin' a 'iven accountin' period. !ome examples in a
manufacturin' environment %ould "e7 %a'es, taxes, suppliers?vendors, etc.
ACCRUED PAYROLL is a lia"ility arisin' from employees+ salary expense that
has "een incurred "ut not paid.
ACCRUED REVENUE is the accumulated revenue as they have "een
reco'ni&ed over a 'iven period.
ACCUMULATED AMORTIZATION is the cumulative char'es a'ainst the
intan'i"le assets of a company over the expected useful life of the assets.
ACCUMULATED DEPRECIATION is the cumulative char'es a'ainst the fixed
assets of a company for %ear and tear or o"solescence.
ACH is Automated #learin' @ouse.
ACIDTEST RATIO is an analysis method used to measure the li,uidity of a
"usiness "y dividin' total li,uid assets "y current lia"ilities.
ACMA is an acronym for Associate #hartered Mana'ement Accountant.
ACQUISITION is one company ta)in' over controllin' interest in another
company. !ee also ME8GE8 and P22B(3G 2. (3$E8E!$!.
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ACQUISITION COST is the amount, net of "oth trade and cash discounts, paid
for property, plus transportation costs and ancillary costs.
ACTIVITY BASED COSTING (ABC) is a costin' system that identifies the
various activities performed in a firm and uses multiple cost drivers (non9volume
as %ell as the volume "ased cost drivers) to assi'n overhead costs (or indirect
costs) to products. AB# reco'ni&es the causal relationship of cost drivers %ith
activities.
ACTIVITY BASED MANAGEMENT (ABM) converts Activity Based #ostin'
(AB#) into a system to mana'e an or'ani&ation. Activity Based Mana'ement not
only focuses on product, service, customer, channel costin', it also emphasi&es7
cost drivers (root cause analysis), action plans to improve to achieve strate'ic
o"-ectives, and, performance measures for activities and processes.
ACTIVITY DRIVERS, in activity "ased costin' (AB#), activity costs are assi'ned
to outputs usin' activity drivers. Activity drivers assi'n activity costs to outputs
"ased on individual outputsA consumption or demand for activities. .or example,
a driver may "e the num"er of times an activity is performed (transaction driver)
or the len'th of time an activity is performed (duration driver) see 18A$(23
18(/E8!, (3$E3!($0 18(/E8!, $8A3!A#$(23 18(/E8!.
ACTIVITY RATIO is any accountin' ratio that measures a firm+s a"ility to convert
different accounts %ithin their "alance sheets into cash or sales.
ACTUAL COST is the amount paid for an asset* not its retail value, mar)et value
or insurance value.
ACTUALS is -ar'on used %hen spea)in' of an actual num"er experienced
throu'h some point in time as opposed to a num"er that is "ud'eted or pro-ected
into the future, e.'., year9to9date sales, expenses, product produced, etc.
ACTUARIAL METHOD means the method of allocatin' payments made on a
de"t "et%een the amount financed and the finance or other char'es %here the
payment is applied first to the accumulated finance or other char'es and any
remainder is su"tracted from, or any deficiency is added to the unpaid "alance of
the amount financed.
ADDITIONAL PAID IN CAPITAL is the amounts paid for stoc) in excess of its
par value* included are other amounts paid "y stoc)holders and char'ed to
e,uity accounts other than capital stoc).
ADEQUATE DISCLOSURE is sufficient information in footnotes, as %ell as
financial statements, indicative of a firm+s financial status.
ADF, in invoicin', is After 1eductin' .rei'ht.
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AD HOCis "ein' concerned %ith a particular end or purpose, e.'., a ad hoc
committee esta"lished to handle a specific su"-ect.
ADI, in invoicin', is After 1ate of (nvoice.
AD!UNCT ACCOUNT is an account that accumulates either additions or
su"tractions to another account. $hus the ori'inal account may retain its identity.
Examples include premiums on "onds paya"le, %hich is a contra account to
"onds paya"le* and accumulated depreciation, %hich is an offset to the fixed
asset.
AD!USTED BASIS see BA!(!.
AD!USTED BOOK VALUE" 0our MBA performs t%o types of ad-usted "oo)
value analysis. $an'i"le Boo) /alue and Economic Boo) /alue (also )no%n as
Boo) /alue at Mar)et).
$an'i"le Boo) /alue is different than "oo) value in that it deducts from
asset value intan'i"le assets, %hich are assets that are not hard (e.'.,
'ood%ill, patents, capitali&ed start9up expenses and deferred financin'
costs).
Economic Boo) /alue allo%s for a "oo) value analysis that ad-usts the
assets to their mar)et value. $his valuation allo%s valuation of 'ood%ill,
real estate, inventories and other assets at their mar)et value.
AD!USTING ENTRIES are special accountin' entries that must "e made %hen
you close the "oo)s at the end of an accountin' period. Ad-ustin' entries are
necessary to update your accounts for items that are not recorded in your daily
transactions.
AD!USTMENT can "e either7 4. an increase or decrease to an account resultin'
from A1C!$(3G E3$8(E!* or, D. chan'in' an account "alance due to some
event, e.'., ad-ustment of an account due to the return of merchandise for credit.
ADMINISTRATIVE/ADMINISTRATION COST see (31(8E#$ #2!$.
ADVERSE OPINION is expressed if the "asis of accountin' is unaccepta"le and
distorts the financial reportin' of the corporation. (f auditors discover
circumstances durin' the course of the audit that ma)e them ,uestion %hether
they can issue an un,ualified opinion, they should al%ays discuss those
circumstances %ith the client "efore issuin' the opinion, in order to determine
%hether it is possi"le to rectify the pro"lem.
ADVISING BANK is a "an) in the exporter+s country handlin' a letter of credit.
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AFE, dependent upon usa'e, is an acronym for Authori&ation for Expenditure or
Avera'e .unds Employed.
AFFILIATE is a relationship "et%een t%o companies %hen one company o%ns
su"stantial interest, "ut less than a ma-ority of the votin' stoc) of another
company, or %hen t%o companies are "oth su"sidiaries of a third company.
AGENCY is the relationship "et%een a principal and an a'ent %herein the a'ent
is authori&ed to represent the principal in certain transactions.
AGENCY COSTS is the incremental costs of havin' an A'ent ma)e decisions for
a principal.
AGGREGATE is the sum or total.
AGGREGATE THEORY is a theory of partnership taxation in %hich a partnership
is considered as an a''re'ate of individual co9o%ners %ho have "ound
themselves to'ether %ith the intention of sharin' 'ains and loses* under this
theory, the partnership itself has no existence separate and apart from its
mem"ers.
AGI (Annual Gross (ncome) is annuali&ed total income prior to exclusions and
deductions.
AGING see A##23$ AG(3G.
AGING OF RECEIVABLES see A##23$ AG(3G.
AGREED UPON PROCEDURES are used %hen a client retains an external
auditor to perform specific tests and procedures and report on the results.
Examples mi'ht include special revie%s of loan portfolio or internal control
systems. (n performin' a'reed9upon procedures, the auditor provides no opinion,
certification, or assurance that the assertions "ein' made in the financial
statements are free from material misstatement. $he users of reports "ased on
a'reed9upon procedures must dra% their o%n conclusions on the results of the
tests reported. .or example, an external auditor could "e as)ed to loo) at a
certain num"er of corporation loan files and document %hich of the re,uired
forms are in the files. $he auditor %ould report on the selection and the results of
the procedures performed "ut %ould not provide a formal opinion %ith
conclusions dra%n from the results of the procedures.
AICPA is the American (nstitute EofF #ertified Pu"lic Accountants.
AIR WAYBILL is a "ill of ladin' and contract "et%een the shipper and the airline
for delivery of 'oods to a specified location, and sometimes %ith specified
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delivery date?time. 3on9ne'otia"le, "ut serves as receipt from the airline to prove
that 'oods %ere received.
ALLOCATE is to distri"ute accordin' to a plan or set apart for a special purpose.
Examples7 a. spread a cost over t%o or more accountin' periods* ". char'e a
cost or revenue to a num"er of departments, products, processes or activities on
a rational "asis.
ALLOCATION is the act of distri"utin' "y allottin' or apportionin'* distri"ution
accordin' to a plan, e.'., allocatin' costs is the assi'nment of costs to
departments or products over various time periods, products, operations, or
investments. !ee ABB2#A$E.
ALLONGE is a piece of paper attached to a ne'otia"le instrument to allo% space
for %ritin' endorsements.
ALL OTHER CURRENT ASSETS relates to any other current assets. 1oes not
include prepaid items.
ALL OTHER CURRENT LIABILITIES includes any other current lia"ilities,
includin' "an) overdrafts and accrued expenses.
ALL OTHER EXPENSES (NET) includes miscellaneous other income and
expenses (net), such as interest expense, miscellaneous expenses not included
in 'eneral and administrative expenses, netted a'ainst recoveries, interest
income, dividends received and miscellaneous income.
ALL OTHER NONCURRENT ASSETS are prepaid items and any other non9
current assets.
ALL OTHER NONCURRENT LIABILITIES means any other non9current
lia"ilities, includin' su"ordinated de"t, and lia"ility reserves.
ALLOWANCE, %ithin !ales, is a concession 'ranted to customers for
unsatisfactory 'oods or services. 8educes sales "ecause a portion of the sale
has not "een earned.
ALLOWANCE FOR BAD DEBTS is an account esta"lished to record a
su"traction from A##23$! 8E#E(/ABBE, to allo% for those accounts that %ill
not "e paid.
ALLOWANCE FOR DOUBTFUL ACCOUNTS see ABB2GA3#E .28 BA1
1EB$!.
ALLOWANCE FOR DOUBTFUL DEBTS see ABB2GA3#E .28 BA1 1EB$!.
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ALLOWANCE FOR NOTES RECEIVABLE LOSSES is an account maintained
at a level considered ade,uate to provide for pro"a"le losses. $he provision is
increased "y amounts char'ed to earnin's and reduced "y net char'e9offs. $he
level of allo%ance is "ased on mana'ementAs evaluation of the portfolio, %hich
ta)es into account prevailin' and anticipated "usiness and economic conditions
and the net reali&a"le value of securities held.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS see ABB2GA3#E .28
BA1 1EB$!.
ALLOWANCE METHOD is the accepted %ay to account for "ad de"t. Bad de"t
expense may "e "ased on the percent of credit sales for the period, an a'in' of
the accounts receiva"le "alance at the end of the period, or some other method,
e.'., percent of accounts receiva"le.
ALPHA is the measurement of returns from an investment in excess of mar)et
returns. (t represents the amount expected from fundamental causes, e.'. the
'ro%th rate in earnin's per share. $his contrasts %ith BE$A, %hich is a measure
of ris) or volatility.
ALTERNATE PAYEE ENDORSEMENT, normally, it is %hen one payee
endorses a draft over to another entity, then the ne% or alternate payee endorses
the draft near the ori'inal payees endorsement (si'nature).
ALTMAN# EDWARD developed the ;AB$MA3 H9!#28E; "y examinin' IJ
manufacturin' companies. Bater, additional ;H9!cores; %ere developed for
private manufacturin' companies (H9!core 9 Model A) and another for
'eneral?service firms (H9!core 9 Model B). /entureBine selects the ;H9!core;
appropriate for each firm "ased upon the ,uestionnaire input from the listin'
company. A ;H9!core; is only as valid as the data from %hich it %as derived i.e. if
a company has altered or falsified their financial records?"oo)s, a ;H9!core;
derived from those ;coo)ed "oo)s; is of hi'hly suspect value.
ORIGINAL ZSCORE (.or Pu"lic Manufacturer) (f the H9!core is >.5 or
a"ove 9 "anruptcy is not li)ely. (f the H9!core is 4.I or less 9 "an)ruptcy is
li)ely. A score "et%een 4.I and >.5 is the 'ray area. Pro"a"ilities of
"an)ruptcy %ithin the a"ove ran'es are <JK for one year and =5K %ithin
t%o years. 2"viously a hi'her H9!core is desira"le.
MODEL A ZSCORE (.or Private Manufacturer) Model A is appropriated
for a private manufacturin' firm. Model A should not "e applied to other
companies. A H9!core of D.<5 or a"ove indicates that "an)ruptcy in not
li)ely, "uyt a H9!core of 4.D> or "elo% is a stron' indicator that "an)ruptcy
is li)ely. Pro"a"ilities of "an)ruptcy %ithin the a"ove ran'es are <JK for
one year and =5K %ithin t%o years. 2"viously a hi'her H9!core is
desira"le.
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MODEL B ZSCORE (.or Private General .irm) Model B H9!core is
appropriate for a private 'eneral non9manufacturin' firm. A H9!core of
D.L5 or a"ove indicates that "an)ruptcy in not li)ely, "uyt a H9!core of
4.45 or "elo% is a stron' indicator that "an)ruptcy is li)ely. Pro"a"ilities of
"an)ruptcy %ithin the a"ove ran'es are <JK for one year and =5K %ithin
t%o years. A H9!core "et%een the t%o is the 'ray area. 2"viously a hi'her
H9!core is desira"le.
ALTMAN ZSCORE relia"ly predicts %hether or not a company is li)ely to enter
into "an)ruptcy %ithin one or t%o years7
(f the H9!core is >.5 or a"ove 9 "an)ruptcy is not li)ely.
(f the H9!core is 4.I or less 9 "an)ruptcy is li)ely.
A H9!core "et%een 4.I and >.5 is the 'ray area, i.e., a hi'h de'ree of
caution should "e used.
Pro"a"ilities of "an)ruptcy %ithin the a"ove ran'es are <JK for one year and
=5K %ithin t%o years. A H9!core "et%een the t%o is the 'ray area. 2"viously a
hi'her H9!core is desira"le. (t is "est to assess each individual company+s H9
!core a'ainst that of the industry. (n lo% mar'in industries it is possi"le for H9
!cores to fall "elo% the a"ove. (n such cases a trend comparison to the industry
over consecutive time periods may "e a "etter indicator. (t should "e
remem"ered that a H9!core is only as valid as the data from %hich it %as derived
i.e. if a company has altered or falsified their financial records?"oo)s, a H9!core
derived from those ;coo)ed "oo)s; is of lesser use.
AMALGAMATION is a consolidation or mer'er, as of several corporations. (n
"usiness, the distinction "ein' that the survivin' entity incorporates the asset
"ase of others into its "ase.
AMORTIZATION 4. is the 'radual reduction of a de"t "y means of e,ual periodic
payments sufficient to meet current interest and li,uidate the de"t at maturity.
Ghen the de"t involves real property, often the periodic payments include a sum
sufficient to pay taxes and ha&ard insurance on the property. D. is the process of
spreadin' the cost of an intan'i"le asset over the expected useful life of the
asset. .or example7 a company pays M455,555 for a patent, they amorti&e the
cost over the 4L year useful life of the patent. >. the deduction of capital
expenses over a specific period of time. !imilar to depreciation, it is a method of
measurin' the ;consumption; of the value of lon'9term assets li)e e,uipment or
"uildin's.
ANGEL INVESTOR is a private %ealthy individual that has no association %ith a
venture capital firm, investment fund, etc. $he ;an'el; invests his?her private
money into %hat he?she "elieves to "e promisin' opportunities, i.e., normally
startup companies. !ometimes t%o or more ;an'els; %ill -ointly invest into
opportunitites to spread the ris).
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ANNUALIZE is a statistical techni,ue %here"y fi'ures coverin' a period of less
than one year are extended to cover a 4D9month period. $he techni,ue, to "e
accurate, must ta)e seasonal variations into consideration.
ANNUAL REPORT is the re,uirement for all pu"lic companies to file an annual
report %ith the !ecurities and Exchan'e #ommission detailin' the precedin'
year+s financial results and plans for the upcomin' year. (ts re'ulatory version is
called ;.orm 45 :.; $he report contains financial information concernin' a
company+s assets, lia"ilities, earnin's, profits, and other year9end statistics. $he
annual report is also the most %idely9read shareholder communication.
ANNUITY, in finance, is a series of fixed payments, usually over a fixed num"er
of years* or for the lifetime of a person, in %hich case it %ould "e called a life9
contin'ent annuity or simply life annuity.
ANOMALY, 'enerally, is a deviation from the common rule. (t is an irre'ularity
that is difficult to explain usin' existin' rules or theory. (n securities, it is an
unexplained or unexpected price or rate relationship that seems to offer an
opportunity for an ar"itra'e9type profit, althou'h not typically %ithout ris).
Examples include the tendency of small stoc)s to outperform lar'e stoc)s, of
stoc)s %ith lo% price9to9"oo) value ratios to outperform stoc)s %ith hi'h price9to9
"oo) value ratios, and of discount currency for%ard contracts to outperform
premium currency for%ard contracts.
AP is Accounts Paya"le.
APIC is an acronym for Additional Paid9(n9#apital (finance?"usiness).
APPLIED RESEARCH is desi'ned to solve practical pro"lems of the modern
%orld, rather than to ac,uire )no%led'e for )no%led'e+s sa)e.
APPORTION is to divide and share out accordin' to a plan.
APPRECIATION is the increase in the value of an asset in excess of its
deprecia"le cost, %hich is due to economic, and other conditions, as
distin'uished from increases in value due to improvements or additions made to
it.
APPROPRIATE / APPROPRIATED / APPROPRIATION is distri"ution of net
income to various accounts and ? or the allocation of retained earnin's for a
desi'nated purpose, e.'. plant expansion.
AR is Accounts 8eceiva"le.
14
ARBITRAGE is the movements of funds to ta)e advanta'e of differences in
exchan'e or interest rates* such movements ,uic)ly eliminate any such
differences.
ARGUMENT IN ACCOUNTING usually revolves around the premise that
characteri&es fair values of assets as "ein' more relevant "ut less relia"le than
their historical costs, %ith fair value "ein' ultimately more informative only if its
increased relevance out%ei'hs its reduced relia"ility.
ARM$S LENGTH TRANSACTION is a transaction that is conducted as thou'h
the parties %ere unrelated, there"y avoidin' any sem"lance of conflict of interest.
ARR is an acronym for Accountin' 8ate of 8eturn.
ARTICLES OF INCORPORATION is the primary le'al document of a
corporation* they serve as a corporation+s constitution. $he articles are filed %ith
the state 'overnment to "e'in corporate existence. $he articles contain "asic
information on the corporation as re,uired "y state la%.
ARTICLES OF PARTNERSHIP is the contract creatin' a partnership.
ARTICULATION, in "usiness, is the shape or manner in %hich thin's come
to'ether and a connection is made. (n the spo)en %ord, it is expressin' in
coherent ver"al form.
ASB see A##23$(3G !$A31A81! B2A81.
ASEAN (A%%&'()*(&+ &, S&-*./)%* A%()+ N)*(&+%) is a tradin' "loc) of
countries in !E Asia. 2ri'inally formed as an anti9communist military alliance, it
is no% focused on developin' a free trade a'reement amon' mem"er nations.
ASIS CONDITION is the transfer of title to a property in an existin' condition
%ith no %arranties or representations.
ASK PRICE, in the context of the over9the9counter mar)et, the term ;as); refers
to the lo%est price at %hich a mar)et ma)er %ill sell a specified num"er of shares
of a stoc) at any 'iven time. $he term ;"id; refers to the hi'hest price a mar)et
ma)er %ill pay to purchase the stoc). $he as) price (also )no%n as the ;offer;
price) %ill almost al%ays "e hi'her than the "id price. Mar)et ma)ers ma)e
money on the difference "et%een the "id price and the as) price. $hat difference
is called the ;spread;.
ASSESSED VALUE is the estimated value of property used for tax purposes.
15
ASSESSMENT is a. proportionate share of a shared expense* or, ". amount of
tax or other levied special payment due to a 'overnmental municipality or
association.
ASSET is anythin' o%ned "y an individual or a "usiness, %hich has commercial
or exchan'e value. Assets may consist of specific property or claims a'ainst
others, in contrast to o"li'ations due others. (!ee also L()0(1(*(/%).
ASSET AVAILABILITY is the stated condition or availa"ility of an asset for
usa"ility. $he su"-ect asset is not availa"le if it is already in use, at capacity,
under'oin' maintenance, "ro)en, etc.
ASSET EARNING POWER is a common profita"ility measure used to determine
the profita"ility of a "usiness "y ta)in' its total earnin' "efore taxes and dividin'
that "y total assets.
ASSET REVALUATION RESERVE is an accountin' concept and represents a
reassessment of the value of a capital asset as at a particular date. $he reserve
is considered a cate'ory of the e,uity of the entity. An asset is ori'inally recorded
in the accounts at its cost and depreciated periodically over its estimated useful
life as a measure of the amount of the asset+s value consumed in that period. (n
practice, the actual useful life of an asset can "e miscalculated or an event can
cause a chan'e to the useful life. #onse,uently, assets occasionally need to "e
revalued in order to reflect a more close approximation to their ;%orth; in the
accounts. Ghen the asset is revalued, the offsettin' entry (in a dou"le entry
accountin' system) %ould "e either made to the profit or loss accounts or to the
e,uity of the entity.
ASSET REVERSION is asset recovery "y the sponsorin' employer throu'h
termination of a defined "enefit pension fund and?or of assets in excess of
amounts re,uired to pay accrued "enefits of a pension fund. (n the .!., assets
recovered throu'h reversion are su"-ect to corporate income tax and an excise
tax.
ASSET SALE is the sale of certain named assets of a corporation, partnership or
sole proprietorship. sually the seller retains o%nership of the cash and cash
e,uivalents (such as Accounts 8eceiva"le) and the lia"ilities of the entity. $he
seller then %ill pay the lia"ilities %ith the cash, any do%n payment and the cash
e,uivalents as they "ecome cash. Assets named are typically trade name, trade
fixtures, inventory, leasehold ri'hts, telephone num"er ri'hts and 'ood%ill.
Assets sold can "e tan'i"le or intan'i"le.
ASSETS HELD FOR SALE are those assets, primarily lon'9term assets, that an
entity %ishes to dispose of or li,uidate throu'h sale to others.
16
ASSET TURNOVER RATIO is a 'eneral measure of a firm+s a"ility to 'enerate
sales in relation to total assets. (t should "e used only to compare firms %ithin
specific industry 'roups and in con-unction %ith other operatin' ratios to
determine the effective employment of assets.
ASSIGNED VALUE is a value that serves as an a'reed9upon reference for
comparison* normally derived from or "ased upon experimental %or) of some
national or international or'ani&ation.
ASSOCIATE, in "usiness, is a person "rou'ht to'ether %ith a company or
another person into a relationship in any of various intan'i"le %ays.
ASSUMPTION, 'enerally, is one or more "eliefs or unconfirmed facts that
contri"ute to a conclusion. !pecifically, it is the act of ta)in' on the responsi"ility
or assumin' the lia"ilities of another.
ASSURANCE has "een defined "y the American (nstitute of #ertified Pu"lic
Accountants (A(#PA) as ;(ndependent Professional !ervices that improve
information ,uality or its context;. !uch services are very "road and could include
assessments of various industries, e.'., (nternet security or ,uality of health
facilities.
ATA (Accredited $ax Advisor), in the !, is a national credential conferred "y
Accreditation #ouncil for Accountancy and $axation to professionals %ho handle
sophisticated tax plannin' issues, includin' o%nership of closely held
"usinesses, ,ualified retirement plans and complicated estates.
ATP is an acronym for After $ax Profit, Accredited $ax Preparer, and possi"ly
more.
ATP (Accredited $ax Preparer), in the !, is a national credential conferred "y
Accreditation #ouncil for Accountancy and $axation to professionals %ho have a
thorou'h )no%led'e "ehind the existin' tax code and tax preparation of
individuals, corporate and partnership tax returns.
ATTEST is to authenticate, affirm to "e true, 'enuine, or correct, as in an official
capacity.
ATTRITION a reduction in num"ers usually as a result of resi'nation, retirement,
or death.
AUDIT is the inspection of the accountin' records and procedures of a "usiness,
'overnment unit, or other reportin' entity "y a trained accountant for the purpose
of verifyin' the accuracy and completeness of the records. (t could "e conducted
"y a mem"er of the or'ani&ation (internal audit) or "y an outsider (independent
audit). A #PA audit determines the overall validity of financial statements. A tax
17
audit ((8! in the .!.) determines %hether the appropriate tax %as paid. An
internal audit 'enerally determines %hether the companyAs procedures are
follo%ed and %hether em"e&&lement or other ille'al activity occurred.
AUDIT BUREAU OF CIRCULATION (ABC) is a third9party or'ani&ation that
verifies the circulation of print media throu'h periodic audits.
AUDIT COMMITTEE, in a lar'er or more sophisticated corporation, the "oard
may find it useful to appoint an audit committee %hose oversi'ht extends not only
to external audits, "ut also to internal audits, internal controls, and external
reportin'. (deally, an audit committee is composed of three to five non9
mana'ement directors and, as needed, outsiders %ith accountin' and financial
expertise. (n a smaller corporation the audit committee may "e a sin'le director
%ith financial expertise and audit experience %ho ta)es the lead in exercisin' the
"oard+s audit oversi'ht responsi"ility.
AUDIT EVIDENCE includes %ritten and electronic information (such as chec)s,
records of electronic fund transfers, invoices, contracts, and other information)
that permits the auditor to reach conclusions throu'h reasonin'.
AUDIT FAILURE is an (nstance %here the auditor said that the financial
statements %ere fairly stated %hen in fact, they %ere not.
AUDITING STANDARDS provide minimum 'uidance for the auditor that helps
determine the extent of audit steps and procedures that should "e applied to
fulfill the audit o"-ective. $hey are the criteria or yardstic)s a'ainst %hich the
,uality of the audit results are evaluated.
AUDIT OPINION LETTER is a si'ned representation "y an auditor as to the
relia"ility and fairness of a set of financial statements. (t is usually presented at
the "e'innin' of an audit report.
AUDITOR is an accountant usually certified "y a national professional
association of accountants, if one exists in the corporationAs country, or certified
"y another country+s reco'ni&ed national association of accountants.
#orporations %ill often %or) %ith "oth internal auditors and external auditors.
AUDIT PLAN/PLANNING is developin' an overall strate'y for the expected
conduct and scope of the audit. $he nature, extent, and timin' of plannin' varies
%ith the si&e and complexity of the entity, experience %ith the entity, and
)no%led'e of the entity+s "usiness.
AUDIT REPORT is a si'ned, %ritten document %hich presents the purpose,
scope, and results of the audit. 8esults of the audit may include findin's,
conclusions (opinions), and recommendations.
18
AUDIT RISK is a com"ination of the ris) that material errors %ill occur in the
accountin' process and the ris) the errors %ill not "e discovered "y audit tests.
Audit ris) includes uncertainties due to samplin' (samplin' ris)) and to other
factors (non9samplin' ris)).
AUDIT SCHEDULES are the information formats developed "y the external
auditors to 'uide the corporation in the preparation of particular information
presented in a particular manner that facilitates the audit. $hese should al%ays
"e completed "y the corporation prior to the start of the audit.
AUDIT SCOPE refers to the activities covered "y an internal audit. Audit scope
includes, %here appropriate7 audit o"-ectives* nature and extent of auditin'
procedures performed* $ime period audited* and related activities not audited in
order to delineate the "oundaries of the audit.
AUDIT STRATEGY is a 'ame plan to attac) audit issues "efore they are raised.
8easons and -ustifications for all positions must "e understood and the
foundation laid for ta)in' the position.
AUTHORIZATION OF STOCK is the provision in a corporate charter 'ivin'
permission to issue stoc).
AUTHORIZATION SCHEDULE is the 'uideline under %hich the su"-ect activity
is controlled and authori&ed. .or example, expenditure spendin' may "e
controlled "y amounts and the mana'erial level re,uired authori&in' or approvin'
a preset tri''er amount. As the amount increases over certain preset levels,
hi'her mana'erial authority is re,uired for approval.
AUTHORIZED CAPITAL STOCK is the maximum num"er of shares of common
stoc) that can "e issued under a company+s Articles of (ncorporation. (ssued
shares are normally less than the num"er of authori&ed shares.
AUTHORIZED STOCK see A$@28(HE1 #AP($AB !$2#:.
AUXILIARY !OURNAL is a -ournal in %hich accountin' information is stored
"oth "efore and after the transfer to the General Bed'er.
AVAILABLE FOR SALE is a term that means exactly %hat is says, i.e. an asset
is availa"le for purchase and transfer of o%nership upon reachin' an a'reed
upon price.
AVAL is a term meanin' insepara"le from the financial instrument. $his 'ives a
'uarantee and is a"stracted from the performance of the underlyin' trade
contract7 Article >4 of the 4<>5 Geneva #onvention of the Bills 2f Exchan'e
states that the aval can "e %ritten on the "ill itself or on an allon'e. ! Ban)s are
prohi"ited from avali&in' drafts.
19
AVALIZOR is an institution or person %ho 'ives an aval.
AVERAGE AGE OF INVENTORY is calculated "y the formula7 >LJ ? inventory
turnover.
AVERAGE COST is total cost for all units "ou'ht (or produced) divided "y the
num"er of units.
AVERAGE COST METHOD is usin' a %ei'hted avera'e cost for items in
inventory rather than actual cost for each specific item.
AVERAGE SETTLEMENT PERIOD is calculated7
.or 1e"tors N $rade 1e"tors O >LJ days ? #redit !ales
.or #reditors N $rade #reditors O >LJ days ? #redit Purchases.
AVOIDABLE COST is the amount of expense that %ould not occur if a particular
decision %ere to "e implemented (e.'., if an employee is laid off at a company
that is self9insured for unemployment compensation, the avoida"le cost is total
direct salary less payments for unemployment "enefits plus savin's in employee
"enefits).
2
BACKDOOR LISTING is a techni,ue used "y a company %hich failed to 'et
listed on an exchan'e, %here"y the company ac,uires and mer'es %ith a
company already listed on that exchan'e.
BACKCHARGE is to char'e a person or a firm an amount of money in order to
ma)e ad-ustments for a previous transaction.
BACKLOG is value of unfilled orders placed %ith a manufacturin' company.
Ghether a firm+s "ac)lo' is risin' or fallin' is a clue to its future sales and
earnin's.
BAD DEBT is an open account "alance or loan receiva"le that has proven to "e
uncollecti"le and is %ritten off.
BALANCED SCORECARD (BSC) is a strate'ic mana'ement system "ased
upon measurin' )ey performance indicators across all aspects and areas of an
enterprise7 .inancial, #ustomer, (nternal Process, and Bearnin' and Gro%th.
BALANCE OF PAYMENTS / BALANCE OF TRADE is the difference "et%een a
country+s total export dollar value and its total import dollar value, 'enerally or
%ith respect to a particular tradin' partner. A positive "alance means a net inflo%
of capital, %hile a ne'ative means capital flo%s out of the country.
BALANCE SHEET is an itemi&ed statement that lists the total assets and the
total lia"ilities of a 'iven "usiness to portray its net %orth at a 'iven moment of
time. $he amounts sho%n on a "alance sheet are 'enerally the historic cost of
items and not their current values.
BALANCE SHEET GEARING is the ratio of interest9"earin' de"t to e,uity.
BALLOON PAYMENT is a final loan payment that is considera"ly hi'her than
prior re'ular payments, in order to pay off the loan.
BANCASSURANCE is a 'eneral term descri"in' the "roader financial services
activities of "an)s and "uildin' societies, in particular their Pinsurance companyA
activities.
BANK COLLECTION is the collection of a chec) "y the "an) on "ehalf of a
depositor.
BANK GUARANTEE is an irrevoca"le commitment "y a "an) to pay a specified
sum of money in the event that the party re,uestin' the 'uarantee fails to
perform the promise or dischar'e the lia"ility to a third person in case of the
re,uestor+s default.
21
BANK RECONCILIATION is the verification of a "an) statement "alance and the
depositorAs chec)"oo) "alance.
BANK STATEMENT is a statement reportin' all transactions in the accounts
held "y the account holder.
BANKRUPTCY is a state of insolvency of an or'ani&ation or individual, i.e. an
ina"ility to pay de"ts. (n the .!., "an)ruptcy can ta)e either of three forms7
A) #hapter = is involuntary li,uidation forced "y creditor(s). !ome companies are
so far in de"t that they can+t continue their "usiness operations. $hey are li)ely to
;li,uidate; and are forced to file under #hapter =. $he courts ta)e over and
administers throu'h a court appointed trustee. $heir assets are sold for cash "y a
court appointed trustee. Administrative and le'al expenses are paid first, and the
remainder 'oes to creditors*
B) #hapter 44 is voluntary "y the de"tor. nless the court rules other%ise, the
de"tor stays in control of the enterprise. $he .!. $rustee, the "an)ruptcy arm of
the Custice 1epartment, %ill appoint one or more committees to represent the
interests of creditors and stoc)holders in %or)in' %ith the company to develop a
plan of reor'ani&ation to 'et out of de"t.* and,
#) #hapter 4> "an)ruptcy, a de"tor proposes a >9J year repayment plan to the
creditors offerin' to pay off all or part of the de"ts from the de"tors+ future
income. $he amount to "e repaid is determined "y several factors includin' the
de"tors+ disposa"le income. $o file under this chapter you must have a ;re'ular
source of income; and have some disposa"le income. Bi)e in a #hapter =,
corporations and partnerships may not file under this chapter.
BARRIERS TO ENTRY are o"stacles to the entry of ne% firms into a mar)et.
Barriers to entry may ta)e various forms. $hey may "e technical "arriers, le'al
"arriers or "arriers that arise from stron' "randin' of the product.
BARS is an acronym for Base Accounts 8eceiva"le !ystem.
BARTER SYSTEM see TRADE EXCHANGE.
BASE CAPITAL includes (4) shares that (a) are non9cumulative, non9retracta"le,
non9redeema"le and, if converti"le, are only converti"le into common shares,
and (") have "een issued and paid for* "ase capital also includes (D) contri"uted
surplus, and (>) retained earnin's*
BASIC EARNINGS POWER (BEP) is useful for comparin' firms in different tax
situations and %ith different de'rees of financial levera'e. $his ratio is often used
as a measure of the effectiveness of operations. Basic Earnin' Po%er measures
the "asic profita"ility of Assets "ecause it excludes consideration of interest and
22
tax. $his ratio should "e examined in con-unction %ith turnover ratios to help
pinpoint potential pro"lems re'ardin' asset mana'ement.
BASIC NET INCOME PER SHARE is al%ays reported as net income per share
on an undiluted "asis. $he calculation of diluted net income per share includes
the effect of common stoc) e,uivalents such as outstandin' stoc) options, %hile
the calculation of "asic net income per share does not.
BASIC TENETS OF ACCOUNTING are four in num"er7 4. Assets N Bia"ilities Q
2%ner+s E,uity, D. 1e"its N #redits, >. Assets are on the left (de"it side), and, 6.
Bia"ilities and E,uity are on the ri'ht (credit side).
BASIS, 'enerally, is that fi'ure or value that is the startin' point in computin'
'ain or loss, depreciation, depletion, and amorti&ation of a company. !pecifically,
it is the financial interest that the (nternal 8evenue !ervice attri"utes to an o%ner
of an investment property for the purpose of determinin' annual depreciation and
'ain or loss on the sale of the asset. (f a property %as ac,uired "y purchase, the
o%ner+s "asis is the cost of the property plus the value of any capital
expenditures for improvements to the property, minus any depreciation allo%a"le
or actually ta)en. $his ne% "asis is called the A1C!$E1 BA!(!.
BASIS, in investments, is the cost or "oo) value of an investment. $he 'ain or
loss on an investment is the sale price less the "asis. Basis is often called ;cost
"asis.;
BASIS POINTS is 5.54K in yield. .or example, in increasin' from J.55K to
J.5JK, the yield increases "y five "asis points
BATCHING# in accountin', is the 'atherin' and or'ani&in' of incomin' invoices
prior to processin'.
BAY, in "usiness ? accountin', means Buy Another 0early.
BBA can mean7 Bachelor of Business Administration, Balanced Bud'et Act of
4<<=, Bud'et Activity Account, Bud'et By Account, British Ban)ers Association,
Blac) Business Association, etc.
BCF is an acronym for Broadcast #ash .lo%.
BCL is an acronym for, amon' others, Ban) #omfort Better or Bachelor of
#anon?#ivil Ba%.
BEHAVIOURAL ACCOUNTING is the explanation and prediction of human
"ehavior in all possi"le accountin' contexts, e.'., ade,uacy of disclosure,
usefulness of financial statement data, attitudes a"out corporate reportin'
23
practices, materiality -ud'ements, and decision effects of alternative accountin'
procedures.
BELOW THE LINE, in accountin', denotes credits or de"its affectin' "alance
sheet accounts rather than the income statement. Extraordinary items may also
appear "elo% the net profit line in the income statement, "ut accountin'
standards9setters have increasin'ly favored reflectin' most such items in
periodic net income.
BENCHMARK is a study to compare actual performance to a standard of typical
competence* or, a standard for the "asis of comparison as "ein' a"ove, "elo% or
compara"le to.
BENEFICIAL OWNER is the person %ho en-oys the "enefits of o%nership even
thou'h title is in another name (often used in ris) ar"itra'e).
BENEFICIARY is a person %ho "enefits from the terms of a trust, pension or
provident fund, or other deferred income plan, or an insurance policy. (n "an)in',
it is the person in %hose favor a letter of credit is issued or a draft is dra%n.
BEST PRACTICES are the 'enerally understood operational characteristics of
corporations %hich have "een successful in terms of hi'h repayment rates,
si'nificant outreach, and pro'ress to%ards surplus 'eneration.
BETA, in securitites, is a statistical measurement correlatin' a stoc)+s price
chan'e %ith the movement of the stoc) mar)et. $he "eta is an indicator or
statistical measure of the relative volatility of a stoc), fund, or other security in
comparison %ith the mar)et as a %hole. $he "eta for the mar)et is 4.55. !toc)s
%ith "etas a"ove 4.5 are more responsive to the mar)et, "ut are also more ris)y
investments. !toc)s %ith a "eta "elo% 4.5 tend to move in the opposite direction
of the mar)et. .or example, if the mar)et moves 45K, a stoc) %ith a "eta of >.55
%ill move >5K* a stoc) %ith a "eta of .J %ill move JK.
BID PRICE see A!: P8(#E.
BIG BATH is a "usiness strate'y in %hich a company manipulates its income
statement to ma)e poor results loo) even %orse. !trate'y "ein' that the
follo%in' year %ill sho% si'nificant improvement. Bi' "ath is sometimes
employed "y ne% #E2s to ma)e their first years results more impressive "y
employin' "i' "ath accountin' to prior year results.
BIG 2 usually refers to the lar'est accountin' firms7 1eloitte & $ouche, Ernst and
0oun', :PMG, and Price%aterhouse#oopers.
BILL is a 7 to enter in an accountin' system 7 prepare a "ill of (char'es) " 7 to
su"mit a "ill of char'es to c 7 to enter (as frei'ht) in a %ay"ill d 7 to issue a "ill of
24
ladin' to or for* e.'., ;"illa"le expenses; are those expenses for %hich
reim"ursement invoices are issued.
BILL AND HOLD see !@(P (3 PBA#E.
BILL AND HOLD INVENTORY see !@(P (3 PBA#E.
BILLINGS, in accountin', is sales for %hich invoicin' has "een issued.
BILLINGS IN EXCESS OF COSTS see #2!$ (3 EO#E!! 2. B(BB(3G!.
BILL IN PLACE see !@(P (3 PBA#E.
BILL OF EXCHANGE see 18A.$.
BILL OF LADING is the contract "et%een the o%ner of the 'oods and the car'o
carrier to move the 'oods to a specified destination. A clean "ill of ladin' is
issued "y the carrier verifyin' receipt of the merchandise in apparent 'ood
condition (%ithout visually apparent dama'e or defect). Bills of ladin' can
sometimes "e made to cover the %hole trip, or separate "ills of ladin' can "e
prepared for each carrier. 2cean shipments 'enerally re,uire t%o, an (nland Bill
of Badin' coverin' land transportation to the port and an 2cean Bill of Badin'
coverin' the ship portion. Bills of ladin' are ne'otia"le %hile car'o is in transit.
BILL OF MATERIALS (BOM) is a listin' of all the assem"lies, su"9assem"lies,
parts, and ra% materials that are needed to produce one unit of a finished
product. Each finished product has its o%n "ill of materials.
BILLS PURCHASED, in trade finance, allo%s a seller to o"tain financin' and
receive immediate funds in exchan'e for a sales document not dra%n under a
letter of credit. $he "an) %ill send the sales documents to the "uyer+s "an) on
"ehalf of the seller.
BLACK MARKETS are created %hen "uyers and sellers meet to ne'otiate the
exchan'e of a prohi"ited or ille'al 'ood. More 'enerally, it is any unofficial
mar)et in %hich prices are inordinately hi'h.
BLANKET AUTHORIZATION is direct authority to act %ithout havin' to 'ain
approval for each action. .or example7 ;Blan)et authori&ation %as 'iven to him
for all his "usiness travel;.
BLIND TRUST is a trust %here assets are not disclosed to their o%ner.
BLUE SKY LAW is a la% providin' for state re'ulation and supervision of the
issuance of investment securities.
25
BMR, amon' others, is Base Mort'a'e 8ate.
BOM see B(BB 2. MA$E8(AB!.
BONA FIDE GUARANTY covers a specific element of a secured transaction, for
example, the inte'rity of receiva"les or the accuracy of inventory count.
BOND is a commonly used form of lon' term de"t.
BOND COVENANT are a'reements %ithin a "ond that can either "e ne'ative or
positive in the vie% of the "ondholder, e.'., a ne'ative "ond covenant is a "ond
covenant that prevents certain activities unless a'reed to "y the "ondholders.
BONDED is to7 a. secure payment of duties and taxes on ('oods) "y 'ivin' a
"ond* or, ". convert into a de"t secured "y "onds* or, c. provide a "ond for or
cause to provide such a "ond (e.'., to "ond an employee) that 'uarantees any
monetary loss caused "y intentional acts "y the "onded employee.
BONDED WAREHOUSE is a %arehouse authori&ed "y customs officials for the
stora'e of 'oods on %hich payment of duty is deferred until the 'oods are
removed.
BOND DISCOUNT is the excess of a "ond face value over issued price.
BOND FUND see GB2BAB M$AB .31.
BOND INDENTURE is the title specifyin' all the o"li'ations of the issuin'
company to the "ondholder.
BONDING is 'enerally used "y service companies as a 'uarantee to their clients
that they have the necessary a"ility and financial trac)in' to meet their
o"li'ations. Bonds are also used to 'uarantee payment of duty for .!. #ustoms
entry.
BOND PREMIUM is the excess of the issue price over the face value of the
"ond.
BOND REFERENDUM see 8E.E8E31M.
BOND SINKING FUND is a provision to repay a "ond.
BONUS is remuneration over and a"ove re'ular salary.
BOOK(S) %hen used as a noun refers to -ournals or led'ers (for example7 cash
"oo)). Ghen used a ver" it refers to the recordin' of an entry (for example7 to
"oo) the sale).
26
BOOKBUILD is a particular %ay of conductin' a float %here the price at %hich
shares are sold is not fixed, "ut rather is determined follo%in' a process in %hich
interested investors "id for shares. $his is ,uite a common %ay of determinin'
the price paid for shares "y institutional investors (.unds Mana'ers).
BOOK COST, normally, is the cost at the time an asset is purchased or reali&ed,
i.e. the total amount paid to ac,uire an asset.
BOOK INCOME is the income reported %ithin the financial statements of the
taxa"le entity, i.e., taxa"le income normally is not ali'ned %ith the financial
income ("oo) income) reported %ithin financial statements
BOOKING, in import ? export, is an arran'ement %ith a shippin' company to load
and carry a shipment.
BOOK INVENTORY is the ac,uistion cost of all inventory less lia"ilities
associated %th the inventory. !ee B22: /ABE.
BOOKKEEPING is the recordin' of "usiness transactions.
BOOK OF ACCOUNTS see BE1GE8.
BOOKS OF ACCOUNT are the financial records of a "usiness. sually refers to
the lo%est level of recorded data, "efore summaries are made.
BOOKS OF RECORD are all mandatory entries into those documents that trac)
the activity, events, or decisions pertainin' to the su"-ect for %hich the records
are maintained, e.'., "oard of director minutes, "irths or deaths, and marria'e
licenses.
BOOKTOMARKET is the ratio of the firm+s "oo) e,uity to mar)et e,uity.
BOOK VALUE is an accountin' term %hich usually refers to a "usiness+
historical cost of assets less lia"ilities. $he "oo) value of a stoc) is determined
from a company+s records "y addin' all assets ('enerally excludin' such
intan'i"les as 'ood%ill), then deductin' all de"ts and other lia"ilities, plus the
li,uidation price of any preferred stoc) issued. $he sum arrived at is divided "y
the num"er of common shares outstandin' and the result is the "oo) value per
common share. Boo) value of the assets of a company may have little or no
si'nificant relationship to mar)et value.
$an'i"le Boo) /alue is different than Boo) /alue in that it deducts from
asset value intan'i"le assets, %hich are assets that are not hard (e.'.,
'ood%ill, patents, capitali&ed start9up expenses and deferred financin'
costs).
27
Economic Boo) /alue allo%s for a Boo) /alue analysis that ad-usts the
assets to their mar)et value. $his valuation allo%s valuation of 'ood%ill,
real estate, inventories and other assets at their mar)et value.
BOOKKEEPING is the art, practice, or la"or involved in the systematic recordin'
of the transactions affectin' a "usiness.
BOTTOM LINE, in accountin'?finance, is specifically net income after taxes. (n
'eneral, it is an expression as to the end results of somethin', e.'. the net %orth
of a corporation on a "alance sheet, sales 'enerated from a mar)etin'
campai'n, or final decision on most any su"-ect (2ften said7 R'ive me the "ottom
lineS).
BOTTOM UP is a concept of analy&in' a su"-ect, such as costs or revenue,
startin' from the lo%est level %or)in' to%ards the top.
BOUNCED CHECK is a chec) %ritten for an amount exceedin' the chec)in'
account "alance that is su"se,uently re-ected for payment due to insufficient
funds.
BOY is Be'innin' 2f 0ear.
BR could "e Bac)%ard 8eportin' or Bad 8e'ister.
BRAND IMAGE is the vie% held "y consumers a"out a particular "rand of 'ood
or service. $he stron'er the "rand ima'e the more inelastic the demand for the
product is li)ely to "e.
BRAND LOYALTY is a situation %hen a consumer is reluctant to s%itch from
consumption of a favored 'ood. $he consumer is ;loyal; to the "rand.
BREACH OF CONTRACT is the failure to perform provisions of a contract.
BREAKEVEN ANALYSIS is an analysis method used to determine the num"er
of -o"s or products that need to "e sold to reach a "rea)9even point in a
"usiness.
BREAKEVEN EQUATION is the e,uation that determines B8EA:9E/E3
P2(3$. Bet p N unit sellin' price, v N unit varia"le cost, .# N total fixed costs, x N
sales in units. $he e,uation7 px N vx Q .#.
BREAKEVEN POINT is the volume point at %hich revenues and costs are
e,ual* a com"ination of sales and costs that %ill yield a no profit?no loss
operation.
BREAKEVEN SALESsee B8EA:9E/E3 P2(3$.
28
BRIDGE LOAN (BRIDGING LOAN) is an e,uity loan secured to solve short9term
financin' pro"lem.
BROKERAGE, dependent upon usa'e, is the "usiness of a "ro)er* char'es a
fee to arran'e a contract "et%een t%o parties, or, the place %here a "ro)er
conducts his?her "usiness.
BUDGET is an itemi&ed listin' of the amount of all estimated revenue %hich a
'iven "usiness anticipates receivin', alon' %ith a listin' of the amount of all
estimated costs and expenses that %ill "e incurred in o"tainin' the a"ove
mentioned income durin' a 'iven period of time. A "ud'et is typically for one
"usiness cycle, such as a year, or for several cycles (such as a five year capital
"ud'et). 2f the many )inds of "ud'ets, a #A!@ B1GE$ sho%s #A!@ .B2G,
an EOPE3!E B1GE$ lists expected payments of money, and a #AP($AB
B1GE$ sho%s the anticipated payments for #AP($AB A!!E$!. !ee
.28E#A!$, P82CE#$(23.
BUDGETARY ACCOUNTING, contrary to financial accountin', loo)s for%ard7 it
measures the cost of planned ac,uisitions and the use of economic resources in
the future.
BUDGETARY DEFICIT occurs %hen expenditures are 'reater than revenues.
BUDGET CONTROL is actions carried out accordin' to a "ud'et plan. $hrou'h
the use of a "ud'et as a standard, an or'ani&ation ensures that mana'ers are
implementin' its plans and o"-ectives. $heir actual performance is measured
a'ainst "ud'eted performance.
BUDGET PERFORMANCE REPORT is the comparison of planned "ud'et and
actual performance.
BUFFER is anythin' that stands "et%een t%o other thin's. .or example, an
inventory "uffer %ould "e additional inventory over and a"ove committed or
planned inventory. $he inventory "uffer %ill act as an inventory reserve to ensure
that sufficient inventory is availa"le %hen and if re,uired, i.e., the "uffer inventory
stands "et%een committed inventory and +out9of9stoc)+ status.
BURDEN RATE, %hen referrin' to personnel "urden, is the sum of employer
costs over and a"ove salaries (includin' employer taxes, "enefits, etc.). Ghen
referrin' to factory or manufacturin' see 2/E8@EA1.
BURN RATE is the rate at %hich a ne% company uses up its venture capital to
finance overhead "efore 'eneratin' positive cash flo% from operations. (t is the
rate of ne'ative cash flo%, usually ,uoted as a monthly rate.
29
BUSINESS ANALYST , in securities?investment industry, is a person %ith
expertise in evaluatin' financial investments* a "usiness analyst performs
investment research and ma)es recommendations to institutional and retail
investors to "uy, sell, or hold* most analysts speciali&e in a sin'le industry or
"usiness sector.
BUSINESS ENTITY is a selection of the le'al form under %hich a "usiness is to
operate7 sole proprietorship, 'eneral partnership, corporation, ! corporation (in
the .!.), or, a limited lia"ility company.
BUSINESS ENTITY PRINCIPLE is %here the "usiness is seen as an entity
separate from its o%ner(s) that )eeps and presents financial records and
prepares the final accounts and financial statements. $he accountin' is )ept for
each entity as a %hole ('roups of companies must present consolidated
accounts and consolidated financial statements).
BUSINESS MATRIX, often used in "usiness incu"ators, is %here separate
"usiness entities -oin forces to advance the development of a start9up, e.'.., one
firm may offer offices, another mar)etin'?sales assistance or manufacturin'
expertise, etc. !uch a matrix may receive compensation in the form of e,uity
from the start9up "ein' assisted "y that "usiness matrix.
BUSINESS PLAN is a description of a "usiness (normally over a 49J year
period). A "asic "usiness plan includes7 product(s) and?or service(s), the mar)et,
competitor analysis, the )ey people involved, financin' needs, and the financial
re%ards if the "usiness plan is implemented successfully. A %ell9prepared
"usiness plan plays t%o important roles, firstly, it is a useful mana'ement tool
that can help mana'ement plot a course for the company, and secondly, it is a
vital sales tool that %ill impress fundin' sources, e.'., venture capitalists or the
"oard of directors, %ith mana'ement+s plannin' a"ility and 'eneral competence.
2ther thin's "ein' e,ual, a %ell prepared "usiness plan %ill increase a
company+s chances of o"tainin' a financial commitment to fund the "usiness.
BUSINESS PUBLICATIONS AUDIT (BPA) is similar to the Audit Bureau of
#irculation* the BPA is a third9party or'ani&ation that verifies the circulation of
print media throu'h periodic audits.
BUSINESS SEGMENT is a component of an enterprise that (a) provides a sin'le
product or service or a 'roup of related products and services and (") that is
su"-ect to ris)s and returns that are different from those of other "usiness
se'ments.
BUSINESS UNIT is e,uivalent to a %holly o%ned su"sidiary except that it is not
treated as a separate le'al entity. (t is an or'ani&ation %ithin a firm that could
operate separately "ecause it has all support functions contained %ithin the
3
"usiness unit. $he internal financial reportin' from a "usiness unit to the
corporate office is "asically identical to a separate le'al entity.
BUSINESS VALUATION determines the price that a hypothetical "uyer %ould
pay for a "usiness under a 'iven set of circumstances.
BUYER'S MARKET is %here the ,uantity of 'oods for sale exceeds the amount
consumers are %illin' and a"le to "uy at the current mar)et price. (t is
characteri&ed "y lo% prices. .or example, a mar)et condition that occurs in real
estate %here more homes are for sale than there are interested "uyers.
BVI is an acronym for British /ir'in (slands (a ma-or offshore "an)in' and
corporation player).
BYLAWS are the provisions of corporate policies.
BYPRODUCT is a -oint product %ith main activity, usually of lesser value.
31
C3A3 is sometimes used to identify the #hief Accountant
CAGR see #2MP231 A33AB G82G$@ 8A$E.
CALL can "e 4. process of redeemin' a "ond or preferred stoc) issue "efore its
normal maturity. A security %ith a call provision typically is issued at an interest
rate hi'her than one %ithout a call provision. (nvestors loo) at yield9to9call rather
than yield9to9maturity* D. ri'ht to "uy 455 shares of stoc) at a specified price
%ithin a specified period* or, >. option to "uy (call) an asset at a specified price
%ithin a specified period.
CALLABLE BOND is a "ond the issuer has the ri'ht to pay off at issuer+s
discretion.
CALL PREMIUM is a premium in price a"ove the par value of a "ond or share of
preferred stoc) that must "e paid to holders to redeem the "ond or share of
preferred stoc) "efore its scheduled maturity date.
C&C can mean7 #ash and #arry or #ollection & #lassification.
C&F (COST & FREIGHT) includes all shippin' costs "ut insurance. Generally
used in statement of terms, statin' cost and frei'ht are paid "y the exporter from
his %arehouse to a port in the importer+s country. (n this case, the "uyer is
responsi"le for insurance.
C&I (COST & INSURANCE), in a price that is ,uoted R#&(S, means that the cost
of the product and insurance are included in the ,uoted price. (n this case, the
cost of shippin' %ould "e "orne "y the "uyer.
CANDY DEAL is a slan' term that refers to an ille'al "usiness practice to inflate
revenue?sales num"ers "y sellin' product to distri"utors %ith a pled'e to "uy
them "ac) later, in addition to providin' a percenta'e )ic)"ac) to the distri"utor
for assistin' in falsifyin' the sale.
CAPITAL, in economics, can mean7 factories, machines, and other man9made
inputs into a production process. (n finance, capital is money and other property
of a corporation or other enterprise used in transactin' the "usiness.
CAPITAL ACCOUNT, in finance, is an account of the net value of a "usiness at
a specified date* in economics, it is that part of the "alance of payments
recordin' a nation+s outflo% and inflo% of financial securities.
CAPITAL ASSET is a lon'9term asset that is not purchased or sold in the normal
course of "usiness. Generally, it includes fixed assets, e.'., land, "uildin's,
furniture, e,uipment, fixtures and furniture.
32
CAPITAL BUDGET is the estimated amount planned to "e expended for capital
items in a 'iven fiscal period. #apital items are fixed assets such as facilities and
e,uipment, the cost of %hich is normally %ritten off over a num"er of fiscal
periods. $he capital "ud'et, ho%ever, is limited to the expenditures that %ill "e
made %ithin the fiscal year compara"le to the related operatin' "ud'ets.
CAPITAL CONTRIBUTION is cash or property ac,uired "y a corporation from a
shareholder %ithout the receipt of additional stoc).
CAPITAL EMPLOYED is the value of the assets that contri"ute to a company+s
a"ility to 'enerate revenue, i.e, fixed assets plus current assets minus current
lia"ilities.
CAPITAL EXPENDITURE is the amount used durin' a particular period to
ac,uire or improve lon'9term assets such as property, plant or e,uipment.
CAPITAL FUNDS is the total of capital de"entures, if any, capital stoc), if any,
surplus, undivided profits, unallocated reserves, 'uaranty fund, and 'uaranty
fund surplus.
CAPITAL GAIN is the excess of sellin' price over purchase price, %hich may "e
'iven special treatment for tax purposes provided the sale ta)es place more than
a 'iven num"er of months after purchase.
CAPITAL IMPROVEMENT, in real estate, is any permanent structure or other
asset added to a property that adds to its value. (n 'eneral, it is any value added
activity or cost to a lon'9term or permanent asset that increases its value.
CAPITAL INFUSION often refers to the cross9su"sidi&ation of divisions %ithin a
firm. Ghen one division is not doin' %ell, it mi'ht "enefit from an infusion of ne%
funds from the more successful divisions. (n the context of venture capital, it can
also refer to funds received from a venture capitalist to either 'et the firm started
or to save it from failin' due to lac) of cash.
CAPITAL INTENSIVE is used to descri"e industries or sectors of the economy
that re,uire lar'e investments in capital assets to produce their 'oods, such as
the automo"ile industry. $hese firms re,uire lar'e profit mar'ins and?or lo% costs
of "orro%in' to survive.
CAPITAL INVESTMENT see #AP($AB EOPE31($8E.
CAPITALIZATION is the statement of capital %ithin the firm 9 either in the form of
money, common stoc), lon'9term de"t, or in some com"ination of all three. (t is
possi"le to have too much capital (in %hich case the firm is overcapitali&ed) or
too little capital (in %hich case the firm is undercapitali&ed).
33
CAPITALIZATION OF MAINTAINABLE EARNINGS is a valuation method*
perhaps the most 'enerally accepted method that involves capitali&in' the future
maintaina"le earnin's "y the application of a suita"ly chosen capitali&ation rate
or multiple. $he definition of earnin's may "e profit after tax (;PA$;) or earnin's
"efore interest and tax (;EB($;). $his methodolo'y, %hich in reality is a surro'ate
for the discounted cash flo% method, re,uires consideration of several factors,
includin'7 a. an estimate of future maintaina"le earnin's havin' re'ard to
historical operatin' results and forecasts of future earnin's* ". determination of
an appropriate capitali&ation rate %hich %ill reflect the ris)s inherent in the
"usiness includin' sensitivity to industry ris) factors, 'ro%th prospects, the
'eneral economic outloo) and alternative investment opportunities* and c. a
separate assessment of any surplus or unrelated assets and lia"ilities %hich are
not essential to the continuin' earnin' capacity of the "usiness operations.
CAPITALIZATION RATE, also )no%n as #AP 8A$E, is the rate of return a
property %ill produce on the o%ner+s investment. (t is stated as a rate of interest
or discount rate used to convert a series of future payments into a sin'le +present
value+. (n real estate, the rate includes annual capital recovery in addition to
interest.
CAPITALIZE# in 'eneral "usiness, it is to supply %ith capital, as of a "usiness "y
usin' a com"ination of capital used "y investors and de"t capital provided "y
lenders* or, to consider expenditures as capital assets rather than expenses.
!pecifically, it is to7 a) convert a schedule of income into a principal amount,
called capitalized value, "y dividin' "y a rate of interest* ") record capital outlays
as additions to asset accounts, not as expenses* c) convert a lease o"li'ation to
an asset?lia"ility form of expression called a capital lease, i.e., to record a leased
asset as an o%ned asset and the lease o"li'ation as "orro%ed funds* or d) turn
somethin' to oneAs advanta'e economically, e.'., sell um"rellas on a rainy day.
CAPITALIZED COSTS are "usiness expenses that are %ritten off or deducted
over a period of time throu'h depreciation or amorti&ation schedules.
CAPITAL LEASE is a lease o"li'ation that has to "e capitali&ed on the "alance
sheet. (t is characteri&ed "y7 it is non9cancela"le* the life of lease is less than the
life of the asset(s) "ein' leased* and, the lessor does not pay for the up)eep,
maintenance, or servicin' costs of the asset(s) durin' the lease period.
CAPITAL LOSS is the excess of purchase price over sellin' price %hen the
assets have "een held for more than a certain period of time and %hich is 'iven a
special treatment for tax purposes.
CAPITAL MARKET is a mar)et %here e,uity or de"t securities are traded.
CAPITAL OUTLAY see #AP($AB EOPE31($8E.
34
CAPITAL RATIONING is restrictions put of the amount planned for ne%
expenditures.
CAPITAL REDUCTION means reducin' a company+s stated capital "ase.
CAPITAL REPLACEMENT, or economic depreciation, is the portion of the value
of machinery and e,uipment, in addition to repairs, that is used up in the
production of a particular commodity. (t is "ased on the current value of the
machinery. #apital replacement may "e re'arded as a discretionary expense in
any particular year. (t may "e deferred %hen income is lo% "ut ultimately must "e
paid to maintain the capital stoc) so that over the lon' term, the operation
remains in "usiness.
CAPITAL RESERVE is a fund set aside for specific purposes, there"y cannot "e
distri"uted for other uses. !ee also 8E/E3E 8E!E8/E.
CAPITAL SPARE is the parts %ithin inventory that are purchased as spare parts
for deprecia"le assets (e.'., capital e,uipment). As such, the capital spares
%ithin inventory are deprecia"le and should not "e treated as normal inventory.
CAPITAL STOCK is the o%nership shares of a corporation authori&ed "y its
articles of incorporation, includin' preferred and common stoc).
CAPITAL STRUCTURE refers to the permanent lon'9term financin' of a
company. #apital structure normally includes common and preferred stoc), lon'9
term de"t and retained earnin's. (t does not include accounts paya"le or short9
term de"t.
CAPITAL SURPLUS is an archaic term. !ee P8EM(M 23 #AP($AB !$2#:.
CAP RATE see #AP($AB(HA$(23 8A$E.
CAPTIVE DISTRIBUTOR is one held under control of another "ut havin' the
appearance of independence* especially7 o%ned or controlled "y another
concern and operated for its needs rather than for an open mar)et.
CARNET is a customs document %hich permits you to send or carry
merchandise into a country duty and tax free for a short period, for use as
samples or as display merchandise in a trade sho%, for example.
CARRYING VALUE, also )no%n as ;"oo) value;, it is a company+s total assets
minus intan'i"le assets and lia"ilities, such as de"t.
CASEBASED REIMBURSEMENT, in healthcare, is a hospital payment system
in %hich a hospital is reim"ursed for each dischar'ed inpatient at rates
35
prospectively esta"lished for 'roups of cases %ith similar clinical profile and
resource re,uirements.
CASH is any form of payment unconditionally accepted.
CASH & EQUIVALENTS means all cash, mar)etplace securities, and other
near9cash items. Excludes sin)in' funds.
CASH BASIS OF ACCOUNTING is the accountin' "asis in %hich revenue and
expenses are recorded in the period they are actually received or expended in
cash. se of the cash "asis 'enerally is not considered to "e in conformity %ith
'enerally accepted accountin' principles (GAAP) and is therefore used only in
selected situations, such as for very small "usinesses and (%hen permitted) for
income tax reportin'. !ee also Accrual Basis.
CASH BOOK is a "oo) that records all payments and receipts of "usiness
transactions T %hether "y cash, chec) or credit card.
CASH CLEARING ACCOUNT represents a clearin' account for voided and
reissued imprest cash chec)s. (t is also used for miscellaneous corrections of
imprest cash chec)s.
CASH COVERAGE RATIO see #A!@ 1EB$ #2/E8AGE 8A$(2.
CASH COWS are products that produce a lar'e amount of revenue or mar'in
"ecause they have a lar'e share of an existin' mar)et %hich is only expandin'
slo%ly.
CASH DEBT COVERAGE RATIO is the ratio of net cash provided "y operatin'
activities to avera'e total lia"ilities, called the cash de"t covera'e ratio, is a cash9
"asis measure of solvency. $his ratio indicates a companyAs a"ility to repay its
lia"ilities from cash 'enerated from operatin' activities %ithout havin' to li,uidate
the assets used in operations.
CASH DISBURSEMENTS/PAYMENTS !OURNAL is the -ournal recordin' all
dis"ursements (or payments).
CASH DISCOUNT is a refund of some fraction of the amount paid "ecause the
purchase price is paid "y the "uyer in cash, as opposed to ma)in' the purchase
on credit or, sometimes, credit card or chec).
CASH DIVIDEND is the payment of earnin's to shareholders.
CASH DRAW see P82P8(E$28! 18AG.
36
CASH EARNINGS is cash revenues minus cash expenses. $his differs from
earnin's in that it does not include non9cash expenses such as depreciation.
CASH FLOW is earnin's "efore depreciation and amorti&ation.
CASH FLOW / CURRENT PORTION OF LONG TERM DEBT is a measure of
the firm+s a"ility to meet its o"li'ations %ith internally 'enerated cash.
CASH FLOW PRO!ECTION is a forecast of the cash (chec)s or money orders)
a "usiness anticipates receivin' and dis"ursin' durin' the course of a 'iven span
of time 9 fre,uently a month. (t is useful in anticipatin' the cash portion of your
"usiness at specific times durin' the period pro-ected.
CASH FLOW STATEMENT see !$A$EME3$ 2. #A!@ .B2G!.
CASH FROM FINANCING is the sum of all the individual financin' activity cash
flo% line items.
CASH FROM INVESTING is the sum of all the individual investin' activity cash
flo% line items.
CASH FLOW FROM OPERATIONS is the sum of all the individual operatin'
activity cash flo% line items, less cash reali&ed from the sale of extraordinary
items, e.'., fixed assets.
CASH IN ADVANCE is %hen full payment is due "efore the merchandise is
shipped. Beast ris) to seller, most ris) to "uyer.
CASH RATIO is a refinement to the U(#: 8A$(2. (t is the ratio of cash and
mar)eta"le securities to current lia"ilities. $he #A!@ 8A$(2 indicates the extent
to %hich lia"ilities could "e li,uidated immediately. !ometimes called B(U(1($0
8A$(2.
CASH RECEIPTS see 8E#E(P$!.
CASH RECEIPTS !OURNAL is the -ournal for recordin' all cash receipts.
CAVEAT, 'enerally, is a %arnin' a'ainst certain acts* in la%, is a formal notice
filed %ith a court or officer to suspend a proceedin' until filer is 'iven a hearin'.V
CD see #E8$(.(#A$E 2. 1EP2!($.
CEO is an acronym for #hief Executive 2fficer. $he #E2 is the principle
individual responsi"le for the activities of a company.
37
CERTIFICATE OF DEPOSIT (CD) is a document %ritten "y a "an) or other
financial institution that is evidence of a deposit, %ith the issuerAs promise to
return the deposit plus earnin's at a specified interest rate %ithin a specified time
period.
CERTIFICATE OF INSPECTION is certification, 'enerally "y an independent
third party, that the 'oods %ere in 'ood condition at the time of shipment.
CERTIFICATE OF OBLIGATION is a "ond issued "y a city, %ithout voter
approval.
CERTIFICATE OF ORIGIN is a document that states %here the 'oods %ere
made. $his document is le'ally re,uired for many countries for the importation of
merchandise.
CERTIFIED FINANCIAL PLANNER (CFP) is a financial planner %ho has
received a license from the (nstitute of #ertified .inancial Planners, indicatin'
that he?she %as trained in investments, "ud'etin', taxes, "an)in', estate
plannin' and insurance. !ome #.Ps %or) on commission for the products they
sell, and some %or) for a flat hourly fee.
CERTIFIED FINANCIAL STATEMENTS are financial statements that have
under'one a formal audit "y a certified pu"lic accountant and usually contain
statements of certification "y the #PA.
CERTIFIED PUBLIC ACCOUNTANT (CPA) is an accountant licensed to
practice pu"lic accountin'.
CFM, in finance ? accountin', means #ertified (n .inancial Mana'ement.
CFO is an acronym for #hief .inancial 2fficer. $he #.2 is the officer in a
corporation responsi"le for handlin' funds, si'nin' chec)s, the )eepin' of
financial records, and financial plannin' for the company.
C3G3A3 means #ertified General Accountant.
CHAIRPERSON OF THE BOARD is the head of the "oard of directors of a
corporation, and 'enerally considered as head of the firm.
CHANNEL COSTING is the fulfillment cost information pertainin' to distri"ution
channels.
CHARGEBACK, in the credit industry, occurs %hen a credit card processor
Rchar'es "ac)S to the merchant the cost of returned items or incorrect orders that
the customer claims %ere made to his or her credit card.
38
CHARGE OFF see BA1 1EB$.
CHAPTER S or SUBCHAPTER S is a le'al corporate entity or'ani&ed under the
nited !tates .ederal $ax #ode that allo%s !u"chapter ! #orporations to
distri"ute all income ? loss proportionately to its shareholders, %ho then claim that
income ? loss on their personal income taxes* there"y avoidin' the payment of
corporate taxes.
CHARTER is the document of corporation or'ani&ation.
CHART OF ACCOUNTS is a list of led'er account names and associated
num"ers arran'ed in the order in %hich they normally appear in the financial
statements. $he #hart of Accounts are customarily arran'ed in the follo%in'
order7 Assets, Bia"ilities, 2%ners+ E,uity (!toc)holders+ E,uity for a corporation),
8evenue, and Expenses.
CHATTEL MORTGAGE CONTRACT is a credit contract used for the purchase
of e,uipment %here the purchaser receives title of the e,uipment upon delivery
"ut the creditor holds a mort'a'e claim a'ainst it.
CHECK is a draft dra%n a'ainst a "an), paya"le upon demand to the
person?entity named upon the draft.
CHECK REGISTER is the -ournal for recordin' payments "y chec).
CIA, in accountin', is an acronym for #ertified (nternal Auditor* or, #ash in
Advance.
CIBT is an acronym for #ash (ncome Before $axes.
CIF (COST# INSURANCE AND FREIGHT) is a shipment %here all shippin'
costs are paid "y the exporter, includin' insurance.
CK is #hec).
CLAIM, in health care, is an itemi&ed statement of healthcare services and their
costs provided "y a hospital, physician+s office, or other provider facility. #laims
are su"mitted to the insurer or mana'ed care plan "y either the plan mem"er or
the provider for payment of the costs incurred. (n 'eneral la%, a claim is7 4) to
ma)e a demand for money, for property, or for enforcement of a ri'ht provided "y
la%. D) the ma)in' of a demand (assertin' a claim) for money due, for property,
from dama'es or for enforcement of a ri'ht. (f such a demand is not honored, it
may result in a la%suit. (n order to enforce a ri'ht a'ainst a 'overnment a'ency
(ran'in' for dama'es from a ne'li'ent "us driver to a shorta'e in payroll) a claim
must "e filed first. (f re-ected or i'nored "y the 'overnment, a la%suit may "e
filed.
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CLEARED ITEMS are accounts paya"le documents %hich have "een paid.
CLEARING ACCOUNT, in "an)in', is a "an) account used "y a mort'a'e
servicin' company for the temporary, short9term deposit of mort'a'e payments
that have "een collected and are either a%aitin' transmittal to investors %ho
"ou'ht the mort'a'es or a%aitin' deposit in escro% accounts. !ee #A!@
#BEA8(3G A##23$.
CLOSELY HELD is a description of a corporation %hose votin' stoc) is o%ned
"y a very small num"er of shareholders.
CLOSING ACCOUNT is the determinin' the "alance of an account and postin'
an entry to offset such "alance.
CLOSING ENTRY is a -ournal entry at the end of a period to transfer the net
effect of revenue and expense items from the income statement to o%ners+
e,uity.
C3M3A3 means #ertified Mana'ement Accountant.
CMI see #2!$ MA3AGEME3$ (31EO.
CMO see #2BBA$E8(AB(HE1 M28$GAGE 2BB(GA$(23.
CNF is #ost and .rei'ht
COA, in accountin', means #hart 2f Accounts.
COD is #ash 2n 1elivery* %hich is exactly %hat it means.
CODING, in accountin', is the assi'nation of the proper account code to
invoices.
COGM is #ost 2f Goods Manufactured. !ee #ost of Goods !old.
COGAS is #ost 2f Goods Availa"le for !ale. !ee #ost of Goods !old.
COGS see #2!$ 2. G221! !2B1
COGS (COST OF GOODS) RATIO N #2G! ? $otal !ales.
COLLATERAL is assets used as security for the extension of a loan.
COLLATERIALIZED MORTGAGE OBLIGATION (CMO) or, since 4<IL, as a
8eal Estate Mort'a'e (nvestment #onduit (8EM(#). #M2s and 8EM(#s (terms
%hich are often used interchan'ea"ly) are similar types of securities %hich allo%
4
cash flo%s to "e directed so that different classes of securities %ith different
maturities and coupons can "e created. $hey may "e collaterali&ed "y mort'a'e
loans as %ell as securiti&ed pools of loans.
COLLECTION PAPERS are those documents specified as necessary for
payment to "e made, such as the commercial invoice, certificate of inspection,
and "ill of ladin'.
COLLECTION PERIOD (P/4(&5 E+5) is used to appraise accounts receiva"le
(A8). $his ratio measures the len'th of time it ta)es to convert your avera'e
sales into cash. $his measurement defines the relationship "et%een accounts
receiva"le and cash flo%. A lon'er avera'e collection period re,uires a hi'her
investment in accounts receiva"le. A hi'her investment in accounts receiva"le
means less cash is availa"le to cover cash outflo%s, such as payin' "ills. NOTE"
#omparin' the t%o COLLECTION PERIOD ratios (Period Avera'e and Period
End) su''ests the direction in %hich A8 collections are movin', there"y 'ivin'
an indication as to potential impacts to cash flo%.
COLLECTION PERIOD (P/4(&5 A6/4)7/) is used to appraise accounts
receiva"le (A8). $his ratio measures the len'th of time it ta)es to convert your
avera'e sales into cash. $his measurement defines the relationship "et%een
accounts receiva"le and cash flo%. A lon'er avera'e collection period re,uires a
hi'her investment in accounts receiva"le. A hi'her investment in accounts
receiva"le means less cash is availa"le to cover cash outflo%s, such as payin'
"ills. NOTE" #omparin' the t%o COLLECTION PERIOD ratios (Period Avera'e
and Period End) su''ests the direction in %hich A8 collections are movin',
there"y 'ivin' an indication as to potential impacts to cash flo%.
COLLECTIVE INVESTMENT SCHEME, 'lo"ally, is any arran'ement for poolin'
several investors+ funds so that the pooled fund can o"tain economies of scale
and a spread of investments "eyond the reach of individual investors. (t is usually
called an investment company in the .!.A.
COMBINED FINANCIAL STATEMENT is a financial statement that mer'es the
assets, lia"ilities, net %orth, and operatin' fi'ures of t%o or more affiliated
companies. A com"ined statement is distin'uished from a consolidated financial
statement of a company and su"sidiaries, %hich must reconcile investment and
capital accounts.
COMMERCIAL BANK is a financial institution that provides commercial "an)in'
services. A commercial "an) accepts deposits, 'ives "usiness loans and
provides other services to "usinesses.
COMMERCIAL ATTACH8 is a "usiness and trade expert on the staff of a
consulate or em"assy. $hey are responsi"le for promotin' exports of their
country+s 'oods and are an excellent source of help.
41
COMMERCIAL LOAN is a short9term "usiness loan usually issued for a term of
up to six months.
COMMERCIAL PAPER is short9term o"li'ations %ith maturities ran'in' from D
to D=5 days issued "y corporations, "an)s, or other "orro%ers to investors %ho
have temporarily idle cash on hand. #ommercial paper is usually unsecured and
discounted.
COMMISSION is remuneration proportional to sales volume.
COMMITMENT is the act of standin' "ehind a policy %hose value ends %hen the
policy is concluded. .or example7 ; Ge made a commitment to do this;.
COMMITMENT BASED ACCOUNTING is %here spendin' controls are enacted
that ensures that no "ud'et executor can exceed his annual appropriation.
COMMITTED COSTS are costs, usually fixed costs, %hich the mana'ement of
an or'ani&ation has a lon'9term responsi"ility to pay. Examples include rent on a
lon'9term lease and depreciation on an asset %ith an extended life.
COMMON LAW is an un%ritten "ody of la% "ased on 'eneral custom in
En'land* it is used to some extent in the nited !tates.
COMMON SIZE ANALYSIS, as used in vertical analysis of financial statements,
an item is used as a "ase value and all other accounts in the financial statement
are compared to this "ase value. 2n the "alance sheet, total assets e,ual 455K
and each asset is stated as a percenta'e of total assets. !imilarly, total lia"ilities
and stoc)holder+s e,uity are assi'ned 455K, %ith a 'iven lia"ility or e,uity
account stated as a percenta'e of total lia"ilities and stoc)holder+s e,uity. 2n the
income statement, 455K is assi'ned to net sales, %ith all revenue and expense
accounts then related to it in percenta'es. !ee #2MM23 !(HE
PE8#E3$AGE!.
COMMON SIZE PERCENTAGES 9 (n the (ncome !tatement, each ;#ommon
!i&e K; is the field amount expressed as a percent of ;3et 8evenues.; (n the
Balance !heet, each ;#ommon !i&e K; is the amount in the cate'ory as a
percent of ;$otal Assets. ;8A$(2 A3AB0!(!; as prepared "y /entureBine
presents several standard ;:ey 8atios; to compare this firm to any of several
standards. $his firm+s ratios may "e compared to industry standards, to a sin'le
other firm of similar (or different) type, or to this firm+s past or anticipated
performance. (n this analysis /entureBine uses industry data "ased upon the !(#
#ode of that particular listin' (%hen availa"le).
COMMONSIZE STATEMENT see #2MM23 !(HE A3AB0!(!.
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COMMON STOCK is the most fre,uently issued class of stoc)* usually it
provides a votin' ri'ht "ut is secondary to preferred stoc) in dividend and
li,uidation ri'hts.
COMPANY is an or'ani&ed 'roup of people to perform an activity, "usiness or
industrial enterprise.
COMPANY KIT, normally, is a for sale commercially pac)a'ed self9instruction
product containin' %ritten instructions, forms, soft%are (sometimes), for
esta"lishin' an enterprise.
COMPARABILITY is the ,uality or state of "ein' similar or ali)e.
COMPENSATING BALANCES are the funds a "usiness mi'ht "e re,uired to
)eep in a deposit or reserve account to help offset %hat the "an) perceives as
ris). $he lender mi'ht re,uire that an amount "ased on the "usinessA avera'e
account "alance or a certain percenta'e of the face value of the loan "e
maintained in a deposit account.
COMPENSATING ERROR is the name 'iven to the situation %here one mista)e
cancels out the effect of a second mista)e.
COMPILATION is the presentation of financial statement information "y the
entity %ithout the accountantAs assurance as to conformity %ith Generally
Accepted Accountin' Principles (GAAP). (n performin' this accountin' service,
the accountant must conform to the A(#PA !tatements on !tandards for
Accountin' and 8evie% !ervices (!!A8!).
COMPLETED CONTRACT METHOD OF ACCOUNTING is a method of revenue
reco'nition for lon'9term contracts (i.e., contract %hich span more than one
accountin' period) %here"y the total contract revenue and related cost of
performance are reco'ni&ed in the period in %hich the contract is completed.
$his method stands in contrast to the percenta'e9of9completion method of
accountin' and is most often used %hen si'nificant uncertainty exists %ith
respect to the total cost of performin' the contract and, accordin'ly, the ultimate
amount of profit to "e reco'ni&ed thereon.
COMPLIANCE AUDIT is the revie% of financial records to determine %hether the
entity is complyin' %ith specific procedures or rules.
COMP9SITE DEPRECIATION is the 'roupin' of similar assets or dissimilar
assets %ithin the same class to'ether for the purpose of computin' a sin'le
depreciation rate to "e applied to all assets %ithin the 'roup.
COMPOSITE FINANCIAL STATEMENT is an avera'e or index of financial
statements of multiple accountin' periods or companies, e.'., industry avera'es.
43
COMPOUND ANNUAL GROWTH RATE (CAGR) is the year over year 'ro%th
rate applied to an investment or other part of a company+s activities over a
multiple9year period. $he formula for calculatin' #AG8 is (#urrent /alue?Base
/alue) W (4?X of years) 9 4.
COMPOUND INTEREST is interest calculated from the total of ori'inal principal
plus accrued interest.
COMPOUND INTEREST PRINCIPLE is %here the interest is computed on
principal plus interest earned in previous periods.
COMPOUND !OURNAL ENTRY is a -ournal entry that involves more than one
de"it or more than one credit or "oth.
COMPREHENSIVE INCOME is chan'e in e,uity (net assets) of an entity durin'
a period from transactions and other events and circumstances from non9o%ner
sources. (t includes all chan'es in e,uity durin' a period, except those resultin'
from investments "y o%ners and distri"utions to o%ners.
COMPTROLLER is the misspellin' of the %ord #23$82BBE8 caused "y
confusion in the root of the %ord in .rench and Batin. #omptroller is sometimes
used %ithin titles in the 'overnment, e.'. #omptroller of the #urrency.
COMPULSORY LIQUIDATION is the %indin'9up of a company "y a court. A
petition must "e presented "oth at the court and the re'istered office of the
company. $hose "y %hom it may "e presented include7 the company, the
directors, a creditor, an official receiver, and the !ecretary of !tate for $rade and
(ndustry. $he 'rounds on %hich a company may "e %ound up "y the court
include7 a special resolution of the company that it "e %ound up "y the court* that
the company is una"le to pay its de"ts* that the num"er of mem"ers is reduced
"elo% t%o* or that the court is of the opinion that it %ould "e -ust and e,uita"le for
the company to "e %ound up. $he court may appoint a provisional li,uidator after
the %indin'9up petition has "een presented* it may also appoint a special
mana'er to mana'e the company+s property. 2n the 'rant of the order for
%indin'9up, the official receiver "ecomes the li,uidator and continues in office
until some other person is appointed, either "y the creditors or the mem"ers.
CONDITIONAL SALES CONTRACT is a credit contract used for the purchase of
e,uipment %here the purchaser doesn+t receive title of the e,uipment until the
amount specified in the contract has "een paid in full.
CONSERVATISM PRINCIPLE provides that accountin' for a "usiness should "e
fair and reasona"le. Accountants are re,uired in their %or) to ma)e evaluations
and estimates, to deliver opinions, and to select procedures. $hey should do so
in a %ay that neither overstates nor understates the affairs of the "usiness or the
results of operation.
44
CONSIGNMENT is %hen 'oods are offered for sale on "ehalf of another %ithout
the seller actually purchasin' or ta)in' title to the 'oods. 2nly %hen there is a
su"se,uent sale does the o%ner receive any payment.
CONSISTENCY is usin' the same accountin' procedures "y an accountin'
entity from period to period. $hat means usin' similar measurement concepts
and procedures for related items %ithin the companyAs financial statements for
one period.
CONSISTENCY PRINCIPLE re,uires accountants to apply the same methods
and procedures from period to period. Ghen they chan'e a method from one
period to another they must explain the chan'e clearly on the financial
statements.
CONSOLIDATED CAPITAL is the value of all money and other assets, on a
consolidated "asis, used directly in "usiness operations.
CONSOLIDATED ENTITY is a user9defined com"ination of several consolidation
units, 'rouped to'ether for consolidation and reportin' purposes.
CONSOLIDATED FINANCIAL STATEMENTS is the end financial statement that
accounts for all assets, lia"ilities and operatin' accounts of a parent and all
su"sidiaries.
CONSOLIDATED NEXUS is a consolidation of a connected series or 'roup
(usually contracts).
CONSOLIDATION is similar to refinancin', "ut there is no loan fee. (t simplifies
loan repayment "y com"inin' several types of federal education loans into one
ne% loan. ((n the case of 1irect Boan consolidation, the interest rate may "e
lo%er than one or more of the underlyin' loans.)
CONSORTIUM is an association of companies for some definite purpose.
CONSTANT DOLLAR is %hen the dollar amount is ad-usted for inflation.
CONSTRAINT is a limitin' factor to "usiness activity.
CONSULAR DECLARATION is a formal statement to the consul of a forei'n
country declarin' the merchandise to "e shipped.
CONSUMER PRICE INDEX (CPI) is the measure of chan'e in consumer prices
as determined "y a monthly survey "y the .!. Bureau of Ba"or !tatistics.
Amon' the #P( components are the costs of food, housin', transportation, and
electricity (i.e., the avera'e cost of a ;"as)et; of 'oods and services!. Also )no%n
as the cost9of9livin' index.
45
CONSUMMATE is to "rin' to completion or fruition* conclude, e.'., consummate
a "usiness transaction.
CONTINGENT LIABILITY is a lia"ility that is dependent upon uncertain events
that may occur in the future, e.'., in corporate reports are pendin' la%suits,
-ud'ments under appeal, disputed claims, and the li)e, representin' potential
financial lia"ility.
CONTINUITY ASSUMPTION see G2(3G #23#E83 #23#EP$.
CONTINUOUS BUDGET is a "ud'et that rolls ahead each time period (e.'.,
month) %ithout re'ard to the fiscal year, i.e., a t%elve9month or other periodic
forecast is al%ays availa"le* also called a 82BB .28GA81 B1GE$.
CONTINUOUS INVENTORY see PE8PE$AB (3/E3$280.
CONTRA ACCOUNT 4. is the reduction to the 'ross cost of an asset to arrive at
the net cost* also )no%n as a valuation allowance* e.'., accumulated
depreciation is a contra account to the ori'inal cost of a fixed asset to arrive at
the "oo) value* or, D. reduction of a lia"ility to arrive at its carryin' value* e.'.,
"ond discount, %hich is a reduction of "onds paya"le.
CONTRACT ALLOWANCE is the limit set %ithin an a'reement as to %hat is the
maximum allo%ed of any 'iven item covered under contract, e.'., home
construction %ith a "uilder may have allo%ances or ;limits; set in your contract
that tell you ho% much the price of your house ;allo%s; for thin's such as floor
coverin's, countertops, and ca"inets.
CONTRACTEE is the person or entity %ho %ill receive the 'oods or services
under the provisions of the contract.
CONTRACT LAW is that "ody of la% %hich re'ulates the enforcement of
contracts. #ontract la% has its ori'ins thousands of years a'o as the early
civili&ations "e'an to trade %ith each other, a le'al system %as created to
support and to facilitate that trade. $he En'lish and .rench developed similar
contract la% systems, "oth referrin' extensively to old 8oman contract la%
principles such as consensus ad idem or caveat emptor. $here are some minor
differences on points of detail such as the En'lish la% re,uirement that every
contract contain consideration. More and more states are chan'in' their la%s to
eliminate consideration as a prere,uisite to a valid contract thus contri"utin' to
the uniformity of la%. #ontract la% is the "asis of all commercial dealin's from
"uyin' a "us tic)et to tradin' on the stoc) mar)et.
CONTRACTOR is the person or entity %ho %ill provide the 'oods or services
under the provisions of the contract.
46
CONTRACT RATE OF INTEREST is the interest rate specified in a contract.
CONTRACT REVENUES are the revenues reco'ni&ed under K of completion
method.
CONTRACTUAL ALLOWANCE, in healthcare, is the difference "et%een %hat
hospitals "ill and %hat they receive in payment from third party payers, most
commonly 'overnment pro'rams* also )no%n as contractual ad-ustment.
CONTRIBUTED CAPITAL see PA(19(39#AP($AB.
CONTRIBUTION MARGIN (CM) is the difference "et%een sales and the varia"le
costs of the product or service, also called mar'inal income. (t is the amount of
money availa"le to cover fixed costs and 'enerate profits.
CONTRIBUTION MARGIN RATIO is the computation sho%in' #23$8(B$(23
MA8G(3 as a percenta'e of sales.
CONTROL is the process of directin' operations to achieve a 'oal.
CONTROL ACCOUNT is an account the sho%s totals of amounts entered in a
su"sidiary led'er as an accounts paya"le control account, it %ould sho% the total
that is detailed in the accounts paya"le su"sidiary led'er.
CONTROLLABLE COST see #23$82BBABBE EOPE3!E.
CONTROLLABLE EXPENSE expenses that can "e controlled or restrained "y
mana'ement. !ome of the costs of doin' "usiness can "e postponed or spread
out over a lon'er period of time (e.'., personnel costs, travel & entertainment,
mar)etin' expense).
CONTROLLER is usually an experienced accountant %ho directs internal
accountin' processes and procedures, includin' cost accountin'.
CONVENTION is an a'reement, principle or statement expressed or implied that
is used to solve 'iven types of pro"lems. #onventions allo% a standardi&ed
approach to pro"lem solvin' and "ehavior in certain situations. .or example,
placin' de"its on the ri'ht and credits on the left of an account is termed an
accountin' convention.
CONVERTIBLE is a corporate security (usually "onds, notes or preferred stoc))
that can "e exchan'ed for another form of security (usually common stoc)).
CONVERTIBLE BOND is a "ond that can "e converted to other securities under
certain conditions.
47
CONVERTIBLE CURRENCY is any national currency that can "e easily
exchan'ed for that of another country.
CONVERTIBLE DEBT is a de"t instrument %hich can "e exercised into the
security of the de"tor in accordance %ith the conditions set forth in the de"t
instrument.
CONVERTIBLE PREFERRED STOCK is preferred stoc) %hich can "e
converted into common stoc) at the option of the holder of the preferred stoc).
COO is an acronym for #hief 2peratin' 2fficer. $he #22 is responsi"le for the
day9to9day mana'ement of a company. $he #22 usually reports to the #E2.
COOKIE !AR RESERVES is an overly a''ressive accrual of operatin'
expenses and the creation of lia"ility accounts done in an effort to reduce future
year operatin' expenses.
COOKING THE BOOKS is %hen a company fraudulently misrepresents the
financial condition of a company "y providin' false or misleadin' information.
COOPERATIVE ADVERTISING is a -oint advertisin' strate'y under %hich costs
are shared* e.'. "y a manufacturer and another firm that distri"utes its products.
COPYRIGHT is a form of le'al protection used to safe'uard ori'inal literary
%or)s, performin' arts, sound recordin's, visual arts, ori'inal soft%are code and
rene%als.
CORE PROCESS 9 A process is a set of related and interdependent activities
that transform an input to a system to an output %ith added value to a customer.
(t is the transformation of people, money, materials or information that is the
value9added %or) of the or'ani&ation. $he #28E P82#E!!E! are those "y
%hich the or'ani&ation creates its most value9added and essential
transformations for the customers.
CORPORATE GOVERNANCE is the system "y %hich "usiness corporations are
directed and controlled. $he corporate 'overnance structure specifies the
distri"ution of ri'hts and responsi"ilities amon' different participants in the
corporation, such as, the "oard, mana'ers, shareholders and other sta)eholders,
and spells out the rules and procedures for ma)in' decisions on corporate
affairs. By doin' this, it also provides the structure throu'h %hich the company
o"-ectives are set, and the means of attainin' those o"-ectives and monitorin'
performance.
CORPORATION is a type of "usiness or'ani&ation chartered "y a state and
'iven many of the le'al ri'hts as a separate entity.
48
CORPORATION TAX is the tax paya"le "y corporations.
CORRECTING ENTRY, a type of A1C!$(3G E3$80, is re,uired at the end of
an accountin' period if a mista)e %as made in the accountin' records durin' the
period. !ee 8E/E8!(3G E3$80.
CORRESPONDENT BANK is a "an) havin' communications and "usiness lin)s
%ith the seller+s "an).
COST is the amount of money that must "e paid to ta)e o%nership of somethin'*
expense or purchase price.
COST ACCOUNTING is a mana'erial accountin' activity desi'ned to help
mana'ers identify, measure, and control operatin' costs.
COST ALLOCATION is the assi'nment to each of several particular cost9centers
of an e,uita"le proportion of the costs of activities that serve all of them, i.e.
shared cost pools.
COST AVOIDANCE is an action ta)en in the present desi'ned to decrease costs
in the future.
COST BASIS, in securities, is the purchase price after commissions or other
expenses. (t is used to calculate capital 'ains or losses %hen the security is
eventually sold.
COSTBENEFIT ANALYSIS is the method of measurin' the "enefits anticipated
from a decision "y determinin' the cost of the decision, then decidin' %hether
the "enefit out%ei'hs the cost of that decision.
COST CENTER is a non9revenue9producin' element of an or'ani&ation, %here
costs are separately fi'ured and allocated, and for %hich someone has formal
or'ani&ational responsi"ility.
COST DRIVER is any activity or series of activities that ta)es place %ithin an
or'ani&ation and causes costs to "e incurred. #ost drivers are used in a system
of activity9"ased costin' to char'e costs to products or services. #ost drivers are
applied to cost pools, %hich relate to common activities. #ost drivers are not
restricted to departments or sections, as more than one activity may "e identified
%ithin a department.
COST IN EXCESS OF BILLINGS, in percenta'e of completion method, is %hen
the "illin's on uncompleted contracts are less than the income earned to date.
$hese under"illin's result in increased assets. #onversely, %here "illin's are
'reater than the income earned on uncompleted contracts, a lia"ility, "illin's in
excess of costs, results.
49
COST MANAGEMENT INDEX (CMI) is a method for determinin' cost
mana'ement "enchmar)s for pu"lic companies usin' pu"lished financial data. (t
is used to esta"lish realistic cost reduction 'oals "y conductin' a definitive
comparison of sin'le company performance a'ainst others in that industry
com"ined %ith a thorou'h internal expenditure analysis. $his provides realistic
parameters for cost cuttin' o"-ectives as %ell as insi'ht into %hich cate'ories of
products and services to tar'et. $he #M( e,uals cost of 'oods sold plus sales,
'eneral and administrative expenses, divided "y your operatin' revenue (#M( N
(#2G!Q!G&A)?8evenue). (t is expressed as a percenta'e.
COST OB!ECT is any activity or item for %hich a separate measurement of cost
is desired.
COST OF CAPITAL/FUNDS is the rate of return that a "usiness could earn if it
so chose other investments %ith the e,uivalent ris)s. Also can "e stated as
opportunity cost of the funds used due to the investment decision.
COST OF DEBT is interest rate times 4 minus the mar'inal tax rate ("ecause
interest is a tax deduction). An increase in the tax rate decreases the cost of
de"t.
COST OF GOODS SOLD (COGS) is a fi'ure representin' the cost of "uyin' ra%
material and producin' finished 'oods. (ncluded are precise factors, i.e. material
and factory la"or* as %ell as others that are varia"le, such as factory overhead.
COSTOFLIVING LEASE is a lease %here yearly increases are tied to the cost
of livin' index.
COST REDUCTION is actions ta)en in the present desi'ned to decrease costs
in the present. !ee #2!$ A/2(1A3#E.
COST OF REVENUE see #2!$ 2. G221! !2B1.
COST OF SALES see #2!$ 2. G221! !2B1.
COST PER THOUSAND (CPM) is advertisin' terminolo'y used in "uyin' media.
#PM refers to the cost it ta)es to reach a thousand people %ithin your tar'et
mar)et.
COST PRINCIPLE is the principle %here a company is o"li'ed to record its fixed
assets at their actual purchase price or production cost.
COST SPLIT is the "rea)do%n of the costs associated %ith producin' a product,
providin' a service, ... $he ma)eup is dependent upon %hat costs are "ein'
analy&ed, e.'. in manufacturin' a company %ould trac) the cost split "et%een
materials, direct la"or, and production overhead.
5
COST SYNERGY is the savin's in operatin' costs expected after t%o
companies, %ho compliment each other+s stren'ths, -oin.
COST UNIT is a functional cost unit %hich esta"lishes standard cost per
%or)load element of activity, "ased on calculated activity ratios converted to cost
ratios.
COUPON BONDS are unre'istered "onds for %hich o%ners receive periodic
interest payments "y clippin' a coupon from the "ond and sendin' it to the issuer
as evidence of o%nership.
COVERAGE OF FIXED CHARGES is computed "y ta)in' your net income,
"efore taxes and fixed char'es (de"t repayment, lon'9term leases, preferred
stoc) dividends etc.), and dividin' "y the amount of fixed char'es. $he resultin'
num"er sho%s your a"ility to meet your fixed o"li'ations of all types Y the hi'her
the num"er, the "etter.
CP is an acronym %ith many possi"le meanin's, e.'., #apacity Plannin', #entral
Procurement, #han'e of Plan (insurance), #laims Procedure (insurance),
#ommercial Paper, #ommunity Property, #onsumer Products, #ontin'ency
Plan, #ontract Price, #han'e Proposal, etc.
C3P3A3 means #ertified Pu"lic Accountant.
CPFF is #ost Plus .ixed .ee.
CPI see #23!ME8 P8(#E (31EO.
CPT is #ost Per $housand.
CR, in accountin', is an acronym for #redit 8ecord.
CRAT is an acronym for #harita"le 8emainder Annuity $rust.
CREATIVE ACCOUNTING is slan' for the concept of maintainin' accounts
'ivin' possi"ly ille'al or du"ious "enefits to the entity for %hich the accounts are
maintained.
CREDIT, in accountin', is an accountin' entry system that either decreases
assets or increases lia"ilities.
CREDIT CARD is a card authori&in' purchases on credit at a predetermined
interest rate and payment conditions.
51
CREDIT CARD RECEIPTS is sales revenue %here payment has "een made
throu'h the use of reco'ni&ed?authori&ed credit cards versus cash or chec)
receipts?payments.
CREDIT CONTROL is policies and procedures aimed at controllin' the 'rantin'
of credit.
CREDIT LINE is the maximum credit that a customer is allo%ed.
CREDIT MEMO is a document used to issue a vendor credit.
CREDIT NOTES are issued to indicate a positive action %ithin an account. #redit
notes are issued for reasons such as overpayment, duplicate payment, dama'ed
'oods, returned merchandise, etc.
CREDITOR DAYS is the num"er of days it ta)es the company to pay trade
creditors. $his ratio provides an indication of the amount of credit 'iven to the
"usiness "y its suppliers. $he formula is trade creditors divided "y sales
multiplied "y >LJ days.
CREDITORS are the entities to %hich a de"t is o%ed "y another entity.
CREDITORS TURNOVER N Avera'e creditors ? (#redit !ales ? >LJ).
CREDIT SALES are merchandise or services sold on the promise to pay later.
CROWN CORPORATION is a corporation that has "een esta"lished "y a
nationAs 'overnment.
CRUT is an acronym for #harita"le 8emainder nitrust.
CUMULATIVE PREFERRED STOCK is preferred stoc) %hich 'ives holder a
ri'ht to dividends if they have not "een paid in a 'iven year.
CURRENCY TRANSLATION see .28E(G3 #88E3#0 $8A3!BA$(23.
CURRENT ACCOUNT in a national economy it is a cate'ory in the "alance of
payments account that includes all transactions that either contri"ute to national
income or involve the spendin' of national income.
CURRENT ASSETS are those assets of a company that are reasona"ly
expected to "e reali&ed in cash, or sold, or consumed durin' the normal
operatin' cycle of the "usiness (usually one year). !uch assets include cash,
accounts receiva"le and money due usually %ithin one year, short9term
investments, ! 'overnment "onds, inventories, and prepaid expenses.
52
CURRENT CASH DEBT RATIO measures a"ility to pay current lia"ilities in
'iven year %ith cash derived from operatin' activities. #alculated usin' net cash
from operatin' activities divided "y avera'e current lia"ilities.
CURRENT COST is the cost %hich %ould "e incurred for replacement of an
asset.
CURRENT COST ACCOUNTING is a system of accountin' %hich ad-usts for
chan'in' pricin'.
CURRENT DEBT TO TOTAL DEBT sho%s #urrent Bia"ilities as a percent of
$otal 1e"t. !maller firms carry proportionally hi'her level of current de"t to total
de"t than lar'er firms.
CURRENT LIABILITIES are lia"ilities to "e paid %ithin one year of the "alance
sheet date.
CURRENT MATURITIESL/T/D is that portion of lon' term o"li'ations %hich is
due %ithin the next fiscal year.
CURRENT RATIO, a comparison of current assets to current lia"ilities, is a
commonly used measure of short9run solvency, i.e., the immediate a"ility of a
firm to pay its current de"ts as they come due. #urrent 8atio is particularly
important to a company thin)in' of "orro%in' money or 'ettin' credit from their
suppliers. Potential creditors use this ratio to measure a company+s li,uidity or
a"ility to pay off short9term de"ts. $hou'h accepta"le ratios may vary from
industry to industry "elo% 4.55 is not atypical for hi'h ,uality companies %ith
easy access to capital mar)ets to finance unexpected cash re,uirements.
!maller companies, ho%ever, should have hi'her current ratios to meet
unexpected cash re,uirements. $he rule of thum" #urrent 8atio for small
companies is D74, indicatin' the need for a level of safety in the a"ility to cover
unforeseen cash needs from current assets. #urrent 8atio is "est compared to
the industry.
CUSTODIAN BANK is the "an) that acts a custodian to a mutual fund. 1oes not
mana'e anythin', -ust holds the cash and securities and does the clerical.
CUSTOMS are the authorities char'ed %ith collectin' duty and controllin' the
entry of merchandise into a country.
CUSTOMS BROKER is an individual or firm licensed to process entry and clear
'oods into the country for another.
CUTOFF RATE is the predetermined maximum rate and?or minimum rate at
%hich the su"-ect is still accepta"le, "ut %here a rate a"ove the proscri"ed hi'her
or "elo% the proscri"ed lo%er rate is no lon'er accepta"le.
53
CUTOFF YIELD, in securities, is the yield at %hich or "elo% %hich the "ids are
accepted.
CYCLE COUNT is a partial count of a sin'le inventory location as opposed to a
#omplete #ount, i.e., a complete count of a sin'le inventory location. An
or'ani&ation should not %ait to do a complete count* usually once a year. $he
"est %ay to ensure that a minimum of <=K accuracy is maintained in inventory
on an on'oin' "asis is to continually count your products. $hat is, count part of
your inventory every day, and count each item several times per year. $his
process is called ;cycle countin'.;
54
DAC, in accountin', is an acronym for 1eferred Ac,uisition #osts.
DATE DRAFT is a payment option draft that matures in a specified num"er of
days after the date issued.
DATE OF RECORD is the date %hich determines %hich shareholders receive
dividends.
DAYS CASH ON HAND is calculated7 #ash?(Eoperatin' expense 9 depreciation
expenseF?>LJ).
DAYS' INVENTORY sho%s the avera'e len'th of time items are in inventory,
i.e., ho% many days a "usiness could continue sellin' usin' only its existin'
inventory. $he 'oal, in most cases, is to demonstrate efficiency throu'h havin' a
hi'h turnover rate and therefore a lo% daysA inventory. @o%ever, reali&e that this
ratio can "e unfavora"le if either too hi'h or too lo%. A company must "alance
the cost of carryin' inventory %ith its unit and ac,uisition costs. $he cost of
carryin' inventory can "e DJK to >JK. $hese costs include %arehousin',
material handlin', taxes, insurance, depreciation, interest and o"solescence.
DAYS SALES OUTSTANDING (DSO) is the avera'e collection period on
accounts receiva"le for sales revenue.
DBA (5&(+7 0-%(+/%% )%) is a le'al entity (sole proprietorship, partnership,
corporation) conductin' "usiness under any chosen name for %hich a "usiness
license has "een issued.
DCAA is the 1efense #ontract Audit A'ency.
DEBENTURE is a corporate (2 that is not "ac)ed "y the company+s assets
(unsecured) and is therefore some%hat ris)ier than a "ond.
DEBIT is a record of an inde"tedness* specifically 7 an entry on the left9hand side
of an account constitutin' an addition to an expense or asset account or a
deduction from a revenue, net %orth, or lia"ility account.
DEBIT CARD is a "an)in' card enhanced %ith automated teller machine (A$M)
and point9of9sale (P2!) features so that it can "e used at merchant locations. A
de"it card is lin)ed to an individual+s chec)in' account, allo%in' funds to "e
%ithdra%n at the A$M and point9of9sale %ithout %ritin' a chec). Each financial
institution creates an identity for its de"it card to customi&e the product and
differentiate it in the mar)et. 1e"it cards can also "e called deposit access cards.
DEBIT MEMORANDUM can "e either a) a form or document 'iven "y the "an)
to a depositor to notify that the depositor+s "alance is "ein' decreased due to
55
some event other than the payment of depositor ori'inated chec), e.'. "an)
service char'es* or ") a form of document used "y a seller to notify a "uyer that
the seller is de"itin' (increasin') the amount of the "uyer+s accounts paya"le due
to errors or other factors re,uirin' ad-ustments.
DEBIT NOTES are issued to indicate a short payment.
DEBT COVENANT is one of many terms used to descri"e rules 'overnin' the
loans that a company has outstandin'. 2ther related phrases %ould "e ;loan
terms; ;credit a'reement,; ;loan a'reement.;
DEBT FINANCING is raisin' money throu'h sellin' "onds, notes, or mort'a'es
or "orro%in' directly from financial institutions. 0ou must repay "orro%ed money
in full, usually in installments, %ith interest. A lender incurs ris) and char'es a
correspondin' rate of interest "ased on that ris). $he lender usually assesses a
variety of factors such as the stren'th of your "usiness plan, mana'ement
capa"ilities, financin', and your past personal credit history, to evaluate your
companyAs chances of success.
DEBTOR is the party a'ainst %ho one has a claim.
DEBTOR DAYS is a ratio used to %or) out ho% many days on avera'e it ta)es a
company to 'et paid for %hat it sells. (t is calculated "y dividin' the fi'ure for
trade de"tors sho%n in its accounts "y its sales, and then multiplyin' "y >LJ.
DEBT SERVICE COVERAGE is the ratio of cash flo% availa"le to pay for de"t to
the total amount of de"t payments to "e made (interest and principal payments).
DEBT RATIO measures the percent of total funds provided "y creditors. 1e"t
includes "oth current lia"ilities and lon'9term de"t. #reditors prefer lo% de"t
ratios "ecause the lo%er the ratio, the 'reater the cushion a'ainst creditor+s
losses in li,uidation. 2%ners may see) hi'h de"t ratios, either to ma'nify
earnin's or "ecause sellin' ne% stoc) %ould mean 'ivin' up control. 2%ners
%ant control %hile ;usin' someone else+s money.; 1e"t 8atio is "est compared
to industry data to determine if a company is possi"ly over or under levera'ed.
$he ri'ht level of de"t for a "usiness depends on many factors. !ome
advanta'es of hi'her de"t levels are7
$he deducti"ility of interest from "usiness expenses can provide tax
advanta'es.
8eturns on e,uity can "e hi'her.
1e"t can provide a suita"le source of capital to start or expand a
"usiness.
56
!ome disadvanta'es can "e7
!ufficient cash flo% is re,uired to service a hi'her de"t load. $he need for
this cash flo% can place pressure on a "usiness if income streams are
erratic.
!uscepti"ility to interest rate increases.
1irectin' cash flo% to service de"t may starve expenditure in other areas
such as development %hich can "e detrimental to overall survival of the
"usiness.
DEBT SERVICE RATIO is the measurement of de"t payments to 'ross income.
DEBT TO EQUITY measures the ris) of the firm+s capital structure in terms of
amounts of capital contri"uted "y creditors and that contri"uted "y o%ners. (t
expresses the protection provided "y o%ners for the creditors. (n addition, lo%
1e"t?E,uity ratio implies a"ility to "orro%. Ghile usin' de"t implies ris) (re,uired
interest payments must "e paid), it also introduces the potential for increased
"enefits to the firm+s o%ners. Ghen de"t is used successfully (operatin' earnin's
exceedin' interest char'es) the returns to shareholders are ma'nified throu'h
financial levera'e. 1ependin' on the industry, different ratios are accepta"le.
$he company should "e compared to the industry, "ut, 'enerally, a >74 ratio is a
'eneral "enchmar). !hould a company have de"t9to9e,uity ratio that exceeds
this num"er* it %ill "e a ma-or impediment to o"tainin' additional financin'. (f the
ratio is suspect and you find the company+s %or)in' capital, and current ? ,uic)
ratios drastically lo%, this is a si'n of serious financial %ea)ness.
DEBT TO TOTAL ASSETS RATIO measures the percenta'e of assets financed
"y all terms of de"t, includes "oth current and lon' term de"t.
DECISION THEORY is a "ody of )no%led'e and related analytical techni,ues of
different de'rees of formality desi'ned to help a decision ma)er choose amon' a
set of alternatives in li'ht of their possi"le conse,uences.
DECLININGBALANCE DEPRECIATION METHOD is an accelerated
depreciation method in %hich an asset+s "oo) value is multiplied "y a constant
depreciation rate (such as dou"le the strai'ht9line percenta'e, in the case of
dou"le9declinin'9"alance.). $his depreciation method is allo%ed "y the .!. tax
code and 'ives a lar'er depreciation in the early years of an asset. nli)e the
strai'ht line and the sum of the di'its methods, "oth of %hich use the ori'inal
"asis to calculate the depreciation each year, the dou"le declinin' "alance uses
a fixed percenta'e of the prior year+s "asis to calculate depreciation. $he
percenta'e rate is D?3 %here 3 is the life of the asset. Gith this method, the
"asis never "ecomes &ero. #onse,uently, it is standard practice to s%itch to
another depreciation method as the "asis decreases. sually the taxpayer %ill
57
convert to the strai'ht line method %hen the annual depreciation from the
declinin' "alance "ecomes less than the strai'ht line.
DEDUCTIVE ACCOUNTING THEORY (mathematical method) assumes that
optimal accountin' standards and reportin' rules can "e derived "y deduction
much in the %ay that Pytha'oras derived the rule for measurin' the hypotenuse
of a trian'le "ased upon s,uare root of the summed s,uares of the other t%o
sides (assumin' one an'le is a perfect <59de'ree an'le).
DEFAULT# in finance, default is %hat occurs %hen a party is un%illin' or una"le
to pay their de"t o"li'ations. $his can occur %ith all de"t o"li'ations includin'
"onds, de"entures, mort'a'es, loans, and notes. 1efault can also occur %ith
soverei'n "onds, that is, 'overnments can default on their payments to creditors.
(n corporate finance, a default is typically a prelude to "an)ruptcy. Gith most
mort'a'es and loans the total amount o%in' "ecomes immediately paya"le on
the first instance of a default of payment.
DEFEASANCE CLAUSE is the clause in a mort'a'e that permits the mort'a'or
to redeem his or her property upon the payment of the o"li'ations to the
mort'a'ee.
DEFERRAL see 1E.E88E1.
DEFERRED, in accountin', is any account %here the asset or lia"ility is not
reali&ed until a future date, e.'. annuities, char'es, taxes, income, etc. $he
deferred item may "e carried, dependent on type of deferral, as either an asset
or lia"ility.
DEFERRED ANNUITY is an annuity in %hich the income payments?%ithdra%als
"e'in at some future date
DEFERRED ASSET is an amount o%ed to an entity that is not expected to "e
received "y that entity %ithin one year from the date of the "alance sheet.
DEFERRED CREDITOR see 1E.E88E1 (3#2ME.
DEFERRED DEVELOPMENT COSTS is the non9reco'nition of costs of
development until such until some condition(s) is satisfied.
DEFERRED INCOME is that income for %hich the cash has "een collected "y
the company, "ut have yet to "e ;earned;. .or example, a customer pays their
annual soft%are license upfront on the 4st Can. As the company financial year9
end is >4st May, the company %ould only "e a"le to record five months of the
income as turnover in the profit and loss account. $he rest %ould "e accrued in
the "alance sheet as a ;deferred; creditor.
58
DEFERRED PAYMENT CREDIT is a type of a letter of credit %here payment is
made at a specified interval after collection papers are su"mitted.
DEFERRED REVENUE see 1E.E88E1 (3#2ME.
DEFERRED TAX ASSETS have an effect of decreasin' future income tax
payments, %hich indicates that they are prepaid income taxes and meet
definition of assets. Ghereas deferred tax lia"ilities have an effect of increasin'
future year+s income tax payments, %hich indicates that they are accrued income
taxes and meet definition of lia"ilities.
DEFERRED TAXES refers to all deferred taxes.
DEFERRED TAX LIABILITIES have an effect of increasin' future year+s income
tax payments, %hich indicates that they are accrued income taxes and meet
definition of lia"ilities. Ghereas deferred tax assets have an effect of decreasin'
future income tax payments, %hich indicates that they are prepaid income taxes
and meet definition of assets.
DEFICIT is a de"it "alance in the 8etained Earnin's account resultin' from
accumulated losses.
DEFICIT BUDGET is %here the estimates of expenses are 'reater than
estimates of revenue.
DEFICIT SPENDING is an excess of 'overnment expenditures over 'overnment
revenue, resultin' in a shortfall that must "e financed throu'h "orro%in'.
DELINQUENCY RATIO is the ratio of past9due loans to total num"er of loans
serviced.
DELTA, in securities tradin', is the relationship "et%een an option price and the
underlyin' futures contract or stoc) price. (n 'eneral usa'e, it is the difference
"et%een t%o empirical data points, e.'. the delta "et%een 6 and L is D.
DEMAND DEPOSIT is a "an) deposit f rom %hich %ithdra%als may "e made
%ithout notice.
DEMINIMUS, root is +1e minimis non curat lex+ (Batin), a common la% principle
%here"y -ud'es %ill not sit in -ud'ement of extremely minor trans'ressions of the
la%. (t has "een restated as ;the la% does not concern itself %ith trifles;. (t is
commonly used to include a test of anyone -ud'in' conformance to accountin'
principles, re'ulations or rules.
DEMOGRAPHICS are the attri"utes such as income, a'e, and occupation that
"est descri"e your tar'et mar)et.
59
DEMUTUALIZATION refers to the demutuali&in' of an insurance company. $he
proceeds from such an event are normally distri"uted to the policyholders in the
form of either cash, shares, or a com"ination thereof in the survivin' entity.
DEPENDENT, 'enerally, is a person %ho relies on another person for support
(especially financial support)* in .!. tax la%, it means a dependent as defined in
tax code !ection 4JD %hich excludes those individuals %ho do not ,ualify for a
dependent deduction on the employeeAs tax return includin' domestic partners
and parents.
DEPLETION is the process of cost allocation that assi'ns the ori'inal cost of a
natural resource to the periods "enefited. .or example7 a minin' company
purchases mineral ri'hts to a deposit for MJ million for a period of ten years. $he
cost of the natural resource, MJ million, %ill "e depleted over the ten years of the
"enefit* i.e., it is the physical exhaustion of a natural resource (e.'., tim"er, oil
and coal).
DEPOSIT can mean a variety of thin's7 a. a payment 'iven as a 'uarantee that
an o"li'ation %ill "e met* ". the act of puttin' money into a "an) account* c. a
partial payment made at the time of purchase %ith the "alance to "e paid later*
or, d. money 'iven as security for an article ac,uired for temporary use.
DEPOSITS IN TRANSIT is deposits made to a "an) account that have not "een
credited to the "an) statement.
DEPOSITORY ACCOUNT are those accounts %here assets* e.'. cash or
securities* are placed on deposit in favor of the depositor.
DEPRECIATED HISTORICAL COST (DHC) is he method of valuation of certain
assets at the actual cost of their ac,uisition and su"se,uent enhancement less a
reduction for depreciation to date.
DEPRECIATION is the amount of expense char'ed a'ainst earnin's "y a
company to %rite off the cost of a plant or machine over its useful live, 'ivin'
consideration to %ear and tear, o"solescence, and salva'e value. (f the expense
is assumed to "e incurred in e,ual amounts in each "usiness period over the life
of the asset, the depreciation method used is strai'ht line (!B). (f the expense is
assumed to "e incurred in decreasin' amounts in each "usiness period over the
life of the asset, the method used is said to "e accelerated. $%o commonly used
variations of the accelerated method of depreciatin' an asset are the sum9of9
years di'its (!01) and the dou"le9declinin' "alance (11B) methods. .re,uently,
accelerated depreciation is chosen for a "usiness+ tax expense "ut strai'ht line is
chosen for its financial reportin' purposes.
DEPRECIATION ALLOCATION is the allocation of the cost of capital
expenditures so that revenue is matched
6
%ith expenses for items that %ill last more than one year (land is not
deprecia"le). $he methodol'y is to allocate plant and e,uipment cost to expense
throu'h the use of accelerated, strai'ht line and units of production amorti&ation
methods* as %ell as the disposal of assets* and, repairs and "etterments to
assets.
DEPRECIATION CONVENTION is utili&ed to determine ho% much depreciation
to char'e the first year %hen an item is "ou'ht part %ay throu'h the year. $hree
different conventions are used7 4. @alf year convention 9 All property placed in
service is considered to "e placed in service half %ay throu'h the year. 1urin'
the first year, half of the ;normal; depreciation is ta)en. At the end of the
depreciation period, the other half of the ;normal; depreciation is ta)en* D. Mid9
,uarter convention 9 (f the amount of depreciation claimed on ne% items durin'
the last > months of a year exceeds 65K of the total depreciation claimed durin'
the year, then the mid9,uarter convention is used. $he amount of depreciation of
each item is fi'ured for one year then multiplied "y I=.JK if %as placed in
service durin' Can. 9 March, LD.JK if it %as placed in service durin' April 9 Cune,
>=.JK for items placed in service durin' Culy9!ept, and 4D.JK for items placed in
service durin' 2ct. 9 1ec.* or, >. Mid9month convention 9 All property is
considered to "e placed in service durin' the midpoint of the month. $his
re,uires some calculations.
DEPRECIATION METHOD see 1EP8E#(A$(23.
DEPRECIATION RECAPTURE is a provision contained in the (nternal 8evenue
#ode that ma)es excess depreciation ta)en on real property su"-ect to income
tax upon the sale or disposition of the property.
DEPRECIATION RESERVE in the process of allocatin' the cost of a fixed asset
over its effective service life in a systematic and rational manner (depreciation
schedule), the value of each deprecia"le asset is reduced "y its depreciation
amount. $o match this, the depreciation amounts are added to a ;depreciation
reserve; in the lon'9term lia"ilities.
DEPRECIATION REVERSAL is the reversal of a depreciaton amount in the
depreciation reserve account.
DEPRECIATION SCHEDULE is the statement, over time, as to the schedule
(timin' and amounts) of depreciation of any lon'9term asset. A depreciation
schedule is used for any type of depreciation applica"le, i.e., either strai'ht line
or accelerated depreciation. !ee 1EP8E#(A$(23.
DERIVATIVE is a transaction or contract %hose value depends on or, as the
name implies, derives from the value of underlyin' assets such as stoc), "onds,
mort'a'es, mar)et indices, or forei'n currencies. 2ne party %ith exposure to
un%anted ris) can pass some or all of the ris) to a second party. $he first party
61
can assume a different ris) from a second party, pay the second party to assume
the ris), or, as is often the case, create a com"ination. 1erivatives are normally
used to control exposure or ris). !ee 1E8(/A$(/E #23$8A#$.
DERIVATIVE CONTRACT is, 'enerally, a financial contract the value of %hich is
derived from the values of one or more underlyin' assets, reference rates, or
indices of asset values, or credit9related events. 1erivative contracts include
interest rate, forei'n exchan'e rate, e,uity, precious metals, commodity, and
credit contracts, and any other instruments that pose similar ris)s. !ee
1E8(/A$(/E.
DERIVATIVE LIABILITIES are financial instruments under contracts that have
one or more underlyin' and one or more notional amounts. !ee 1E8(/A$(/E.
DEVALUATION, in economics, is the lo%erin' in value of one currency in
relation to other currencies.
DEVELOPMENT normally refers to a) improvin' a product or producin' ne%
types of products* or ") in real estate, process of placin' improvements on or to a
parcel of land.
DILUTED EARNINGS PER SHARE are earnin's per share, includin' common
stoc), preferred stoc), unexercised stoc) options, and some converti"le de"t.
1iluted earnin's per share are usually a more accurate reflection of the
company+s real earnin' po%er.
DILUTED SHARE see 1(B$E1 EA83(3G! PE8 !@A8E.
DILUTION is the decrease, %ea)enin', or loss in a financial statement related
item. .or example, share value may "e diluted throu'h the issuance of additional
common shares.
DIO is 1ays (nventory 2utstandin'.
DIRECT ATTRIBUTION is the most precise method of costin' an output. (t
see)s to capture accurately the volume and cost of resources used "y particular
activities. $his can "e expensive unless the information is already availa"le
"ecause it re,uires detailed measurement of actual costs. !uch direct
measurement is seldom -ustifia"le solely to improve the accuracy of a cost
system, "ut many institutions use this method to o"tain efficiency 'ains and cost
savin's.
DIRECT COST is that portion of cost that is directly expended in providin' a
product or service for sale and is included in the calculation of #2!$ 2.
G221! !2B1, e.'. la"or and inventory (it can "e traced to a 'iven cost o"-ect in
an economically feasi"le manner). 2pposite of indirect cost.
62
DIRECT EXPENSE is that portion of expense that is directly expended in
providin' a product or service for sale and is included in the calculation of #2!$
2. G221! !2B1, e.'. la"or and inventory.
DIRECT LABOR UTILIZATION RATE is total payroll char'ed directly to -o"
num"ers in the period divided "y the total payroll (direct and indirect) expended
in the period. !ince payroll is "y far the sin'le lar'est cost to operate a firm,
'enerally spea)in', the hi'her the direct la"or rate, the more efficiently
economically mana'ed is the firm.
DIRECTOR'S REPORT is %ritten "y the 1irectors of a company and forms part
of the company+s financial statements. $his report must support and ela"orate on
the information contained in the (ncome !tatement, Balance !heet and !ource
and Application of .unds !tatement.
DIRECTORS VALUATION is a valuation that is not an independent valuation.
DIRECT WRITEOFF METHOD is a method of reco'nition of uncollecti"le
accounts only %hen )no%n to "e such.
DISABILITY INSURANCE, in the nited !tates, is a payroll tax re,uired in some
states that is deducted from employee paychec)s to insure income durin'
periods %here an employee is una"le to %or) due to an in-ury or illness.
DISBURSEMENT is the payin' out of money to satisfy a de"t or an expense.
DISCLOSURE DOCUMENT PROGRAM, in the nited !tates, is a form of le'al
protection that safe'uards intellectual property %hile it is in its development
sta'es.
DISCLOSURE NOTE see 1(!#B2!8E P8(3#(PBE.
DISCLOSURE PRINCIPLE states that any and all information that affects the full
understandin' of a company+s financial statements must "e include %ith the
financial statements. !ome items may not affect the led'er accounts directly.
$hese %ould "e included in the form of accompanyin' notes. Examples of such
items are outstandin' la%suits, tax disputes, and company ta)eovers.
DISCOUNT is a decrease in value (often due to interest to "e earned) or
decrease in price.
DISCOUNTED CASH FLOW is a valuation method "est used to evaluate a
"usiness esta"lished for the purpose of fulfillin' a specific pro-ect, in certain
startup and other companies %here cash flo% is more important than net income,
and %hen a certain time frame is set %here an investor %ishes to see his
investment returned over a specific period of time. (n discounted cash flo%, the
63
present value of lia"ilities is su"tracted from the com"ined present value of cash
flo% and tan'i"le assets, %hich determines the value of the "usiness.
DISCOUNTED CASH FLOW METHOD is a "ud'etin' method for pro-ect
evaluation and selection.
DISCOUNTED EARNINGS determines the value of a "usiness "ased upon the
present value of pro-ected future earnin's, discounted "y the re,uired rate of
return (capitali&ation rate). sually, the ,uestion is ho% %ell earnin's are
pro-ected.
DISCOUNTING is the sellin' of accounts receiva"le to a financial entity.
DISCONTINUED OPERATIONS is the sale, disposal, or planned sale in the near
future of a "usiness se'ment (product line or class of customer).
DISCOUNT RATE is the interest rate that the .ederal 8eserve of the .!.
Government char'es a .!. "an) to "orro% funds %hen a "an) is temporarily
short of funds. #ollateral is necessary to "orro%, and such "orro%in' is ,uite
limited "ecause the .ed vie%s it as a privile'e to "e used to meet short9term
li,uidity needs, and not a device to increase earnin's.
DISCREPANCY, in import ? export, is a situation relatin' to official documents
that are presented that do not conform to %hat is re,uired %ithin the Better of
#redit.
DISCRETIONARY means it is not mandatory, it is up to the individual or
company.
DISCRETIONARY ACCRUAL is a non9mandatory expense?asset that is
recorded %ithin the accountin' system that has yet to "e reali&ed. An example of
this %ould "e mana'ement "onus.
DISCRETIONARY COST can "e increased or decreased at the discretion of the
decision ma)er (e.'., advertisin' and "usiness travel).
DISCRETIONARY INCOME means the amount of a company+s income availa"le
for spendin' after the essentials have "een met. !ee 1(!P2!ABBE (3#2ME.
DISHONORED NOTE is a note on %hich a de"tor has defaulted.
DISPOSABLE INCOME is the amount of an individual+s income left after taxes
%hich is availa"le for spendin' and ? or savin's. !ee 1(!#8E$(23A80
(3#2ME.
DISSOLUTION is the le'al termination of a "usiness entity.
64
DISTRIBUTION COST is any cost incurred to fill an order for a product or
service. (t includes all money spent on %arehousin', deliverin' and?or shippin'
products and services to customers.
DISTRIBUTIONS are payments from fund or corporate cash flo%. May include
dividends from earnin's, capital 'ains from sale of portfolio holdin's and return
of capital. .und distri"utions can "e made "y chec) or "y investin' in additional
shares. .unds are re,uired to distri"ute capital 'ains (if any) to shareholders at
least once per year. !ome corporations offer 1ividend 8einvestment Plans
(1.8.P.).
DIVIDEND is that portion of a corporation+s earnin's %hich is paid to the
stoc)holders.
DIVIDEND CAPITALIZATION" !ince most closely held companies do not pay
dividends, %hen usin' dividend capitali&ation valuators must first determine
dividend payin' capacity of a "usiness. 1ividend payin' capacity "ased on
avera'e net income and on avera'e cash flo% are used. $o determine dividend
payin' capacity, near term capital needs, expansion plans, de"t repayment,
operation cushion, contractual re,uirements, past dividend payin' history of a
"usiness and dividends of a compara"le company should "e investi'ated. After
analy&in' these factors, percent of avera'e net income and of avera'e cash flo%
that can "e used for the payment of dividends can "e estimated. Ghat also must
"e determined is the dividend yield, %hich can "est "e determined "y analy&in'
compara"le companies. As %ith the price earnin's ratio method, this usually
produces a su"-ective result.
DIVIDEND COVER see 1(/(1E31 PA02$ 8A$(2.
DIVIDEND PAYOUT RATIO is a measure of the percenta'e of earnin's paid out
in dividends* computed "y dividin' cash dividends "y the net income availa"le to
each class of stoc).
DIVIDENDS PER SHARE (DPS) ratio is very similar to the EP!7 EP! sho%s
%hat shareholders earned "y %ay of profit for a period %hereas 1P! sho%s ho%
much the shareholders %ere actually paid "y %ay of dividends. $he formula7
1ividends per share N 1ividends paid to e,uity shareholders ? Avera'e num"er
of issued e,uity shares.
DIVIDEND YIELD is the annual rate of return, expressed as a percenta'e, on an
investment.
DIVIDEND YIELD RATIO allo%s investors to compare the latest dividend they
received %ith the current mar)et value of the share as an indictor of the return
they are earnin' on their shares. $he formula for the dividend yield is7 1ividend
yield N Batest annual dividends ? #urrent mar)et share price.
65
DIVISION is a self sufficient unit %ithin a company. A division contains all the
functions necessary to operate indepently from the parent company.
DOCK RECEIPT is a document issued "y the ocean carrier of a shipment
ac)no%led'in' receipt of the 'oods to "e shipped.
DOCTRINE is a. somethin' that is tau'ht* ". a principle or position or the "ody of
principles in a "ranch of )no%led'e or system of "eliefs* c. a principle of la%
esta"lished throu'h past decisions* d. a statement of fundamental 'overnment
policy especially in international relations.
DOCUMENTARY CREDIT is an arran'ement "y "an)s for settlin' international
"usiness transactions. A letter of credit is a form of documentary credit.
DOLLAR CONTROL SYSTEMS are systems used in inventory mana'ement
that reveals the cost and 'ross profit mar'in on individual inventory items.
DOLLAR VALUE LIFO, in the .!., is a method of expressin' the value of an
inventory in monetary values rather than units. Each homo'eneous 'roup of
inventory items is converted into "ase9year prices "y usin' the appropriate price
indices. $he difference "et%een openin' and closin' inventories is a measure in
monetary terms of the chan'e in the financial period.
DOLLARWEIGHTED RATE OF RETURN is also called the internal rate of
return* the interest rate that ma)es the present value of the cash flo%s from all
the su"9periods in an evaluation period plus the terminal mar)et value of the
portfolio e,ual to the initial mar)et value of the portfolio.
DOOMSDAY RATIO is related to the ,uic) (acid test) ratio in that it is a
conservative approach to de"t covera'e. $he doomsday ratio only considers the
cash on hand %hen evaluatin' if an entity can cover their current lia"ilities. $he
approach is that if the "usiness %ere to 'o "an)rupt today, %ould the "usiness
have enou'h cash on hand to cover current de"ts. $he ratio is considered a
'ood indicator of the cash cushion of safety. (t may spot cash shorta'es, there"y
assistin' in avoidin' a credit crisis. (t is calculated7 #ash divided "y #urrent
Bia"ilities.
DONATED CAPITAL is a 'ift of assets to a company, usually "y state or local
'overnments, to induce a "usiness to relocate to their -urisdiction.
DOUBLE ACCOUNTING is the un9intentional, or sometimes fraudulently
intentional, dou"le countin' of assets or lia"ilities, or any other datasets, %hich,
in the end, 'ive an inaccurate vie% of %hat the data really means. (n accountin',
this is usually caused "y a multiplicity of entries of the same data %hich, in the
end, causes confusion or financial reportin' inaccuracies.
66
DOUBLE DECLINING BALANCE DEPRECIATION see 1E#B(3(3G BABA3#E
1EP8E#(A$(23.
DOUBLEENTRY ACCOUNTING is a system of recordin' transactions in a %ay
that maintains the e,uality of the accountin' e,uation. $he accountin' techni,ue
records each transaction as "oth a credit and a de"it. 1ou"le9entry "oo))eepin'
(1EB) or accountin' %as developed durin' the fifteenth century and %as first
recorded in 46<6 as a system "y the (talian mathematician Buca Pacioli.
DOW !ONES INDUSTRIAL AVERAGE is an index that trac)s the daily share
value of >5 lar'e ! companies listed on the 3e% 0or) !toc) Exchan'e. $he
1o% Cones 'enerally mirrors the exchan'e as a %hole.
DOWNSTREAM / UPSTREAM SALES see P!$8EAM ? 12G3!$8EAM
!ABE!.
DPO is 1ays Paya"les 2utstandin'.
DPS see 1(/(1E31! PE8 !@A8E.
D4 is an ancient (talian a""reviation for the (talian %ord Pde"areA* meanin' Pde"itA
(not to "e confused %ith the acronym DR %ith "oth letters in uppercase).
DR, in accountin', is an acronym for 1e"it 8ecord.
DRAFT, in import ? export, is a contract "et%een "uyer and seller that the "uyer
%ill pay a certain amount of money, %ithin a specified period of time, for the
'oods purchased.
DRAFT# DEMAND OR SIGHT, in import ? export, is a draft paya"le upon
presentation to the dra%ee. (t may "e used %hen the exporter %ishes to retain
control of the shipment for credit or title retention reasons. $he "uyer must pay
the "an) "efore receivin' the documents to ta)e custody of the 'oods. A #21
shipment is similar.
DRAW see P82P8(E$28! 18AG.
DRAWDOWN is the ma'nitude of a decline in account value, either in
percenta'e or currency terms.
DRAWEE is the "uyer of a draft instrument.
DRAWING ACCOUNT see P82P8(E$28! 18AG.
67
DROP SHIP is %here the seller?retailer of a product ships the product directly
from the manufacturer to the customer %ithout re,uirin' inventory carryin' "y the
seller?retailer.
DSO, in accountin', is an acronym that usually means +1ays !ales 2utstandin'.+
DUE DILIGENCE usually refers to an internal audit of a tar'et firm "y an
ac,uirin' firm.
DUMPING is the sellin' of merchandise in a forei'n country at, or, "elo% cost in
order to sei&e mar)et share.
DUN is %hen you importune ("e' or are insistent upon) a de"tor for payment7 a
dunnin' letter.
DUN & BRADSTREET (D&B) is a nited !tates "ased for profit a'ency that
furnishes su"scri"ers %ith mar)etin' statistics and the financial standin's and
credit ratin's of "usinesses.
DURATION DRIVERS represent the amount of time re,uired to perform an
activity.
DUTY is a tax imposed "y a customs authority on imported 'oods. 2ften used
interchan'ea"ly %ith the term ;tariff.;
68
EA is Enrolled A'ent ((8! desi'nation).
E&O INSURANCE is an errors and omissions, or E&2, lia"ility policy (often
called malpractice insurance) covers lia"ility for ne'li'ent acts, errors and
omissions committed "y professionals, includin' physicians, accountants,
la%yers, etc.
E&OE is a British acronym that stands for ;Errors and 2missions Excepted;.
E&2E is a le'al disclaimer that notifies the reader that, %ithout pre-udice, that the
content and?or validity of the su"-ect data may chan'e %ithout notice.
E&P is Earnin's and Profits.
EARNED INCOME is that income reali&ed "y the provisionin' of 'oods and
services.
EARNING ASSET is an asset %hich provides income (e,', rental property).
EARNING POWER is earnin's "efore interest and taxes (EB($) divided "y total
assets.
EARNING QUALITY is "est determined throu'h the inverse relationship
"et%een the amount of time elapsed "et%een revenue reco'nition and cash
collection.
EARNINGS is a term that refers to the financial capacity of a corporation to ma)e
distri"utions to shareholders other than return of capital, e.'., dividends. !ee also
8E$A(3E1 EA83(3G!.
EARNINGS MANAGEMENT occurs %hen mana'ers use -ud'ment in financial
reportin' and in structurin' transactions to alter financial reports to either mislead
some sta)eholders a"out the underlyin' economic performance of the company,
or to influence contractual outcomes that depend on reported accountin'
num"ers.
EARNINGS PER SHARE (EPS) is earnin's "efore extraordinary 'ains and
losses, less preferred9share dividends, divided "y all common shares
outstandin' at the most recent fiscal year end. 3et income, or earnin's, refers to
the company+s after9tax profits "efore extraordinary 'ains or extraordinary losses
for the most recent annual period.
EARNINGS RETENTION is the proportion of net income that is not paid in
dividends. A firm earnin' MI5 million after taxes and payin' dividends of MD5
million has a retention rate of ML5 million?MI5 million, or =JK. A hi'h retention
rate ma)es it more li)ely a firm+s income and dividends %ill 'ro% in future years.
69
EBITDA means Earnin's Before (nterest, $axes, 1epreciation and Amorti&ation,
"ut after all product ? service, sales and overhead (!G&A) costs are accounted
for. !ometimes referred to as 2perational #ash .lo%.
EBITDARM is an acronym for Earnin's Before (nterest, $axes, 1epreciation,
Amorti&ation, 8ent and Mana'ement fees.
E3C3 (EUROPEAN COMMUNITY &4 EUROPEAN COMMON MARKET) is a
tradin' "loc) of countries in Europe that have a'reed on common re'ulations on
cross9"order trade.
ECONOMETRICS literally means +economic measurement+. (t is the "ranch of
economics that applies statistical methods to the empirical study of economic
theories and relationships. (t is a com"ination of mathematical economics,
statistics, economic statistics and economic theory.
ECONOMICALLY FEASIBLE means that the "enefit of tracin' the cost ('reater
accuracy) out%ei'hs the cost of doin' so.
ECONOMIC BOOK VALUE allo%s for a "oo) value analysis that ad-usts the
assets to their mar)et value. $his valuation allo%s valuation of 'ood%ill, real
estate, inventories and other assets at their mar)et value.
ECONOMIC ENTITY accountin' concept that provides context or Rpoint of vie%S
for the economic events (i.e., transactions) captured "y the financial statements.
(n short, it ans%ers the ,uestions, RGhose asset is itZS* RGhose lia"ility is itZS
ECONOMIC EVENT is the transfer of control of an economic resource from one
party to another party.
ECONOMIC EXPOSURE, in forei'n exchan'e, is the extent to %hich the value of
the firm, as measured "y the present value of all expected future cash flo%s, %ill
chan'e %hen exchan'e rates chan'e.
ECONOMIC ORDER QUANTITY is the order ,uantity that minimi&es total
inventory costs. A total inventory cost is the sum of orderin', carryin' and stoc)9
out costs.
ECONOMIC PROFITS is the difference "et%een the total revenue and the total
opportunity costs.
ECONOMIC SUBSTANCE refers to the application of income tax la%s, i.e., the
su"stance of the transaction, rather than its form, determines the tax
conse,uences, %ith fe% exceptions. $he ;form; of a transaction is only the la"el
the interested parties attach to their arran'ement. .or instance, an arran'ement
mi'ht "e called a compensation a'reement, loan, lease or sale. 1ocuments may
7
support the form, "ut the courts are not concerned %ith these la"els or papers
that purport to 'overn the transaction 99 they focus on its su"stance. $he
;su"stance over form; analysis is used to dissect self9servin' transactions
"et%een parties, includin' loans and payments to family mem"ers* transactions
"et%een related corporations and their shareholders, partnerships and their
partners* and "et%een trusts and their "eneficiaries. .or instance, sale of a home
"y a parent to a child may "e recharacteri&ed "y the court as a 'ift, if the child
never pays for it. 8elated9party transactions provide fertile territory for self9
dealin', %ith the tax "enefit as the real motivatin' purpose, dis'uised "y the form
of the transaction. (n contrast, arm+s9len'th transactions %ith independent third
parties are far less vulnera"le.
ECONOMIC VALUE (EV) is the value of an asset derivin' from its a"ility to
'enerate income.
ECONOMIC VALUE ADDED (EVA) measures the difference "et%een the return
on a companies capital and the cost of that capital. A positive E/A indicates that
value has "een created for shareholders* a ne'ative E/A si'nifies value
destruction.
ECONOMIES OF SCALE is "ased upon the theory that the more you produce of
a 'ood, the less that it costs for each additional unit, i.e., efficiency. !pecifically, it
is the reduction of the costs of production of 'oods due to increasin' the si&e of
the producin' entity and the share of the total mar)et for the 'ood?product.
EF&L is Errors, .ines and Bosses.
EFFECTIVE DATE OF INTEREST is the mar)et rate at time of a de"t issue.
EFFECTIVE INTEREST RATE is the cost of credit on a yearly "asis expressed
as a percenta'e. (ncludes up9front costs paid to o"tain the loan, and is, therefore,
usually a hi'her amount than the interest rate stipulated in the note.
EFFECTIVE TAX RATE is the net rate a taxpayer pays on income that includes
all forms of taxes. (t is calculated "y dividin' the total tax paid "y taxa"le income.
EFFICIENCY is the ratio of the output to the input of any system.
EFFICIENT MARKET THEORY is the hypothesis that mar)et prices reflect the
)no%led'e and expectations of all investors. Githin this theory, investors %ho
adhere to it "elieve it to "e hi'hly impro"a"le that mar)et movement can "e
predicted, i.e., usin' darts to chose stoc)s are -ust as effective as stoc) or mar)et
analysis.
EFT see Electronic .unds $ransfer.
71
ELECTRONIC FUNDS TRANSFER is a payment executed throu'h computers.
EMC (EXPORT MANAGEMENT COMPANY) is a private company that serves
as the export a'ent for manufacturers, "ein' paid "y commission or retainer.
Merchandise is not normally purchased "y the EM#.
ENCUMBERED is %hen an asset is o%ned "y one party su"-ect to the le'al
claims of another party. 2ne example is a homeo%ner that o%ns a home that is
su"-ect to (encum"ered "y) the claims of the mort'a'e holder.
ENCUMBRANCE is a) a ri'ht or interest in land o%ned "y someone other than
the o%ner of the land itself* examples include easements, leases, mort'a'es,
and restrictive covenants* or, ") in 'overnment accountin', an encum"rance is
an anticipated expenditure, or funds restricted for anticipated expenditures, such
as for outstandin' purchase orders.
ENDING INVENTORY is inventory at the end of the accountin' period.
ENDOWMENT is a permanent fund %here 'ifts to the fund are held in perpetuity
and %here earnin's are used in accordance %ith the donorAs specified %ishes.
ENGINEERED COSTS are those costs havin' a clear lin)a'e to output, e.'.,
direct materials costs.
ENTERPRISE RESOURCE PLANNING (ERP) is an information system or
process that inte'rates all operational data and related applications for an entire
enterprise. E8P systems permit or'ani&ations to mana'e resources across the
enterprise.
ENTERPRISE VALUE (EV) is a measure of a company+s value. Enterprise value
is calculated "y7 mar)et capitali&ation plus de"t and preferred shares minus cash
and cash e,uivalents. (n effect, enterprise value is the theoretical ta)eover price,
i.e., in the event of a "uyout an ac,uirer %ould have to ta)e on the company+s
de"t "ut %ould poc)et its cash.
ENTERPRISE ZONE is a depressed nei'h"orhood, usually in an ur"an area,
%here "usinesses are 'iven tax incentives and are not su"-ect to some
'overnment re'ulations. $hese advanta'es are desi'ned to attract ne% "usiness
in the &one.
ENTITY, in "usiness, is a separate or self9contained existence that provides
'oods or services.
ENTITY ASSUMPTION is the assumption that financial statements are prepared
for an entity that is separate and distinct from its o%ners.
72
ENTITY CONCEPT is the concept that financial accountin' and reportin' relates
only to the activities of a specific "usiness entity and not to the activities of the
o%ners of that entity.
ENTREPRENEUR is the person %ho assumes the financial ris) of the initiation,
operation and mana'ement of a 'iven "usiness or underta)in'. @e?!he is
primarily a financial and?or professional ris) ta)er almost to the extreme.
EOM is End of Month.
EOY is End 2f 0ear.
EOZ is Environmental 2pportunity Hones.
EPS see EA83(3G! PE8 !@A8E.
EPU see EU(/ABE3$ 3($ 2. P821#$(23.
EQUIPMENT LOAN is a loan used for the purchase of capital e,uipment.
EQUITY is, normally, o%nership or percenta'e of o%nership in a company or
items of value.
EQUITY ACCOUNTING is the practice of sho%in' in a company+s accounts the
share of undistri"uted profits of another company in %hich it holds e,uity
o%nership (usually "elo% J5K). $he share of profit sho%n is usually e,ual to its
share of the e,uity in the other company. $he profit may not actually "e paid
over, "ut the e,uity holdin' company has a ri'ht to this share of the undistri"uted
profit.
EQUITY CAPITAL is a form of financin' %here e,uity in a "usiness is sold to
private investors.
EQUITY FINANCING is a method of an entity o"tainin' funds "y issuin' either
common or preferred stoc), or "oth. 8eceipts can "e throu'h cash, services, or
property. (t is in the entities "est interest to issue shares %hen the mar)et price
for the stoc) is at its hi'hest.
EQUITY FUNDING see EU($0 #AP($AB.
EQUITY METHOD is a method of accountin' for investments in associated
companies.
EQUITY MULTIPLIER (EM) sho%s the amount of assets o%ned "y the firm for
each e,uivalent monetary unit o%ner claims held "y stoc)holders, i.e., the e,uity
multiplier measures ho% many dollars of assets an institution supports %ith each
73
dollar of capital. (f a firm is totally financed "y e,uity, the e,uity multiplier %ill
e,ual 4.55, %hile the lar'er the num"er the more hi'hly levera'ed is the firm. EM
compares assets %ith e,uity7 lar'e values indicate a lar'e amount of de"t
financin' relative to e,uity. EM, thus, measures financial levera'e and
represents "oth profit and ris) measurement. EM affects a firmAs profit "ecause it
has a multiplier impact on 8eturn on Assets (82A) to determine the firmAs 8eturn
on E,uity (82E). EM is also a ris) measure "ecause it reflects ho% many assets
can 'o into default "efore a company "ecomes insolvent. $he EM ratio is "est
compared to industry avera'es.
EQUITY SHARE CAPITAL is capital raised "y an entity throu'h the sale of
common shares.
EQUITY OFFERING see EU($0 #AP($AB.
EQUITYTOASSET RATIO expresses the proportion of total assets financed "y
the o%nerAs e,uity capital. (t is the reciprocal of the de"t9to9asset ratio.
EQUIVALENT UNIT OF PRODUCTION (EPU) is "ased on the idea that if 455
units are all 65K complete, then 65 %hole units could have "een completed.
ERISA, in the .!., refers to the Employee 8etirement (ncome !ecurity Act of
4<=6. E8(!A is a ma-or .!. la% %hich 'uarantees certain cate'ories of
employees a pension after some period at their employer* there had "een more
am"i'uity "efore a"out %hat rules an employer could put on %hich employees
could 'et a pension.
ERP can mean either Enterprise 8esource Plannin' or Early 8etirement
Pro'ram. !ee E3$E8P8(!E 8E!28#E PBA33(3G.
ERROR OF COMISSION is an error that occurs as a result of an action ta)en. (n
accountin', the error occurs %hen one or "oth of the dou"le entries are made in
the correct class of account "ut the %ron' account %ithin that class.
ERROR OF OMISSION is an error %hich occurs as a result of an action not
ta)en. (n accountin', the error occurs %hen "oth the entries re,uired for a
transaction are completely omitted from the "oo)s.
ERROR OF ORIGINAL ENTRY, in accountin', occurs %hen the dou"le entry is
made "ut usin' an incorrect fi'ure.
ERROR OF PRINCIPLE, in accountin', occurs %hen one or "oth of the entries
are made in the %ron' class or cate'ory of account.
ESCHEAT is the reversion of property to the state ('overnment) in the a"sence
of le'al heirs or claimants.
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ESCROW ACCOUNT see $8!$ A##23$.
ESTATE is the entire 'roup of assets o%ned "y an individual at the time of his or
her death. $he estate includes all funds, personal effects, interests in "usiness
enterprises, titles to property9real estate and chattels, and evidences of
o%nership such as stoc)s, "onds and mort'a'es o%ned, notes receiva"le, etc.
All claims a'ainst an estate must "e duly filed %ith the Executor or Administrator
of the estate, and approved "y the court of la% under %hich the %ill is "ein'
pro"ated or the line of herita'e is "ein' determined "efore the inde"tedness may
"e satisfied.
ESTATE TAXES are the .ederal taxes levied on the transfer of property from the
deceased to his or her heirs, le'atees or devisees.
ETC (EXPORT TRADING COMPANY) is a private company that usually
purchases items from domestic manufacturers, then sells them to forei'n
mar)ets. $he difference "et%een an EM# and an E$# is sometimes insi'nificant,
i.e., an EM# may occasionally ta)e title of 'oods, %hile an E$# may sometimes
%or) strictly on commission %ithout purchasin' the 'oods. $he difference is %hat
the company normally does.
EV (/'&+&:(' 6)1-/) is the value of an asset derivin' from its a"ility to 'enerate
income.
EVA see E#232M(# /ABE A11E1.
EVENT RISK is the ris) that the a"ility of an issuer to ma)e interest and principal
payments %ill chan'e "ecause of rare, discontinuous, and very lar'e,
unanticipated chan'es in the mar)et environment such as (4) a natural or
industrial accident or some re'ulatory chan'e or (D) a ta)eover or corporate
restructurin'.
EXCEPTIONAL ITEMS are material items %hich derive from events or
transactions that fall %ithin the ordinary activities of the reportin' entity and %hich
individually or, if of a similar type, in a''re'ate, need to "e disclosed "y virtue of
their si&e or incidence if the financial statements are to 'ive a true and fair vie%.
EXCESS OF REVENUE OVER EXPENSES in the not9for9profit sector. $here is
a common misconception that not9for9profit or'ani&ations are not allo%ed to have
a financial cushion as they are Rnot9for9profitS. (n this context it is useful to
remem"er that not9for9profit or'ani&ations are also Rnot9for9lossS or'ani&ations.
An or'ani&ation cannot sustain losses over the lon' term %ithout ceasin' to
operate or 'oin' "an)rupt. Excess of revenue over expenses is the planned
financial position that there %ill al%ays "e a sufficient amount of funds on hand to
continue to run the not9for9profit entity for some period %ithout additional fundin'*
usually >96 months.
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EXCHANGE RATE is the rate at %hich one currency can "e traded for another.
EXCHANGE RATE RISK, in forei'n exchan'e, is the varia"ility of a firmAs value
due to uncertain chan'es in the rate of exchan'e.
EXCISE TAX is a tax imposed "y federal, state, and local 'overnments on an
act, occupation, privile'e, manufacture, sale, or consumption that is not
deducti"le (e.'., to"acco, 'asoline and spirits). $his term is in increasin' usa'e
to descri"e almost every tax other than income tax and property tax.
EXECUTOR is a le'al entity, fre,uently an individual, )no%n "efore death to a
testator, %ho is named in the testator+s %ill to carry out the desires of the
deceased after his death as desi'nated in the %ill. Executors must "e approved
"y the court of la% pro"atin' the %ill. An executor pays all inde"tedness as
claimed "y creditors of the estate, %ith the approval of the court of la%, and then
carries out or executes the %ill accordin' to the terms set forth "y the testator.
EXFACTORY is %here a seller+s responsi"ility ends %hen the "uyer at point of
ori'in, i.e., factory, accepts merchandise. $his can also "e %ritten as Ex9
Garehouse, Ex9%or)s, etc.
EXISTING USE VALUE (EUV) is the price at %hich a property can "e sold on the
open mar)et assumin' that it can only "e used for the existin' use for the
foreseea"le future.
EXPECTED ANNUAL CAPACITY is the planned activity levels or output for a
'iven year ta)in' into account efficiency and idle capacity.
EXPECTED VALUE OF PERFECT INFORMATION (EVPI) is the difference
"et%een the expected value %ith (additional) perfect information and the
expected value %ith current information. $he expected value of perfect
information is the maximum amount a decision ma)er should pay for additional
information that 'ives a perfect si'nal as to the state of nature.
EXPENDABLE TRUST FUND is a 'overnmental fiduciary fund held in a trustee
capacity "y a 'overnmental a'ency that accounts for assets and activities
restricted to a specific purpose in accordance to formal intent. $he principal of
the fund can "e expended to%ards only the activity specified, e.'.,
nemployment #ompensation .und, Employee Benefits .und, etc.
EXPENDITURE is a cost incurred in the normal course of "usiness to 'enerate
revenues. !ee expenses.
EXPENSE is the amount of assets or services used durin' a period.
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EXPENSES are the daily costs incurred in runnin' and maintainin' a "usiness.
!ee expenditure.
EXPIRED EXPENSE is an expense havin' come to an end or "ecome void after
passa'e of a period of time.
EXPLORATORY RESEARCH is a method used %hen 'atherin' primary
information for a mar)et survey %here tar'eted consumers ? customers are
as)ed very 'eneral ,uestions 'eared to%ard elicitin' a len'thy ans%er.
EXPORT BROKER is an entity that "rin's to'ether forei'n "uyers %ith domestic
manufacturers for a fee, 'enerally providin' little other services. An EM#, %ho is
also a middleman, often provides extensive services to complete the transaction
as %ell.
EXPORT DECLARATION is the official paper%or) re,uired of exporters so trade
transactions and 'oods can "e trac)ed.
EXPORT LICENSE is the 'overnmentally issued le'al permit to export
merchandise. (n the .!., it is either a 'eneral license re,uirin' no additional
paper%or) or a validated license for certain federally controlled items.
EXPOSURE, in forei'n exchan'e, refers to the de'ree to %hich a company is
affected "y exchan'e rate chan'es.
EXPROPRIATION is the ta)in' of property or ri'hts "y 'overnmental authority
such as eminent domain, possi"ly includin' an emer'ency situation, such as
ta)in' a person+s truc) or "ulldo&er to "uild a levee durin' a flood. (n such a case
-ust compensation eventually must "e paid to the o%ner, %ho can ma)e a claim
a'ainst the ta)er.
EXTERNAL AUDIT is an audit conducted "y an individual of firm that is
independent of the company "ein' audited. $hese independent auditors audit the
"oo)s of a company 'enerally once per year (see (3$E8(M A1($) after the
completion of the company+s fiscal year. $heir role is to 'ive an opinion of the
financials statement+s reflection of the status and operations of the company
"ein' audited. Based on %hat they %itness durin' the audit they %ill also
produce, for mana'ement and "oard utili&ation, a mana'ement letter. Althou'h a
financial statement audit is the most common type of external audit, external
auditors may also conduct special purpose audits %hich mi'ht include*
performin' specific tests and procedures and reportin' on the results, a less
intensive revie%, and compilations.
EXTERNAL AUDITOR is an auditor, usually %or)in' for an audit firm, that is
completely independent of the company it is auditin'. External auditors should
77
al%ays "e certified "y a professional association of accountants, and should "e
selected "y, and report to, the corporationAs "oard of directors.
EXTRAORDINARY ITEMS are material items that are unusual in nature and
occur infre,uently. Both characteristics must exist for an item to "e classified as
an extraordinary item on the income statement.
78
FACTORING is the practice of "uyin' de"t at a discount, e.'., if some"ody o%es
you M45,555 paya"le %ithin a year, a factorin' lender may pay you M<,555 for the
de"t. 0ou receive M<,555 cash ,uic)ly, "ut at the cost of the M4,555 discount.
FACTORY OVERHEAD is the costs of operatin' a factory %hich cannot "e
assi'ned directly to a specific department or product.
FAIR LABOR STANDARDS ACT is a .!. federal la% that enforces a 'roup of
minimum standards that employers must a"ide "y %hen hirin' employees.
FAIR MARKET VALUE is the price at %hich a %illin' seller %ill sell and a %illin'
"uyer %ill "uy, in an arms9 len'th transaction, %hen neither is under compulsion
to sell or "uy and "oth have reasona"le )no%led'e of relevant facts.
FAIR VALUE, under GAAP, is the amount at %hich an asset could "e "ou'ht or
sold in a current transaction "et%een %illin' parties, other than in li,uidation. 2n
the other side of the "alance sheet, the fair value of a lia"ility is the amount at
%hich that lia"ility could "e incurred or settled in a current transaction "et%een
%illin' parties, other than in li,uidation.
F3A3S3 (FREE ALONG SIDE), e.'. RF.A.S. New York, means that, for instance, if
'oods are shipped from the !tate of 3evada in the .!. to Madrid, !pain, no
char'es for shipment are made to the importer until the 'oods are ;free alon'side
the vessel; in 3e% 0or). After this point, char'es may "e applied to the importer.
FASB see .inancial Accountin' !tandards Board.
FBWT, in finance, is .und Balance Gith $reasury.
FCIA (FOREIGN CREDIT INSURANCE ACT) is an EximBan) pro'ram that
offers credit insurance a'ainst losses due to political conflict or "uyer default.
FEDERAL UNEMPLOYMENT TAX ACT (FUTA) is a .!, federal la% providin'
'uidelines for the unemployment compensation system. A .ederal tax is paid "y
all lia"le employers to fund the administration of .ederal and !tate
unemployment insurance pro'rams and the extended "enefits pro'ram. .$A
provides for payments of unemployment compensation to %or)ers %ho have lost
their -o"s. Most employers pay "oth a federal and a state unemployment tax.
FEE ABSOLUTE see .EE !(MPBE.
FEE SIMPLE is a"solute o%nership of real property* o%ner is entitled to the
entire property. $his includes unencum"ered ri'ht of disposition durin' his?her
life and upon death the real property passes to his?her heirs. Also )no%n as .EE
!(MPBE AB!2B$E and .EE AB!2B$E.
79
FEE SIMPLE ABSOLUTE see .EE !(MPBE.
FF&E is .urniture, .ixtures & E,uipment (in real estate).
FFO FUNDS FROM OPERATIONS is used "y real estate and other investment
trusts to present the cash flo% from trust operations i.e., earnin's plus
depreciation and amorti&ation.
FGI see .(3(!@E1 G221! (3/E3$280.
FICA (FEDERAL INSURANCE CONTRIBUTIONS ACT) is the .!. la%
re,uirin' .!. employers to match the amount of !ocial !ecurity tax deducted
from an employee+s paychec).
FICTITIOUS NAME is often referred to as a 1BA, ;1oin' Business As,; a
fictitious name is fre,uently used "y sole proprietors or partnerships to provide a
name, other than those of the o%ners or partners, under %hich the "usiness %ill
operate.
FIDUCIARY is a person or "usiness (for example, a "an) or stoc) "ro)era'e)
%ho has the po%er and o"li'ation to act for another (often called the "eneficiary)
under circumstances %hich re,uire total trust, 'ood faith and honesty.
FIFO (,(4%*(+# ,(4%*&-*) is an inventory cost flo% %here"y the first 'oods
purchased are assumed to "e the first 'oods sold so that the endin' inventory
consists of the most recently purchased 'oods.
FINANCE CHARGE is the total dollar amount your loan %ill cost you. (t includes
all interest payments for the life of the loan, any interest paid at closin', your
ori'ination fee and any other char'es paid to the lender and?or "ro)er. (n real
estate, appraisal, credit report and title search fees are normally not included in
the finance char'e calculation.
FINANCIAL ANALYSIS is analysis of a company+s financial statement, usually
"y accountants or financial analysts.
FINANCIAL ACCOUNTING is the area of accountin' concerned %ith reportin'
financial information to interested external parties.
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) is a professional
or'ani&ation %hich develops accountin' principles.
FINANCIAL GUARANTEE INSURANCE is insurance created to cover losses
from specified financial transactions.
8
FINANCIAL INCOME is that income that is contained %ithin the financial
statements of an entity. .inancial income normally is not in ali'nment %ith
taxa"le income reported in income tax returns. !ee $AOABBE (3#2ME.
FINANCIAL LEVERAGE is the use of de"t to increase the expected return on
e,uity. .inancial levera'e is measured "y the ratio of de"t to de"t plus e,uity.
FINANCIAL RATIO is the result of dividin' one financial statement item "y
another. 8atios help analysts interpret financial statements "y focusin' on
specific relationships.
FINANCIAL RATIO ANALYSIS is7 a. an easy and valua"le %ay to interpret and
understand the num"ers found in your financial statements. nderstandin' the
relationships "et%een the num"ers can help you ans%er critical ,uestions a"out
your "usiness 99 and if you monitor the ratios on a re'ular "asis you+ll 'ain insi'ht
into ho% effectively you are mana'in' your "usiness. And7 ". lenders also li)e to
evaluate ris) "y usin' several sets of ratios* ratios of assets to lia"ilities, and
ratios of lender9investor dollars to o%ner9investor dollars. 8eco'ni&e that ratios
are indicators and that only you can tell the full story a"out your "usiness. !o the
more adept you are at explainin' your financial ratios to your investor?lender, the
"etter she?he %ill understand your "usiness as he?she ma)es a investment?credit
decision.
FINANCIAL REPORTING RELEASE (FRR), in the .!., is the policy releases
and pronouncements from the !E# (!ecurities Exchan'e #ommission).
FINANCIAL RESULTS usually refers to the summary financial statements
provided in compliance to the GAAP 'uidelines. $hey can cover any period(s),
"ut usually cover either7 sin'le month, ,uarter, or annual periods.
FINANCIALS see .(3A3#(AB !$A$EME3$.
FINANCIAL SCHEDULE, contained in an audited annual report, summari&es the
audited financial position of the audited entity. 2ther application of the term is the
schedulin' of amounts, not necessarily "y date, of ma-or financial events "y any
'iven cate'ory as to pro-ected receipts, payments, costs, etc.
FINANCIAL STATEMENT is a %ritten report %hich ,uantitatively descri"es the
financial health of a company. $his includes an income statement and a "alance
sheet, and often also includes a cash flo% statement. .inancial statements are
usually compiled on a ,uarterly and annual "asis.
FINANCIAL STATEMENT ANALYSIS is analysis of a company+s financial
statement, usually "y accountants or financial analysts. sually includes indepth
financial ratio analysis comparisons over time periods.
81
FINANCIAL VIABILITY is the a"ility of an entity to continue to achieve its
operatin' o"-ectives and fulfill its mission over the lon' term.
FINANCING MARGIN RATIO (FMR) is the mar'in to "e maintained "et%een the
de"it "alance and the actual security value as stipulated in the .acility Better or
any other mar'in as stipulated "y a lendin' "an) from time to time as the .M8.
FINISHED GOODS INVENTORY is that portion of 'oods in inventory %hich have
completed manufacture and are availa"le for sale.
FISCAL is "elon'in' to the pu"lic treasury* or, pertainin' to pu"lic finance and
financial transactions.
FISCALIST is an economist %ho prefers that the 'overnment affect the economy
"y raisin' and lo%erin' taxation and?or 'overnment spendin'.
FISCAL LEVERAGE is the a"ility of a 'overnment to affect economic conditions
and?or actions of others throu'h fiscalist policies.
FISCAL YEAR is the declared accountin' year for a company, "ut it is not
necessarily in conformance to a calendar year (Canuary throu'h 1ecem"er).
@o%ever, it does cover t%elve months, JD %ee)s, >LJ days. .or example, the
.!. 'overnment fiscal year ends !eptem"er >5, i.e. 2cto"er 4 throu'h
!eptem"er >5 is their fiscal or accountin' year.
FIXED ASSET is a lon'9term tan'i"le asset that is not expected to "e converted
into cash in the current or upcomin' fiscal year, e.'., "uildin's, real estate,
production e,uipment, and furniture. !ometimes called PBA3$.
FIXED ASSETS are those assets of a permanent nature re,uired for the normal
conduct of a "usiness, and %hich %ill not normally "e converted into cash durin'
the ensurin' fiscal period. .or example, furniture, fixtures, land, and "uildin's are
all fixed assets. @o%ever, accounts receiva"le and inventory are not. !ometimes
called PBA3$.
FIXED ASSETS (NET) is all property, plant, leasehold improvements and
e,uipment, net of accumulated depreciation or depletion.
FIXED ASSETS (NET) / NET WORTH measures li,uidity "y comparin' ;fixed;
assets %ith ;fixed; capital. A lo%er ratio indicates proportionately smaller
investment and a "etter ;cushion; for creditors in case of li,uidation. $his may "e
important if the fixed assets are not easily used in other "usinesses. $he
presence of su"stantial leased fixed assets (not sho%n on the "alance sheet)
may deceptively lo%er this ratio. $herefore smaller is "etter, i.e., 'reater than .=J
(=JK) should merit caution.
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FIXED ASSET TURNOVER measures mana'ement+s a"ility to 'enerate
revenues from investments in fixed assets. .A$ considers only the firm+s
investment in property, plant and e,uipment and is extremely important in hi'h
asset firms such as manufactures and telecommunications companies.
Generally, the hi'her this ratio7
the smaller the investment re,uired to 'enerate sales, thus the more
profita"le the firm.
indicates the firm has less money tied up in fixed assets for each dollar of
sales revenue.
A declinin' ratio may indicate that the firm has over9invested in plant, e,uipment,
or other fixed assets.
FIXED BUDGET is a "ud'et that is not ad-usted for chan'es in the volume of
service. !ee .BEO(BBE B1GE$.
FIXED CHARGE is those expenses incurred each time a "atch of product is
produced. Primarily consists of orderin' cost for the ra% material, en'ineerin'
costs for machine setup and preparation for the production run, and %or) order
processin' cost* also )no%n as !E$P #2!$.
FIXED CHARGE RATIO is calculated7 total fixed costs?total expenses.
FIXED COST is a cost that does not vary dependin' on production or sales
levels, such as rent, property tax, insurance, or interest expense.
FIXED COSTS are operatin' expenses that are incurred to provide facilities and
or'ani&ation that are )ept in readiness to do "usiness %ithout re'ard to actual
volumes of production and sales. .ixed costs remain relatively constant until
chan'ed "y mana'erial decision. Githin 'eneral limits they do not vary %ith
"usiness volume. Examples of fixed costs consist of rent, property taxes, and
interest expense.
FIXED FEE is a set price for the completion of a pro-ect. (t is easier for the
customer to "ud'et, "ut provides hi'her ris) for the contractor due to cost
overruns.
FIXED OVERHEAD is those costs li)e rent, utilities, "asic telephone, loan
payments, etc., that stay the same %hether sales 'o up or do%n. /aria"le
overhead, on the other hand, are those costs %hich vary directly %ith production.
FIXED EXPENSES in the operation of a "usiness are those expenses that
remain the same re'ardless of production or sales volume, i.e. do not fluctuate
%ith sales volume. #ontrast %ith /A8(ABBE EOPE3!E!.
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FLASH REPORT provides hi'hli'hts of )ey information promptly to the
responsi"le mana'erial accountant* also called EO#EP$(23 8EP28$.
FLAT INTEREST refers to char'in' interest on the full ori'inal loan amount,
rather than on the declinin' "alance. Gith 'roup "ased loans, for example, a
common ;interest rate; is ;>K per month, flat, for 6 months;. $his means that a
M455 principal amount lent is multiplied "y >K, and then "y 6 months to come up
%ith M4D in interest. $hus, M44D %ould "e repaid over 6 months in e,ual
installments.
FLAT LEASE is a lease %here the cost is fixed for a specific period of time.
FLAT RATE is a per unit price that remains constant re'ardless of the volume
purchased.
FLEXIBLE BUDGET is "ased upon different levels of activity. (t is a very useful
tool for comparin' actual costs experienced to the cost allo%a"le for the activity
level achieved, i.e. it is dynamic in nature as compared to static. A series of
"ud'ets can "e readily developed to fit any activity level. .lexi"le "ud'etin'
distin'uishes "et%een fixed and varia"le cost, there"y allo%in' for a "ud'et that
can "e automatically ad-usted to the level of activity actually attained.
FLOAT is 4. the time "et%een the deposit of chec)s in a "an) and %hen the
amount is truly accessi"le* D. the amount of funds represented "y chec)s that
have "een %ritten "ut not yet presented for payment. !ome entities %ill +play the
float+ "y %ritin' chec)s althou'h there are insufficient funds actually on deposit to
cover the chec)s* and, >. to issue ne% securities throu'h an under%riter.
FLP is .amily Bimited Partnership.
FMR see .(3A3#(3G MA8G(3 8A$(2.
FOOTING, in accountin', is the sum of a column of fi'ures.
F3O3B3 (FREE ON BOARD) is a transportation term that indicates that the price
for 'oods includes delivery at the sellerAs expense to a specified point and no
further. $he .2B term is used %ith an identified physical location to determine 4)
the responsi"ility and "asis for payment of frei'ht char'es, and D) the point a
t%hich title for the shipment passes from seller to "uyer.$he .2B location terms,
2ri'in and 1estination, may "e ,ualified "y modifiers. $he modifier determines
the payment of the transportation char'es. Modifiers denote nothin' a"out the
title of the 'oods or filin' of claims. $he most three common modifiers are7
#ollect, Prepaid & Add, and Prepaid & Allo%. #ollect7 $he carrier collects the
transportation char'es from the "uyer. Prepaid & Add7 $he seller prepays the
transportation char'es, "ut adds the char'es to the invoice for reim"ursement
84
from the "uyer .Prepaid & Allo%7 $he seller prepays the transportation char'es
and they are already included in the contract price3
F3O3B3 DESTINATION is %here the seller retains title and control of 'oods until
they are delivered and the contract of carria'e has "een completed. $he seller
selects the carrier and is responsi"le for the ris) of transportation.
FOB POINT OF ORIGIN is %here the supplier is responsi"le for all shippin'
costs to the point of havin' the 'oods loaded unto the vessel for shipment to its
destination. $he purchaser, from that point for%ard, is responsi"le for all further
shippin' costs to the point of destination, e.'., insurance, transportation, etc.
FOLIO, dependent upon application, is a. a "oo) (or manuscript) consistin' of
lar'e sheets of paper folded in the middle to ma)e t%o leaves or four pa'es* or,
". a sheet of any %ritten or printed material (especially in a manuscript or "oo))*
or, c. the system of num"erin' pa'es* or, d. in investments, an unstructured
"as)et of common stoc) that may represent a stoc) index, a sector or theme, or
even an actively9mana'ed portfolio at inception, "ut %hich may "e modified "y
an investor or an advisor to meet the tax and spendin' needs of its o%ner. $he
rationale for the folio is to ta)e advanta'e of diversification and the a"ility to
reali&e tax losses in a separately mana'ed account. (n 'eneral, an investor %ill
have to devote a fair amount of time to the folio or en'a'e the services of a
speciali&ed advisor.
FOOTING is the sum of a column of fi'ures.
F3O3R3 (FREE ON RAILROAD) is %here 'oods %ill "e delivered "y the exporter
to a rail%ay station. $he importer is responsi"le from this point on.
FORECAST is to estimate or calculate expected "usiness results in advance. $o
plan the "usiness course for the future. A document that sets do%n the plan. !ee
B!(3E!! PBA3, P82CE#$(23, B1GE$.
FOREIGN CURRENCY TRANSLATION is the process of restatin' forei'n
currency accounts of su"sidiaries into the reportin' currency of the parent
company in order to prepare consolidated financial statements in the native
currency of the parent company.
FOREIGN SALES AGENT &4 REPRESENTATIVE is an entity that %or)s to sell
your merchandise in a forei'n country. E,uivalent to the RManufacturer+s
8epresentativeS in the .!.
FORENSIC ACCOUNTING provides for an accountin' analysis that is suita"le to
a court of la% %hich %ill form the "asis for discussion, de"ate and ultimately
dispute resolution. .orensic accountin' encompasses investi'ative accountin'
and liti'ation support. .orensic accountants utili&e accountin', auditin' and
85
investi'ative s)ills %hen conductin' an investi'ation. E,ually critical is the a"ility
to respond immediately and to communicate financial information clearly and
concisely in a courtroom settin'.
FORM ;9<= (S'./5-1/ K;) is the domestic partnership income tax return form
used in the .!.
FORM ;;>9 is the income tax return form used "y corporations in the .!.
FORESEEABLE is %hat may "e reasona"ly anticipated.
FORWARD LOOKING STATEMENTS, %ithin the meanin' of the .!. Private
!ecurities Biti'ation 8eform Act of 4<<J,
are statements made that are not historic and are there"y predictive. 0ou can
identify for%ard9loo)in' statements "y use of the %ords R"elieveS, RexpectS,
RanticipateS, RintendS, RestimateS, RassumeS, Rpro-ectS and other similar
expressions that predict or indicate future events and trends or that do not relate
to historical matters. !uch for%ard9loo)in' statements involve )no%n and
un)no%n ris)s, uncertainties and other factors %hich may cause actual results,
performance or achievements to "e materially different from any future results,
performance or achievements expressed or implied "y such for%ard9loo)in'
statements.
FORWARD PREMIUM is %hen a currency trade for%ard price is hi'her than its
spot price.
FP, amon' others, means .ixed Price.
FRANCHISE is a le'al arran'ement 'ivin' ri'hts to sell a product or service.
FRAUD is intentional deception resultin' in in-ury to another person or entity
FREE CASH FLOW is net income plus non9cash char'es to income, specifically
depreciation and amorti&ation less capital expenditures, to sustain the "asic
"usiness.
FREE TRADE AGREEMENT is an a'reement "et%een countries that %ill result,
over an a'reed period of time, in an elimination of duties for 'oods flo%in'
"et%een the si'natories.
FREE TRADE ZONE (FTZ) is an area, usually a port of entry, desi'nated "y the
country for duty9free entry of 'oods. As lon' as the 'oods do not 'o into the
country from the .$H, no duty is assessed. Ghile in the .$H, 'oods may "e
processed, pac)a'ed, serviced or displayed.
86
FREIGHT FORWARDER is an individual or firm that provides for the pac)in'
and shippin' of merchandise. Generally they also assist %ith export and other
documentation.
FRIENDLY TAKEOVER consists of a strai'ht "uyout of a company, and
happens all the time. $he shareholders receive cash or (more commonly) an
a'reed9upon num"er of shares of the ac,uirin' company+s stoc).
FREQUENCY, in advertisin', is the num"er of times you hope to reach your
tar'et audience throu'h your advertisin' campai'n.
FRF is an acronym for .rench .rancs.
FRR see .(3A3#(AB 8EP28$(3G 8EBEA!E.
FRS ;?, in the :, is a deferred tax standard. (n summary7
A. 1eferred tax is provided on timin' differences relatin' to7
9 accelerated capital allo%ances and depreciation
9 accruals for and payments of pension and other post retirement "enefits
9 the elimination of unreali&ed intra 'roup profits
9 unrelieved tax losses
9 Rfair value revaluationsS that are ta)en annually to the profit and loss account
9 other short9term timin' differences
B. 1eferred tax is not provided on timin' differences relatin' to7
9 other fixed asset revaluations, %here there is no intention to sell
9 'ains that are rolled over
9 unremitted overseas earnin's, %here there is no intention to remit.
$he .8! 4< !tandard also includes further, detailed measurement and
disclosure rules.
FSA has several possi"le meanin's, e.'. .lexi"le !pendin' Account (employee
"enefit offered "y some companies) or .undin' !tandard Account.
FULL CHARGE BOOKKEEPER is someone %ho can do it all 9 includin'
compilin' the data into the General Bed'er and preparin' financial statements.
FULL COSTING see AB!28P$(23 #2!$(3G.
FULL COST RECOVERY is ad-ustin' fees?prices for 'oods?services to %here all
cost of operations and maintenance are covered for supplyin' the 'iven 'oods or
services.
FULL DISCLOSURE, 'enerally, is the re,uirement to disclose all relevant or
material facts to a transaction.
87
FULLY DEPRECIATED is %hen an asset has already "een char'ed %ith the
maximum amount of depreciation allo%ed "y the taxin' authority for accountin'
purposes.
FUND is a pool of money normally set apart for a purpose, for example, a
pension fund to provide pensions.
FUND ACCOUNTING is a method of accountin' and presentation %here"y
assets and lia"ilities are 'rouped accordin' to the purpose for %hich they are to
"e used. Generally used "y 'overnment entities and not9for9profits.
FUNDAMENTAL ANALYSIS is a method used to evaluate the %orth of a
security "y studyin' the financial data of the issuer. Performin' fundamental
analysis %ill teach you a lot a"out a company, "ut virtually nothin' a"out ho% it
%ill perform in the stoc) mar)et. Apply this analysis on t%o competin' companies
or in comparisone to its industry and it "ecomes clearer %hich the "est
investment choice is. !ee .31AME3$AB!.
FUNDAMENTALS are factors %hich are RfundamentalS to the %or)in' of a
companyAs "usiness, its profita"ility, operatin' costs, product prices, technical
innovations, etc. #ompany analysis ta)in' into account these fundamental
factors facilitates share valuation. !ee .31AME3$AB A3AB0!(!.
FUNDED DEPRECIATION ACCOUNT is a reserve setup to cover the
replacement cost of those capital assets covered %ithin the depreciation
schedule.
FUND MANAGEMENT is the professional, in many cases re'ulated, careta)er of
client assets for a fee. 1ependent upon type of fund, the fund may "e authori&ed
to put assets %ithin the fund at ris) in the pursuit of profits for the asset o%ners
(clients).
FUNDS FLOW is the funds 'enerated from operations* normally expressed as
+cash flo% from operations+ or +%or)in' capital from operations+.
FUTA see .E1E8AB 3EMPB20ME3$ $AO A#$.
FUTURE VALUE is the amount of money that an investment made today (the
present value) %ill 'ro% to "y some future date. !ince money has time value, %e
naturally expect the future value to "e 'reater than the present value. $he
difference "et%een the t%o depends on the num"er of compoundin' periods
involved and the 'oin' interest rate.
FX ACCOUNT (.orei'n Exchan'e Account) is a tradin' account usually "ased in
forei'n currencies.
88
FYE is .or 0ear Endin'.
89
GAAP see GE3E8ABB0 A##EP$E1 A##23$(3G P8(3#(PBE!.
G&A usually refers to the indirect overhead costs contained %ithin the General
and Administrative expense ? cost cate'ories (see also !G&A).
GAI is Guaranteed Annual (ncome.
GAO see GE3E8AB A##23$(3G 2..(#E.
GARBAGE IN# GARBAGE OUT (GIGO) is an often used computer and soft%are
industry sayin' meanin' that if the data 'oin' into a system is suspect, the
resultin' data output %ill "e suspect.
GASB stands for Government Accountin' !tandards Board.$he GA!B is a
nonprofit or'ani&ation responsi"le for esta"lishin' and improvin' accountin' and
financial reportin' standards for 'overnmental units.
GATT (GENERAL AGREEMENT ON TARIFFS AND TRADE) is a multilateral
treaty that aims to reduce trade "arriers and increase trade. $he GA$$ %as an
interim treaty process that has no% culminated in the Gorld $rade 2r'ani&ation
(G$2).
GBP is nited :in'dom Pound !terlin' (#urrency #ode).
GDP see G82!! 12ME!$(# P821#$.
GEARING is the proportion of the capital employed of a company that is financed
"y lenders rather than shareholders.
GEARING RATIO measures the percenta'e of capital employed that is financed
"y de"t and lon' term financin'. $he hi'her the 'earin', the hi'her the
dependence on "orro%in' and lon' term financin'. Ghereas, the lo%er the
'earin' ratio, the hi'her the dependence on e,uity financin'. $raditionally, the
hi'her the level of 'earin', the hi'her the level of financial ris) due to the
increased volatility of profits. .inancial mana'er face a difficult dilemma. Most
"usinesses re,uire lon' term de"t in order to finance 'ro%th, as e,uity financin'
is rarely sufficient, on the other hand, the introduction of de"t and 'earin'
increases financial ris). A hi'h 'earin' ratio is positive* a lar'e amount of de"t
%ill 'ive hi'her return on capital employed "ut the company dependent on e,uity
financin' alone is una"le to sustain 'ro%th. Gearin' can "e ,uite hi'h for small
"usinesses tryin' to "ecome esta"lished, "ut in 'eneral they should not "e
hi'her than J5K. !hareholders "enefit from 'earin' to the extent that return on
the "orro%ed money exceeds the interest cost so that the mar)et value of their
shares rise.
9
GENERAL ACCOUNTING involves the "asic principles, concepts and
accountin' practice, recordin', financial statement preparation, and the use of
accountin' information in mana'ement.
GENERAL ACCOUNTING OFFICE (GAO) is the or'ani&ation in the .!.
#on'ress that investi'ates the performance of the federal 'overnment. GA2
evaluates the use of pu"lic funds and the performance of federal pro'rams, %hile
also providin' analytical, investi'ative and le'al services in order to support to
#on'ress in its policy formulation and decision ma)in' processes. Most GA2
reports are initiated at the re,uest of #on'ress, %hile some are initiated "y the
a'ency itself or are re,uired "y la%.
GENERAL EXPENSE is expense not directly connected %ith any sin'le
department.
GENERAL !OURNAL is the most "asic of -ournals. (t is a chronolo'ical list of
transactions. (t has a very specific format for recordin' each transaction. Each
transaction is recorded separately and consists of7 4.) a date* D.) any and all
accounts to receive a de"it entry are listed first %ith an amount in the appropriate
column, then* >.) any and all accounts to receive a credit entry are indented and
listed next %ith an amount in the appropriate column* 6.) a clear description of
the transaction. At least one line is then s)ipped to visually separate recorded
transactions.
GENERAL LEDGER is the record of all account entries.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) is a
reco'ni&ed common set of accountin' principles, standards, and procedures.
GAAP is a com"ination of accepted methods of doin' accountin' and policy
"oard set authoritative standards.
GENERALLY ACCEPTED AUDITING STANDARDS (GAAS), in the !, are the
"road rules and 'uidelines set do%n "y the Auditin' !tandards Board of the
American (nstitute of #ertified Pu"lic Accountants (A(#PA). (n carryin' out %or)
for a client, a certified pu"lic accountant %ould apply the 'enerally accepted
accountin' principles (GAAP)* if they fail to do so, they can "e held to "e in
violation of the A(#PA+s code of professional ethics.
GENERAL LEDGER is the accountin' records that sho% all the financial
statement accounts of a "usiness.
GENERAL PARTNERSHIP is one or more partners %ho are -ointly and severally
responsi"le or lia"le for the de"ts of the partnership.
GEOGRAPHICAL SEGMENT is a component of an enterprise that (a) provides
products and services %ithin a particular economic environment and (") that is
91
su"-ect to ris)s and returns that are different from those of components operatin'
in other economic environments.
GFOA is Government .inance 2fficers+ Association.
GILT is a "ond issued "y the : 'overnment. Gilts are e,uivalent to a .!.
$reasury security.
GLOBAL CUSTODY is a term used %ithin the investment "an)in' industry in
definin' securities?monetary instruments that are traded internationally "y Glo"al
#ustodians. $hose securities %ould "e held in ;Glo"al #ustody;. #hase Ban)
ori'inated the concept of providin' Glo"al #ustody tradin' services for
institutional investors tradin' in forei'n mar)ets in 4<=6. Ban)s reco'ni&ed as
Glo"al #ustodians provide their customers %ith Glo"al #ustody services in
respect to securities traded and settled not only in the country in %hich the Glo"al
#ustodian is located "ut also in numerous other countries throu'hout the %orld.
GLOBAL DEPOSITORY RECEIPTS are receipts evidencin' o%nership in the
underlyin' shares of a forei'n company. Generally, .!. "an)s and trusts issue
American depository receipts (A18) and American depository shares (A1!).
$hey hold the forei'n company securities underlyin' the receipts in their vaults.
(n addition to the underlyin' securities, the receipts entitle the shareholder to all
dividends and capital 'ains. $he "an) or trust company issuin' the receipts may
have denominated the receipts in a currency other than the currency underlyin'
the forei'n security. .!. and European "an)s and trust companies usually issue
'lo"al depository receipts (G18), %hich are receipts in the shares of 'lo"al
offerin' of a forei'n issuer %ho has issued t%o securities simultaneously in t%o
mar)ets, usually pu"licly in non9.!. mar)ets and privately in the .!. mar)et.
European "an)s and trust companies 'enerally issue European depository
receipts (E18), sometimes called continental depository receipts (#18) %hen
issued in "earer form, %hich evidence o%nership in forei'n securities.
GLOBAL MUTUAL FUND, also Bond .und, is a mutual fund that can invest in
stoc)s and "onds throu'hout the %orld. !uch funds typically have a portion of
their assets in American mar)ets as %ell as Europe, Asia, and developin'
countries. Glo"al funds differ from (3$E83A$(23AB M$AB .31!, %hich
invest only in non9#anadian securities. $he advanta'e of 'lo"al funds is that the
fund mana'ers can "uy stoc)s or "onds any%here they thin) has the "est
opportunities for hi'h returns. $hus if one mar)et is underperformin', they can
shift assets to mar)ets %ith "etter potential. $hou'h some 'lo"al funds invest in
"oth stoc)s and "onds, most funds speciali&e in either stoc)s or "onds.
GMP is either Good Manufacturin' Practice(s) or Gross Maximum Price.
GMROI is an acronym for Gross Mar'in 8eturn 2n (nvestment (retail).
92
GNP see G82!! 3A$(23AB P821#$.
GOAL is the milestone the or'ani&ation aims to achieve that evolves from the
strate'ic issues. $hey transform strate'ic issues into specific performance
tar'ets that impact the entire or'ani&ation. $hey can "e ,ualitative or
,uantitative. 1ependent upon usa'e, G2AB! are 'eneral in nature, %hile
2BCE#$(/E! are specific, measura"le and time9"ased. (n some or'ani&ations,
the meanin's for G2AB and 2BCE#$(/E are reversed.
GOING CONCERN refers to the li,uidity of a concern. (f the concern is illi,uid,
the via"ility of that concern "ein' a"le to continue to operate is in dou"t.
GOING CONCERN CONCEPT is the underlyin' assumption that any accountant
ma)es %hen he prepares a set of accounts. $hat the "usiness under
consideration %ill remain in existence for the foreseea"le future.
GOING CONCERN PRINCIPLE assumes that the accountin' entity %ill maintain
proper accountin' records from the date of its esta"lishment to the date of its
li,uidation.
GOING PUBLIC refers to those activities that relate to offerin' a private
company+s shares to the 'eneral investin' pu"lic includin' re'isterin' %ith the
!E#.
GOING RATE is an expression that means the cost of the avera'e of suppliers
of li)e products or services. $he connotation is that the cost %ill "e ;no more
expensive than the competition.;
GOLDEN RULES OF ACCOUNTING are7 4. 1e"its ABGA0! EUAB #redits* D.
(ncreases 12 32$ 3E#E!!A8(B0 EUAB 1ecreases* and, >. Assets 9
Bia"ilities N 2%ner+s E,uity ($he Accountin' E,uation).
GOODWILL is that intan'i"le possession %hich ena"les a "usiness to continue
to earn a profit that is in excess of the normal or "asic rate of profit earned "y
other "usinesses of similar type. $he 'ood%ill of a "usiness may "e due to a
particularly favora"le location, its reputation in the community, or the ,uality of its
employer and employees. $he evidence that 'ood%ill exists is the proven a"ility
to earn excess profits. Good%ill is created on the "oo)s of a ne%ly purchased
company to the extent that the purchase price of the company is 'reater than the
value of its net tan'i"le assets.
GRANTEE is the person or entity to %hom property or assets are transferred.
GRANTOR is the person or entity %ho transfers property or assets.
93
GREEN BOOK is a pu"lication entitled .!. 2verseas Boans and Grants and
Assistance from (nternational 2r'ani&ations. $his data, %hich is 'rouped "y
country and 'eo'raphic re'ion, includes assistance from !A(1, military
assistance, P.B. 6I5, Export9(mport Ban), etc. from 4<6J to the last completed
fiscal year.. $his pu"lication is released shortly after the #on'ressional
Presentation is distri"uted.
GROSS is7 a. the entire amount of income "efore any deductions are made* or,
". any total amount "efore any deductions (examples7 'ross income or 'ross
la"or).
GROSS CONTRIBUTION is the startin' amount prior to any relevant deductions
have "een made to the 'ross amount, e.'., Gross Contribution to ar!in.
GROSS DOMESTIC PRODUCT (GDP) is the value of all the 'oods and services
produced "y %or)ers and capital located %ithin a country (or re'ion), such as the
nited !tates, re'ardless of nationality of %or)ers or o%nership. 1omestic
measures relate to the physical location of the factors of production* they refer to
production attri"uta"le to all la"or and property located in a country. $he national
measures differ from the domestic measures "y the net inflo% 99 that is, inflo%
less outflo% 99 of la"or and property incomes from a"road. Gross 1omestic
Product includes production %ithin national "orders re'ardless of %hether the
la"or and property inputs are domestically or forei'n o%ned.
GROSS MARGIN is the ratio of 'ross profit to sales revenue. (sometimes used
as a synonym for 'ross profit). .or a manufacturer, 'ross mar'in is a measure of
a company+s efficiency in turnin' ra% materials into income* for a retailer it
measures their mar)up over %holesale. G82!! MA8G(3 is 'ross income
divided "y net sales, expressed as a percenta'e.
GROSS NATIONAL PRODUCT (GNP) is the total dollar value of all final 'oods
and services produced for consumption in society durin' a particular time period.
$he G3P does include allo%ances for depreciation and indirect "usiness taxes
such as those on sales and property. Gross national product is the output of
la"or and property of ! nationals re'ardless of the location of the la"or and
property. Gross 3ational Product includes income earned "y the factors of
production (assets and la"or) o%ned "y a country+s residents "ut excludes
income produced %ithin the country+s "orders "y factors of production o%ned "y
nonresidents.
GROSS NEGLIGENCE is any action or an omission in rec)less disre'ard of the
conse,uences to the safety or property of another. !ometimes referred to as
;very 'reat ne'li'ence; and it is more then -ust ne'lect of ordinary care to%ards
others or -ust inadvertence. Also )no%n as the Batin term culpa lata.
94
GROSS PAY is employee salary prior to the application of taxes and other
deductions.
GROSS PROFIT is net sales minus cost of sales.
GROSS PROFIT MARGIN ON SALES (GPM) is one of the )ey performance
indicators. $he 'ross profit mar'in 'ives an indication on %hether the avera'e
mar)up on 'oods and services is sufficient to cover expenses and ma)e a profit.
GPM sho%s the relationship "et%een sales and the direct cost of
products?services sold. (t measures the a"ility of "oth to control costs and to pass
alon' price increases throu'h sales to customers. $he 'ross profit mar'in should
"e sta"le over time. A persistent 'radual decrease is li)ely to indicate that
productivity needs to "e increased to return profita"ility "ac) to previous levels.
GROSS PROFIT METHOD is an inventory estimate "ased on 'ross mar'in.
GROSS RECEIPTS is the total amount received prior to the deduction of any
allo%ances, discounts, credits, etc.
GROSS REVENUE is income (at invoice values) received for 'oods and services
over some 'iven period of time. !ee also G82!! !ABE!.
GROSS SALES is the total revenue at invoice value prior to any discounts or
allo%ances. !ee also G82!! 8E/E3E.
GROSS WEIGHT is the %ei'ht of a shipment includin' pac)in' material.
GROUP is a num"er of individual companies assem"led to'ether* often havin'
some unifyin' relationship.
GROUP ACCOUNTS are the financial statements of a 'roup of companies.
$hese are usually presented in the form of consolidated accounts.
GUARANTEE see GA88A3$0
95
HARD COSTS is the purchase price of actual assets. .or example, the purchase
price of a ne% printin' press %ould "e the hard cost. $he soft costs are additional
fees for items li)e factorin'9invoiced installation, prepaid and extended
%arranties, or service contracts for the ne% e,uipment.
HARMONIZED SYSTEM is an internationally a'reed upon classification system
for trade. (t provides code num"ers to specify a 'oods classification* there"y
ma)in' customs duty determination more predicta"le.
HEADCOUNT is the act of countin' people in a certain %ay or in a particular
'roup.
HEAD OF HOUSEHOLD is a .!. income tax filin' status that can "e used "y
an unmarried person %ho maintains a home for a dependent (or nondependent
relative) durin' the tax year.
HEDGE, in securities, is a transaction that reduces the ris) of an investment.
HEDGE FUND is a special type of investment fund %ith fe%er restrictions on the
types of investments it can ma)e. 2f note is a hed'e fund+s a"ility to sell short. (n
exchan'e for the a"ility to use more a''ressive strate'ies, hed'e funds are more
exclusive, i.e., fe%er people, usually only the %ealthy, are allo%ed to invest in
hed'e funds.
HEDGING, in securities, is ta)in' t%o positions that %ill offset each other if prices
chan'e, there"y limitin' financial ris).
HELD TO MATURITY normally refers to a lon' term security (note or "ond held
for more than one year) that has a predetermined maturation event.
HIDDEN ASSET is any valued asset that is not included in the "oo) value of a
company. #ompanies have hidden assets such as intellectual property, or
customer lists %hich are of 'reat value, "ut not reflected in the "oo) value.
HIGHLOW METHOD is an al'e"raic procedure used to separate a semi9
varia"le cost into the varia"le and fixed components. $he method calls for usin'
the extreme data points (hi'hest and lo%est x 9 y pairs) in the #2!$9/2BME
.28MBA y N a Q "x* %here a N fixed cost portion and " N the varia"le rate.
HIRE AND PURCHASE AGREEMENT is a contract (more fully called contract of
hire %ith an option of purchase) in %hich a person hires 'oods for a specified
period and at a fixed rent, %ith the added condition that if he shall retain the
'oods for the full period and pay all the installments of rent as they "ecome due
the contract shall determine and the title vest a"solutely in him, and that if he
chooses he may at any time durin' the term surrender the 'oods and "e ,uit of
96
any lia"ility for future installments upon the contract. (n the nited !tates such a
contract is 'enerally treated as a conditional sale, and the term hire purchase is
also sometimes applied to a contract in %hich the hirer is not free to avoid future
lia"ility "y surrender of the 'oods. (n En'land, ho%ever, if the hirer does not have
this ri'ht the contract is a sale.
HISTORICAL COST ACCOUNTING is an accountin' principle re,uirin' all
financial statement items to "e "ased on ori'inal cost. (t is usually "ased upon
the dollar amount ori'inally exchan'ed in an arm+s9len'th transaction* an amount
assumed to reflect the fair mar)et value of an item at the transaction date.
HOLDING COMPANY is a company %hich o%ns or controls other companies.
(#ontrol can occur throu'h the o%nership of J5 per cent or more of the votin'
ri'hts or throu'h the exercise of a dominant influence.)
HORIZONTAL FINANCIAL ANALYSIS allo%s comparison of one company+s
ratios to the ratios of other companies as %ell as to avera'e industrial ratios and
internal industrial deviation of these ratios.
HOSTILE TAKEOVER occurs %hen a company attempts to "uy out another
%hether they li)e it or not. A hostile ta)eover can occur only throu'h pu"licly
traded shares, as it re,uires the ac,uirer to "ypass the "oard of directors and
purchase the shares from other sources. $his is difficult unless the shares of the
tar'et company are %idely availa"le and easily purchased (i.e., they have hi'h
li,uidity). A hostile ta)eover may presa'e a corporate raid.
HUMAN CAPITAL is the uni,ue capa"ilities and expertise of individuals that are
productive in some economic context.
HURDLE RATE is a term used in the "ud'etin' of capital expenditures meanin'
the 8EU(8E1 8A$E 2. 8E$83 in a 1(!#23$E1 #A!@ .B2G analysis.
(f the e"pected rate o# return on an investment is "elo% the hurdle rate, the
pro-ect is not underta)en. $he hurdle rate should "e e,ual to the (3#8EME3$AB
#2!$ 2. #AP($AB.
HYBRID INSTRUMENT is a pac)a'e containin' t%o or more different )inds of
ris) mana'ement instruments that are usually interactive.
HYPOTHECATION, in securities, is the pled'in' of securities to "ro)ers as
collateral for loans made to cover short sales or purchase securities. (n "an)in',
it is the pled'in' of property to secure a loan.
97
IBA, amon' others, can mean7 (ndividual Bro)era'e Account, (ndividually Billed
Accounts, (nstitute of Business Appraisers, (nternational Bar Association, or,
(nternational Business Advisors.
IBNR is (ncurred But 3ot 8eported.
IDENTIFIABLE ASSETS )+5 LIABILITIES are those assets and lia"ilities of a
"usiness that can "e disposed of %ithout disposin' of the entire "usiness. (t
includes "oth tan'i"le and intan'i"le assets.
IMA, in accountin', refers to the (nstitute of Mana'ement Accountants.
IMMATERIALITY is of complete irrelevance re,uirin' no further consideration.
IMPAIRED ASSETS, in "an)in', applies to all pro"lem assets %hich "an)s hold,
and is not limited to pro"lem loans. (n addition to loans, it also captures off9
"alance sheet exposures and assets %hich have come onto "an)s "alance
sheets throu'h enforcement of security conditions. !ee (MPA(8ME3$ 2.
/ABE.
IMPAIRED GOODWILL is the reco'nition of the reduction in value of the
intan'i"le asset )no%n as 'ood%ill.
IMPAIRMENT OF VALUE is the permanent decline in the value of an asset. $he
entry is to de"it the loss account and credit the asset for the loss in utility. !ee
(MPA(8E1 A!!E$!.
IMPOSTA VALORE AGGIUNTO TAX (IVA TAX), in (taly, li)e most other
European countries, (taly imposes a value added tax (/A$) on most 'oods and
services purchased in the country. (n (taly, the value added tax is )no%n as the
(mposta sul /alore A''iunto or (/A. $his tax is normally included or "uilt into the
price of most 'oods and services. $he 'eneral rate of tax is 4<K of the sale
price.
IMPREST see PE$$0 #A!@
IMPUTED COSTS refer to the cost of an asset, service, or company that is not
physically recorded in any accounts "ut is implicit in the product.
IMPUTED VALUE is the lo'ical or implicit value that is not recorded in any
accounts, e.'., in the pro-ection of annual fi'ures, values are imputed for months
for %hich the actual values are not yet )no%n.
INBR see (3#88E1 B$ 32$ 8EP28$E1* could also mean (nsurance
Bro)er.
98
INCOME is money received "y a person or or'ani&ation "ecause of effort (%or)),
or from return on investments.
INCOME CAPITALIZATION" .irst you must determine the capitali&ation rate 9 a
rate of return re,uired to ta)e on the ris) of operatin' the "usiness (the ris)ier the
"usiness, the hi'her the re,uired return). Earnin's are then divided "y that
capitali&ation rate. $he earnin's fi'ure to "e capitali&ed should "e one that
reflects the true nature of the "usiness, such as the last three years avera'e,
current year or pro-ected year. Ghen determinin' a capitali&ation rate you should
compare %ith rates availa"le to similarly ris)y investments.
INCOME GEARING RATIO is (nterest Expense ? 2peratin' Profit.
INCOME STATEMENT see P82.($ A31 B2!! !$A$EME3$.
INCOME TAXES PAYABLE is income taxes due includin' current portion of
deferred taxes.
INCOME THEORIES try to identify the real profit of an or'ani&ation. $he difficulty
here is that you need to define %hose income you are measurin', and that
limitin' income measurements to thin's that can "e 'iven a price devalues
'oods and services that are difficult or impossi"le to price.
INCREMENTAL COST is the increase or decrease in costs as a result of one
more or one less unit of output.
INCREMENTAL COST OF CAPITAL is the %ei'hted cost of the additional
capital raised in a 'iven period. Gei'hted cost of capital, also called composite
cost o# capital, is the %ei'hted avera'e of costs applica"le to the issues of de"t
and classes of e,uity that compose the firmAs capital structure. Also called
mar!inal cost o# capital.
INCUR is ac,uirin' or 'ettin' into somethin' undesira"le. (n "usiness it usually is
referencin' a lia"ility, e.'., incurrin' a loss or to incur a de"t.
INCURRED BUT NOT REPORTED (IBNR), in insurance, losses occurrin' over
a specified period that have not "een reported to the insurer. (B38 losses are
often calculated as a percenta'e of claims paid and claims outstandin' and are
reported in an insurer+s annual report. 8einsurers esta"lish (B38 reserves as a
part of their ratin' plans under a facultative reinsurance treaty, lest an overly
optimistic vie% of treaty results lead to further under9ratin' on a "oo) of "usiness.
Example7 Product lia"ility losses are seldom reported durin' a policy year. $his
;tail; of claims %ill upset any ratin' plan, unless an (B38 reserve is esta"lished
and factored into the profit picture.
99
INDEFEASIBLE not lia"le to "ein' annulled or voided or undone, usually in
reference to an interest in real property (e.'., an indefeasi"le o%nership interest
in a piece of property).
INDENTURE is an a'reement "et%een lender and "orro%er %hich details
specific terms of the "ond issuance. !pecifies le'al o"li'ations of "ond issuer
and ri'hts of "ondholders. $here is usually a indenture document spellin' out the
specific terms of a "ond as %ell as the ri'hts and responsi"ilities of "oth the
issuer of the security and the holder.
INDIRECT COST is that portion of cost that is indirectly expended in providin' a
product or service for sale (cannot "e traced to a 'iven cost o"-ect in an
economically feasi"le manner) and is included in the calculation of #2!$ 2.
G221! !2B1, e.'. rent, utilities, e,uipment maintenance, etc. 2pposite of
direct cost.
INDUCTIVE ACCOUNTING THEORY (scientific method) assumes accountin'
standards are some%hat li)e evolution of a species in nature 999 survival of the
fittest. (t relies heavily upon controlled experimentation (e.'., "ehavioral
accountin' research) and statistical testin' (e.'., capital mar)ets ;events; studies
of the impact of accountin' information on mar)et prices and volume of
transactions).
INDUSTRIAL REVENUE BOND (I3R3B3) is a "ond issued "y local 'overnment
a'encies in favor of corporations.
INDUSTRY ANALYSIS includes, "ut is not limited to7 a. 1efinition of the industry*
". (ndustry Bife #ycle 9 'ro%th, maturity or decline* c. (ndustry @istory 9 ho% old is
the industry* d. (n9depth historical financial performance ratio analysis* e. (ndustry
$rends 9 cyclical or seasonal, increased competition etc.* f. (ndustry (nfluential
.actors 9 does economy, 'overnment, or competition effect industry* '. Primary
#ompetitors alon' %ith entry ris) and "arriers to entry* and, h. Pro-ected (ndustry
!ales 9 total sales in the industry.
INFLATION is an increase in the 'eneral price level of 'oods and services*
alternatively, a decrease in the purchasin' po%er of the dollar or other currency.
INFLATION ACCOUNTING is a system of accountin' %hich, unli)e historical
cost accountin!, ta)es into account chan'in' prices.
INFLATION AD!USTMENT is %henever any fi'ure is ad-usted for
inflation?deflation. (t simply means that all fluctuations in price (up%ard or
do%n%ard) that are directly attri"uta"le to inflation?deflation are reflected into that
fi'ure throu'h either addin' or su"tractin' the amount that is directly caused "y
inflation?deflation.
1
INFORMATION / INFORMATIONAL RETURN is one of many returns that only
communicates to the (nternal 8evenue !ervice information relevant to tax lia"ility
and does not compute the actual lia"ility of any taxpayer or accompany the
actual payment of tax* used for sale of property, dividends, and others (e.'., G9D
and .orms 45<<).
INFORMATION THEORY is a "ranch of mathematics that overlaps into
communications en'ineerin', "iolo'y, medical science, sociolo'y, and
psycholo'y. $he theory is devoted to the discovery and exploration of
mathematical la%s that 'overn the "ehavior of data as it is transferred, stored, or
retrieved.
INFRASTRUCTURE is the resources (as personnel, "uildin's, or e,uipment)
re,uired for an activity.
INITIATE is to set 'oin' "y ta)in' the first step, e.'., initiate contract
ne'otiations.
INKIND is the value of 'oods or services provided for %hich money %ould have
other%ise "een paid.
INSIDER TRADING is the tradin', primarily of securities, "y mana'ement or
others %ho have special access to unpu"lished information. (f the information is
used to ille'ally ma)e a profit, there may "e lar'e fines and possi"le -ail
sentences.
INSOLVENCY occurs %hen a "usiness is una"le to pay de"ts as they fall due.
INSTALLEMENT AGREEMENT see (3!$ABBME3$ !ABE.
INSTALLMENT SALE is sellin' property and receivin' the sales price over a
series of payments, instead of all at once at the close of the sale, is an
installment sale. As the seller, unless you elect out, you %ill report the 'ain on
that transaction as you receive it throu'h the series of payments. As the "uyer,
you %ill usually pay interest on the unpaid "alance.
INSURANCE CLAIM is a %ritten notification to an insurance company re,uestin'
payment of an amount due under the terms of the policy.
INTANGIBLE ASSET is an asset that is not physical in nature. Examples are
thin's li)e copyri'hts, patents, intellectual property, or 'ood%ill. An intan'i"le
asset is the opposite of tan'i"le asset.
INTANGIBLES (NET) are intan'i"le assets, includin' 'ood%ill, trademar)s,
patents, catalo's, "rands, copyri'hts, formulas, franchises, and mailin' lists, net
of accumulated amorti&ation.
11
INTEGRATED FINANCIAL MODEL is normally a spreadsheet "ased financial
model that inte'rates all pro-ected revenues and costs from all activity into
financial performance pro9forma pro-ections over time. 1ependent upon the
complexity of the model, the output can "e at a very hi'h level (non9complex) to
hi'hly 'ranular output (hi'her de'ree of complexity).
INTEGRATED LEDGER see E3$E8P8(!E 8E!28#E PBA33(3G.
INTELLECTUAL CAPITAL (ntellectual capital "undles )no%led'e resources
(ho% the Pproduction functionsS, that is the constellation of employees, users,
processes and technolo'ies, %or)). (ntellectual capital ena"les a company to
ma)e a difference to users via its )no%led'e resources.
INTELLECTUAL CAPITAL STATEMENT (ICS) provides7 a. (nsi'hts into the
userAs situation (N the customers situation)* ". (nsi'ht into the collea'ueAs s)ills
and improvements of team%or)* c. (nsi'ht in the practical s)ills e.'.
craftsmanship7 from )no%in' ho% to develop and improve production methods to
"e capa"le of handlin' information technolo'y etc.* d. (nsi'hts in the )no%9ho%
represented in the companyAs processes and systems and ho% these can "e
used to improve the ,uality of products or services* e. (nsi'ht in the motivation or
commitment as re'ards the further development of the companyAs products and
services* f. (nsi'ht in the future needs for )no%led'e* '. (nsi'ht in the s)ills,
competencies and ,ualification that can ma)e a difference to the company.
INTENSITY DRIVERS are used to directly char'e for the resources used each
time an activity is performed.
INTERCOMPANY means occurrin' "et%een companies.
INTEREST, in la%, is a ri'ht or le'al share of somethin' or a financial
involvement %ith somethin'* in finance, it is a fixed char'e for "orro%in' money*
usually a percenta'e of the amount "orro%ed.
INTERESTBEARING means payin' interest.
INTERESTED PARTY is any person that has a real and direct interest in any
proceedin' or action "ein' proposed or ta)en.
INTEREST EXPENSE is the cost of "orro%in' funds in the current period. (t is
sho%n as a financial expense item %ithin the income statement.
INTEREST RATE is the rate of interest char'ed for the use of money, usually
expressed as an annual rate. $he rate is derived "y dividin' the amount of
interest "y the amount of principal "orro%ed. .or example, if a "an) char'ed
M455 a year to "orro% M4,555, the interest rate %ould "e 45K. (nterest rates are
,uoted on "ills, notes, "onds, credit cards and many )inds of consumer and
12
"usiness loans. 8ates in 'eneral tend to rise %ith inflation and in response to the
.ederal 8eserve raisin' )ey short9term rates. A rise in interest rates has a
ne'ative effect on the stoc) mar)et "ecause investors can 'et more competitive
returns from "uyin' ne%ly issued "onds instead of stoc)s. (t also hurts the
secondary mar)et for "onds "ecause rates loo) less attractive compared to
ne%er issues.
INTERFUND LOAN is an authori&ed (usually) short term loan from one fund to
another.
INTERIM AUDIT is an audit conducted durin' the fiscal year usually as a means
of minimi&in' the %or) and time involved in concludin' the audit after the fiscal
year. A corporation mi'ht have an interim audit coverin' the first nine months of
the fiscal year so that at the end of the fiscal year most of the auditin' %ill focus
on the last three months of the fiscal year thus allo%in' for a comprehensive
audit and early completion of the audit reports. An interim audit does not usually
yield any formal reports from the external auditors.
INTERIM DIVIDEND is the declaration and payment of a dividend prior to annual
earnin's determination.
INTERIM EARNINGS see (3$E8(M !$A$EME3$.
INTERIM STATEMENT is a financial report coverin' only a portion of a fiscal
year (prepared "y accountants, "ut usually unaudited). Uuarterly statements
from pu"licly traded companies are one example of an interim statement. (nterim
statements are not as detailed or as exact as annual statements.
INTERMEDIARY is the person or institution empo%ered to "e the intermediary in
ma)in' investment decisions for others. Examples7 "an)s, savin's and loan
institutions, insurance companies, "ro)era'e firms, mutual funds, and credit
unions.
INTERMEDIATION COST, in finance, is the cost involved in the placement of
money %ith a financial intermediary. $he person or institution empo%ered as the
intermediary to ma)e investment decisions for others. Examples7 "an)s, savin's
and loan institutions, insurance companies, "ro)era'e firms, mutual funds, and
credit unions.
INTERNAL AUDIT is an independent appraisal function esta"lished %ithin an
or'ani&ation to examine and evaluate its activities as a service to the
or'ani&ation. $he o"-ective of internal auditin' is to assist mem"ers of the
or'ani&ation in the effective dischar'e of their responsi"ilities. $o this end,
internal auditin' furnishes them %ith analyses, appraisals, recommendations,
counsel, and information concernin' the activities revie%ed. $he audit o"-ective
includes promotin' effective control at reasona"le cost. 2ccasionally a
13
corporation may contract an external auditor or firm to conduct its internal audit
function.
INTERNAL AUDITOR is an auditor %ho %or)s directly for a company auditin' its
activities throu'hout the year. (nternal auditors of corporations are often not
certified auditors, thou'h they usually have si'nificant accountin' experience.
$hey should report directly to the "oard of directors of the corporation.
INTERNAL CONTROLS include policies and procedures that (a) pertain to the
maintenance of accurate and reasona"ly detailed records, (") provide
reasona"le assurance that transactions are properly recorded and authori&ed,
and (c) safe'uard assets.
INTERNAL RATE OF RETURN (IRR) is also called the dollar9%ei'hted rate of
return* the interest rate that ma)es the present value of the cash flo%s from all
the su"9periods in an evaluation period plus the terminal mar)et value of the
portfolio e,ual to the initial mar)et value of the portfolio.
INTERSEGMENT REVENUE is revenue 'enerated %ithin a se'ment* %hether it
"e a "usiness or 'eo'raphical se'ment.
IN THE BLACK means ma)in' money* the opposite of ;in the red.;
IN THE RED means losin' money* the opposite of ;in the "lac).;
INTRACOMPANY means occurrin' %ithin or ta)in' place "et%een "ranches or
employees of a company.
INTRINSIC VALUE, 'enerally, is the value of a resource unto itself, re'ardless of
its value to humans* often considered the ethical value of a resource, or the ri'ht
of the resource to exist, e.'., in securities, it is the perceived actual value of a
security, as opposed to its mar)et price or "oo) value.
INVENTORY for companies7 includes ra% materials, items availa"le for sale or in
the process of "ein' made ready for sale (%or) in process)* for securities7 it is
securities "ou'ht and held "y a "ro)er or dealer for resale.
INVENTORY LOAN is loan that is extended "ased upon the, usually,
discounted ? factored value of a "usiness+ inventory.
INVENTORY OBSOLESCENCE is %hen inventory is no lon'er sala"le. Possi"ly
due to too much inventory on hand, out of fashion or demand. $he true value of
the inventory is seldom exactly %hat is sho%n on the "alance sheet. 2ften, there
is unreco'ni&ed o"solescence.
14
INVENTORY SHRINK, as used in retail, is reduction in physical inventory caused
primarily "y shopliftin' and employee theft.
INVENTORY SHRINKAGE is a reduction in the physical amount of inventory that
is not easily explaina"le. $he most common cause of shrin)a'e is theft.
INVENTORY TURNOVER is a ratio that sho%s ho% many times the inventory of
a firm is sold and replaced over a specific period.
INVENTORY TURNS (P/4(&5 A6/4)7/) measures the avera'e efficiency of the
firm in mana'in' and sellin' inventories durin' the last period, i.e., ho% many
inventory turns the company has per period and %hether that is 'ettin' "etter or
%orse. (t is imperative to compare a companyAs inventory turns to the industry
avera'e. A company turnin' their inventory much slo%er than the industry
avera'e mi'ht "e an indication that there is excessive old inventory on hand
%hich %ould tie up their cash. $he faster the inventory turns, the more efficiently
the company mana'es their assets. @o%ever, if the company is in financial
trou"le, on the ver'e of "an)ruptcy, a sudden increase in inventory turns mi'ht
indicate they are not a"le to 'et product from their suppliers, i.e., they are not
carryin' the correct level of inventory and may not have the product on hand to
ma)e their sales. (f loo)in' at a ,uarterly statement, there pro"a"ly are more or
less turns than an annual statement due to seasonality, i.e., their inventory levels
%ill "e hi'her -ust "efore the "usy season than -ust after the "usy season. $his
does not mean they are mana'in' their inventory any differently* the ratio is -ust
s)e%ed "ecause of seasonality. NOTE" #omparin' the t%o INVENTORY
TURNS (Period Avera'e and Period End) su''ests the direction in %hich
inventories are movin', there"y allo%in' an analysis of efficiency improvements
and?or potential "ur'eonin' inventory pro"lems.
INVENTORY TURNS (P/4(&5 E+5) measures the endin' efficiency of the firm in
mana'in' and sellin' inventories durin' the last period, i.e., ho% many inventory
turns the company has per period and %hether that is 'ettin' "etter or %orse. (t is
imperative to compare a companyAs inventory turns to the industry avera'e. A
company turnin' their inventory much slo%er than the industry avera'e mi'ht "e
an indication that there is excessive old inventory on hand %hich %ould tie up
their cash. $he faster the inventory turns, the more efficiently the company
mana'es their assets. @o%ever, if the company is in financial trou"le, on the
ver'e of "an)ruptcy, a sudden increase in inventory turns mi'ht indicate they are
not a"le to 'et product from their suppliers, i.e., they are not carryin' the correct
level of inventory and may not have the product on hand to ma)e their sales. (f
loo)in' at a ,uarterly statement, there pro"a"ly are more or less turns than an
annual statement due to seasonality, i.e., their inventory levels %ill "e hi'her -ust
"efore the "usy season than -ust after the "usy season. $his does not mean they
are mana'in' their inventory any differently* the ratio is -ust s)e%ed "ecause of
seasonality3 32$E7 #omparin' the t%o (3/E3$280 $83! (Period Avera'e
and Period End) su''ests the direction in %hich inventories are movin', there"y
15
allo%in' an analysis of efficiency improvements and?or potential "ur'eonin'
inventory pro"lems.
INVESTMENT is the purchase of real property, stoc)s, "onds, collecti"le
annuities, mutual fund shares, etc, %ith the expectation of reali&in' income or
capital 'ain, or "oth, in the future. (nvestment is lon'er term and usually less
ris)y than speculation.
INVESTMENT CAPITAL is capital reali&ed from issuance of lon' term de"t,
common shares, or preferred shares.
INVESTMENT CENTER is the responsi"ility center %ithin an or'ani&ation that
has control over revenue, cost, and investment funds. (t is a profit center %hose
performance is evaluated on the "asis of the return earned on invested capital,
e.'. corporate head,uarters or a division of a lar'e decentrali&ed or'ani&ation.
INVESTMENT OPPORTUNITY SET is a 'raphical depiction of the #apital
Allocation Bine* %hich depicts expected rates of return "et%een ris)y and ris)9
free assets.
INVESTMENT TAX CREDIT is a tax credit in the nited !tates that allo%s
"usinesses to %rite9off a portion of the cost of purchasin' e,uipment for "usiness
use.
INVESTMENT TURNOVER is a profita"ility measure used to calculate the
num"er of times per year an investment or assets revolve.
INVOICE is a detailed list of 'oods shipped or services rendered, %ith an
account of all costs* an itemi&ed "ill.
INVOICE# COMMERCIAL is a le'al document that functions internationally as a
"ill of sale. (t usually contains the exportin' company, contents of the shipment,
amount char'ed, name of carryin' vessel, order num"er and payment terms.
INVOICE# CONSULAR is an invoice stamped or endorsed "y the consulate of
the country re,uirin' such.
IOU is an informal de"t instrument in the form of a %ritten promise to pay "ac)
money o%ed* e.'., personal loans and professional services.
IPO (INITIAL PUBLIC OFFERING) is the first or primary offerin' of stoc) to the
pu"lic.
IRR see (3$E83AB 8A$E 2. 8E$83.
16
IRRELEVANT COST, in mana'erial accountin' decision9ma)in' situations, is
any positive or ne'ative implications phenomenon %hich is not conse,uent upon
the production process, %hether it is denominated in money terms or not.
IRREVOCABLE LETTER OF CREDIT is a letter of credit in %hich the specified
payment is 'uaranteed "y the issuin' "an) if all terms and conditions are met "y
the dra%ee. (t is as 'ood as the issuin' "an).
ISSUE, in securities, is stoc) or "onds sold "y a corporation or a 'overnment* or,
the sellin' of ne% securities "y a corporation or 'overnment throu'h an
under%riter or private placement.
ISV can mean7 (ndependent !oft%are /endor, (ndependent !olution /endor, or
(nformation !ervice /endor.
IVA TAX see (MP2!$A /AB28E AGG(3$2 $AO.
17
!CO is Custification for #ontinued 2peration.
!IT see C!$ (3 $(ME.
!OB COSTING is the allocation of all time, material and expenses to an
individual pro-ect or -o".
!OINT COSTS are costs incurred to produce a certain amount of t%o or more
products %here the cost of producin' one product cannot "e lo'ically isolated
and cost allocation is ar"itrary.
!OINT PAYEE ENDORSEMENT, normally, %hen a "an) draft is made out to t%o
parties "oth parties are re,uired to endorse the "ac) of the "an) draft "efore it
%ill "e honored "y the "an).
!OINT RETURN is a ! income tax filin' status that can "e used "y a married
couple. $he married couple must "e married as of the last day of their tax year in
order to ,ualify for this filin' status. A married couple can also elect to file as
married, filin' separate returns.
!OINT STOCK COMPANY is a company that has some features of a corporation
and some features of a partnership. $his type of company has access to the
li,uidity and financial reserves of stoc) mar)ets as a corporation, ho%ever, as in
a partnership* the stoc)holders are lia"le for company de"ts and have additional
restrictions of a partnership.
!OINT VENTURES & INVESTMENTS is the total of investments and e,uity in
-oint ventures.
!OURNAL, in accountin' transactions, is %here transactions are recorded as
they occur.
!OURNAL ENTRY is the "e'innin' of the accountin' cycle. Cournal entries are
the lo''in' of "usiness transactions and their monetary value into the t9accounts
of the accountin' -ournal as either de"its or credits. Cournal entries are usually
"ac)ed up %ith a piece of paper* a receipt, a "ill, an invoice, or some other direct
record of the transaction* ma)in' them easy to record and to maintain tracea"ility
for each transaction.
!UNK BOND is a "ond %ith a speculative credit ratin' of BB or lo%er. !uch
"onds offer investors hi'her yields than "onds of financially sound companies.
$%o a'encies, !tandard & Poor+s and Moody+s (nvestor !ervices, provide the
ratin' systems for companies+ credit.
18
!USTINTIME (!IT) is a mana'ement philosophy that strives to eliminate
sources of manufacturin' %aste and cost "y producin' the ri'ht part in the ri'ht
place at the ri'ht time.
19
KAIZEN COSTING means ;improvements in small steps; (i.e., continuous
improvement). (t %as developed in Capan "y 0ashuhiro Monden. :ai&en #ostin'
is applied to product that it already under production.
KEOGH is a pension plan in the nited !tates that allo%s a "usiness to
contri"ute a portion of profits into a tax9sheltered account.
KEYNESIAN GROWTH MODELS are models in %hich a lon' run 'ro%th path
for an economy is traced out "y the relations "et%een savin', investin' and the
level of output.
KEYNESIAN MACROECONOMICS is the theory that sho%s ho% a mar)et9
"ased capitalist economy may reach e,uili"rium %ith lar'e scale unemployment
and ho% 'overnment spendin' may "e used to raise it out of this to a ne%
e,uili"rium at the full9employment level of output.
KITING, %hen used in the context of "an)in', refers to the practice of depositin'
and dra%in' chec)s at t%o or more "an)s and ta)in' advanta'e of the time it
ta)es for the second "an) to collect funds from the first "an). #an also refer to
ille'ally increasin' the face value of a chec) "y chan'in' the printed amount of
the chec). Ghen used in the context of securities, it refers to the manipulation
and inflation of stoc) prices.
11
LABOR INTENSIVE is used to descri"e industries or sectors of the economy
that relies relatively heavily on inputs of la"or, usually relative to capital "ut
sometimes to human capital or s)illed la"or, compared to other industries or
sectors.
LAG TIME is the period of time "et%een t%o closely related events, phenomena,
etc., as "et%een stimulus and response or "et%een cause and effect7 a time9la'
"et%een the declaration of %ar and full %ar production.
LAND, in terms of accountin', is the value of real estate less the value of
improvements, e.'. "uildin's.
LARGECAP is a stoc) %ith a level of capitali&ation of at least MJ "illion mar)et
value.
LBO see BE/E8AGE1 B092$.
LCL see BE!! $@A3 #23$A(3E8 B2A1.
LCM is Bo%er of #ost or Mar)et.
LCM RULE is an a""reviation for lo%er9of9cost9or9mar)et rule. B#M re,uires that
an asset "e reported on the financial statements at the lo%er of purchase cost or
mar)et value.
LEADTIME is the time "et%een the initial sta'e of a pro-ect or policy and the
appearance of results, for example, the lon' lead9time in oil production "ecause
of the need for ne% field exploration and drillin'.
LEASEHOLD IMPROVEMENTS are those repairs and ? or improvements,
usually prior to occupancy, made to a leased facility "y the lessee. $he cost is
then added to fixed assets and amorti&ed over the life of the lease.
LEASE RATE FACTOR is the periodic lease or rental payment expressed as a
percenta'e (or decimal e,uivalent) of e,uipment cost. sed to calculate
payments 'iven the cost of e,uipment (e.'. A lease rate factor of 5>L5 on an
e,uipment cost of MJ,555.55 re,uires a monthly payment of M4I5.55
(5>L5xMJ,555.55NM4I5.55).
LEDGER is a "oo) of accounts in %hich data from transactions recorded in
-ournals are posted and there"y classified and summari&ed3
LEGAL ENTITY is a person or or'ani&ation that has the le'al standin' to enter
into contracts and may "e sued for failure to perform as a'reed in the contract,
111
e.'., a child under le'al a'e is not a le'al entity, %hile a corporation is a le'al
entity since it is a person in the eyes of the la%.
LEGITIMACY THEORY posits that "usinesses are "ound "y the social contract
in %hich the firms a'ree to perform various socially desired actions in return for
approval of its o"-ectives and other re%ards, and this ultimately 'uarantees its
continued existence.
LEHMAN FORMULA is a compensation formula ori'inally developed "y
investment "an)ers Behman Brothers for investment "an)in' services7
[ JK of the first million dollars involved in the transaction for services rendered
[ 6K of the second million
[ >K of the third million
[ DK of the fourth million
[ 4K of everythin' thereafter (a"ove M6 million)
32$E7 Most investment "an)ers no% re,uire an additional multiplier to offset
inflation.
LESS THAN CONTAINER LOAD (LCL) is a shipment in %hich the frei'ht does
not completely fill the container* or a particular consi'nor+s frei'ht %hen
com"ined %ith others to produce a full container load.
LETTER OF AUTHORIZATION (LOA) is a form that permits a 1onor to provide
%ritten instructions to transfer a stoc) certificate in the 1onorAs name in full or in
part to another party, such as a charita"le or'ani&ation, %ithout usin' a transfer
a'ent. $his form 'iven to the charita"le or'ani&ation %ith the desi'nated stoc)
certificate and a separate !toc) Po%er is usually executed "y the charita"le
or'ani&ationAs "ro)era'e to expedite the sale and receipt of proceeds from the
'ift of securities.
LETTER OF CREDIT (LOC) is a le'al document issued "y a "uyerAs "an) that
upon presentation of re,uired documents payment %ould "e made. sually
confirmed "y the seller+s "an), protection is 'iven to the seller that payment %ill
"e made if the 'oods are shipped correctly, and protection is 'iven to the seller
that the 'oods %ill "e shipped "efore payment is made.
LETTER OF CREDIT# CONFIRMED is a letter of credit that is 'uaranteed "y a
"an) that is accepta"le to a seller (usually a local "an)), re'ardless of "uyer+s
"an).
LETTER OF CREDIT# IRREVOCABLE is a letter of credit %here payment is
'uaranteed as lon' as the seller meets all conditions stipulated. A revoca"le
letter of credit can "e cancelled or altered "y the "uyer %ithout permission of the
seller.
112
LEVERAGE is property risin' or fallin' at a proportionally 'reater amount than
compara"le investments. .or example, an option is said to have hi'h levera'e
relative to the underlyin' stoc) "ecause a price chan'e in the stoc) may result in
a relatively lar'e increase or decrease in the value of the option. (n 'eneral, in
finance, levera'e is the use of de"t financin'. Bevera'e, %ithin a corporation, is
the use of "orro%ed money to increase the return on investment. .or levera'e to
"e positive, the rate of return on the investment must "e hi'her than the cost of
the money "orro%ed.
LEVERAGED BUYOUT (LBO) is a transaction used for ta)in' a pu"lic
corporation private, financed throu'h the use of de"t funds7 "an) loans and
"onds. Because of the lar'e amount of de"t relative to e,uity in the ne%
corporation, the "onds are typically rated "elo% investment 'rade, properly
referred to as hi'h9yield "onds or -un) "onds. (nvestors can participate in an BB2
throu'h either the purchase of the de"t (i.e., purchase of the "onds or
participation in the "an) loan) or the purchase of e,uity throu'h an BB2 fund that
speciali&es in such investments.
LEVERAGED LEASE is a lease arran'ement under %hich the lessor "orro%s a
lar'e proportion of the funds needed to purchase the asset and 'rants the lender
a lien on the assets and a pled'e of the lease payments to secure the "orro%in'.
LEVERAGE RATIOS measures the relative contri"ution of stoc)holders and
creditors, and of the firm+s a"ility to pay financin' char'es. /alue of firm+s de"t to
the total value of the firm.
LIABILITY, in insurance, is a term used %hen analy&in' insurance ris)s that
descri"es possi"le areas of financial exposure ? loss. Presently, there are three
forms of lia"ility covera'e that insurers %ill under%rite7 $he first is 'eneral
lia"ility, %hich covers any )ind of "odily in-ury to non9employees except that
caused "y automo"iles and professional malpractice. $he second is product
lia"ility, %hich covers in-ury to customers arisin' as a direct result of 'oods
purchased from a "usiness. $he third is pu"lic lia"ility, %hich covers in-ury to the
pu"lic %hile they are on the premises of the insured.
LIABILITY, in accountin', is a loan, expense, or any other form of claim on the
assets of an entity that must "e paid or other%ise honored "y that entity.
LIBOR see B23123 (3$E8BA3: 2..E8E1 8A$E.
LIEN is the ri'ht to ta)e another+s property if an o"li'ation is not dischar'ed.
LIFO (1)%*(+# ,(4%*&-*) is an inventory cost flo% %here"y the last 'oods
purchased are assumed to "e the first 'oods sold so that the endin' inventory
consists of the first 'oods purchased.
113
LIFO LIQUIDATION is a reduction in the reported value of inventory "elo% levels
esta"lished in prior years under the B(.2 method* arises %hen purchases for the
period are not sufficient to offset the sale of inventory in the period.
LIFO RESERVE is the difference "et%een the endin' inventory under B(.2 and
.(.2 (or other method that mi'ht "e chosen).
LIKE KIND, in taxes, refers to property that is similar to another for %hich it has
"een exchan'ed7 real estate exchan'ed for real estate, for instance. $he
definitions of li)e )ind properties can "e found in the ! $ax #ode at !ection
45>4.
LIMITATION, in contracts, is a certain period limited "y statute after %hich
actions, suits, or prosecutions cannot "e "rou'ht in the courts.
LIMITED LIABILITY is one that does not 'o "eyond the o%ner+s investment in
the "usiness.
LIMITED PARTNER is a partner in a venture %ho has no mana'ement authority
and %hose lia"ility is restricted to the amount of his or her investment.
LINE ITEM BUDGET is a "ud'et initiated "y 'overnment entities in %hich
"ud'eted financial statement elements are 'rouped "y administrative entities and
o"-ect. $hese "ud'et item 'roups are usually presented in an incremental
fashion that is in comparison to previous time periods. Bine item "ud'ets are also
used in private industry for comparison and "ud'etin' of selected o"-ect 'roups
and their previous and future expenditure levels %ithin an or'ani&ation.
LINE OF CREDIT is an a'reement %here"y a financial institution promises to
lend up to a certain amount %ithout the need to file another loan application. $he
"orro%er is re,uired to reduce the de"t %henever the limit of the full amount of
credit has "een reached.
LIP ACCOUNT see B2A39(39P82#E!! A##23$.
LIQUID ASSET is cash and any asset that can ,uic)ly "e converted into cash
(e.'., cash, chec)s and easily9converti"le securities).
LIQUIDATING DIVIDENDS are dividends paid "y a corporation that is in the
process of li,uidation?"an)ruptcy. Bi,uidatin' 1ividends are paid from the capital
of the corporation as opposed to earnin's. 8ecipients of Bi,uidatin' 1ividends
are typically shareholders, "ond holders and?or creditors. (n the .!. such
dividends are 'enerally nontaxa"le under the (nternal 8evenue #ode.
LIQUIDATION VALUE is a type of valuation similar to an ad-usted "oo) value
analysis. Bi,uidation value is different than "oo) value in that it uses the value of
114
the assets at li,uidation, %hich is often less than mar)et and sometimes "oo).
Bia"ilities are deducted from the li,uidation value of the assets to determine the
li,uidation value of the "usiness. Bi,uidation value can "e used to determine the
"are "ottom "enchmar) value of a "usiness, since this should "e the funds the
"usiness may "rin' upon valuation.
LIQUIDITY is a company+s a"ility to meet current o"li'ations %ith cash or other
assets that can "e ,uic)ly converted to cash.
LIQUIDITY RATIO see #A!@ 8A$(2.
LISTED COMPANY is a pu"lic company listed or ,uoted on a stoc) exchan'e.
LISTED INVESTMENTS are those investments %hich are listed or ,uoted on a
stoc) exchan'e.
LISTING is a %ritten contract "et%een an a'ent and a principal 'ivin'
authori&ation to the a'ent to perform services for the principal involvin' the
principalAs property* or, a record of a property for sale "y a "ro)er %ho has "een
authori&ed "y the o%ner of the property to "e sold.
LMA, amon' others, is an acronym for Bease Mana'ement A'reement, Bocal
Mar)etin' A'reement or Be'al Mar)etin' Association.
LOADED LABOR RATE is the employee hourly rate plus employee "enefits,
capital expenses, and other overhead.
LOAN is an a'reement under %hich an o%ner of assets (the lender) allo%s
another entity (the "orro%er) to use the assets for a specified time period. (n
return, the "orro%er a'rees to pay the lender a payment (interest) and return the
assets (cash) at the end of the a'reed upon time period.
LOAN COVENANT is a le'ally enforcea"le promise or restriction in a mort'a'e.
.or example, the "orro%er may covenant to )eep the property in 'ood repair and
ade,uately insured a'ainst fire and other casualties. A "reach of covenant in a
mort'a'e usually creates a default, defined "y the mort'a'e, and can "e the
"asis for foreclosure.
LOANINPROCESS ACCOUNT (LIP ACCOUNT) serves as a deposit account
for construction funds. $he "uyer+s do%n payment is deposited into this account
and is used for the initial construction dra%s. 1is"ursements of actual loan funds
"e'in once the "uyer+s money is depleted. (nterest on the "orro%ed funds %ill "e
"illed monthly on the amount %ithdra%n. pon completion of the house, the
"uyer %ill "e as)ed to furnish a homeo%ner+s insurance policy and monies for
completin' the escro% account. 2nce final dis"ursements to the "uilder are
115
made, monthly payments "e'in "ased on amorti&ation of the "alance at that
time.
LOAN STOCK is stoc) "earin' a fixed rate of interest. nli)e a de"enture, loan
stoc) may or may not "e secured.
LOAN TO VALUE RATIO, in real estate, is the percenta'e value for the
relationship "et%een the amount of the mort'a'e loan and the appraised value of
the property. Boan9to9value ratio is expressed to a potential purchaser of a
property in terms of the percenta'e a lendin' institution is %illin' to finance.
LOC see Better of #redit.
LOCKBOX is 4. a fireproof metal stron'"ox (usually in a "an)) for storin'
valua"les e.'., a safety deposit "ox* and, D. a service offered "y "an)s to
companies in %hich the company receives payments "y mail to a post office "ox
and the "an) pic)s up the payments several times a day, deposits them into the
company+s account, and notifies the company of the deposit. $his ena"les the
company to put the money to %or) as soon as it+s received, "ut the amounts
must "e lar'e in order for the value o"tained to exceed the cost of the service.
LOI is Better of (ntent.
LONDON INTERBANK OFFERED RATE (LIBOR) is the rate that the most
credit%orthy international "an)s that deal in Eurodollars char'e each other for
lar'e loans. (t is e,uivalent to the federal funds rate in the .!.
LONGLIVED ASSETS are usually those assets that are not consumed durin'
the normal course of "usiness, e.'. land, "uildin's and e,uipment, etc.
LONG TERM DEBT is all senior de"t, includin' "onds, de"entures, "an) de"t,
mort'a'es, deferred portions of lon' term de"t, and capital lease o"li'ations.
LONGTERM DEBT TO EQUITY expresses the relationship "et%een lon'9term
capital contri"utions of creditors as related to that contri"uted "y o%ners
(investors). As opposed to 1EB$ $2 EU($0, Bon'9$erm 1e"t to E,uity
expresses the de'ree of protection provided "y the o%ners for the lon'9term
creditors. A company %ith a hi'h lon'9term de"t to e,uity is considered to "e
hi'hly levera'ed. But, 'enerally, companies are considered to carry comforta"le
amounts of de"t at ratios of 5.>J to 5.J5, or M5.>J to M5.J5 of de"t to every M4.55
of "oo) value (shareholders e,uity). $hese could "e considered to "e %ell9
mana'ed companies %ith a lo% de"t exposure. (t is "est to compare the ratio
%ith industry avera'es.
LONGTERM LIABILITIES are lia"ilities of a "usiness that are due in more than
one year. An example of a lon'9term lia"ility %ould "e a mort'a'e paya"le.
116
LOSS, in finance, is %hen expenses exceed sales or revenues, i.e. 'oods or
services are sold for less than their cost.
LOSS LEADER is a featured article of merchandise sold at a loss in order to
dra% customers.
LRIC is an acronym for Bon' 8un (ncremental #ost. A service costin'
methodolo'y used primarily in the telecommunications industry.
LTM means Bast $%elve Months.
117
MACRS is Modified Accelerated #ost 8ecovery !ystem.
MAINTENANCE is the activity involved in maintainin' somethin' in 'ood %or)in'
order. May include replacement of si'nifcant portions of the item(s) "ein'
maintained.
MALPRACTICE INSURANCE see E&2 (3!8A3#E.
MANAGEMENT ACCOUNTING is the process of identification, measurement,
accumulation, analysis, preparation, interpretation, and communication of
financial information used "y mana'ement to plan, evaluate, and control %ithin
an or'ani&ation and to assure appropriate use of and accounta"ility for its
resources. Mana'ement accountin' also comprises the preparation of financial
reports for non9mana'ement 'roups such as shareholders, creditors, re'ulatory
a'encies, and tax authorities.
MANAGERIAL ACCOUNTING is a system usin' financial accountin' records as
"asic data to ena"le "etter "usiness decisions in the areas of plannin' and
control.
MANAGEMENT BY OB!ECTIVES (MBO) is a mana'ement theory that calls for
mana'in' people "ased on documented %or) statements mutually a'reed to "y
mana'er and su"ordinate. Pro'ress on these %or) statements is periodically
revie%ed, and in a proper implementation, compensation is usually tied to MB2
performance.
MANAGEMENT CONTROL SYSTEM is essentially a strate'ic tool for holdin'
mana'ers accounta"le and responsi"le for their performance. Existence of such
a system also provides feed"ac) for mana'ers to )no% ho% they perform, in
%hich direction the or'ani&ation is headin', and %hat type of course correction
may "e re,uired to stay on course.
MANAGEMENT INFORMATION SYSTEM (MIS) is a %ell9developed data
mana'ement system that provides uniform or'ani&ational information from all
areas of the entity %ithin a data"ase. (nformation %ithin the data"ase is
manipulated to help mana'ement reach accurate and rapid or'ani&ational
decisions.
MANAGEMENT LETTER identifies issues not re,uired to "e disclosed in the
Annual .inancial 8eport "ut represent the auditor+s concerns and su''estions
noted durin' the audit.
MANDATORY TRANSFERS are transfers from the current (operatin') fund
'roup to other fund 'roups arisin' out of "indin' le'al a'reements related to the
financin', e.'., in education7 de"t retirement, interest, and 'rant a'reements %ith
118
federal a'encies and other or'ani&ations to match 'ifts and 'rants. Ghereas
non9mandatory transfers %ould "e transfers from the current (operatin') fund
'roup to other fund 'roups made at the discretion of mana'ement to serve
various o"-ectives, e.'., additions to loan funds, endo%ment funds, plant
additions, and voluntary rene%al and replacement of plant.
MANUAL TAG SYSTEM is a inventory trac)in' system used in inventory
mana'ement that trac)s inventory usin' ta's removed at the point of purchase.
MANUFACTURING ACCOUNT is an accountin' statement that is an inte'ral
part of the final accounts of a manufacturin' or'ani&ation. .or any particular
period, it indicates, amon' other thin's, prime cost of manufacturin',
manufacturin' overhead, the total manufacturin' cost, and the manufacturin'
costs of finished 'oods.
MANUFACTURING CONCERN is an entity that derives its products for sale,
there"y revenue, throu'h the direct manufacture of those products.
MANUFACTURING STATEMENT see MA3.A#$8(3G A##23$.
MAP can mean Manufacturin' Application Protocol, Merchant Account Provider,
Minimum Advertised Price, or Ma-or Accounts Processin' amon' many others.
MARGIN see G82!! MA8G(3.
MARGIN (S*&'@%) allo%s investors to "uy securities?assets "y "orro%in' money
from a "ro)er?"an)er. $he mar'in is the difference "et%een the mar)et value of a
stoc)?asset and the loan a "ro)er?"an)er ma)es.
MARGIN ACCOUNT (S*&'@%) is a levera'ea"le account in %hich stoc)s can "e
purchased for a com"ination of cash and a loan. $he loan in the mar'in account
is collaterali&ed "y the stoc) and, if the value of the stoc) drops sufficiently, the
o%ner %ill "e as)ed to either put in more cash, or sell a portion of the stoc).
Mar'in rules are federally re'ulated, "ut mar'in re,uirements and interest may
vary amon' "ro)er?dealers.
MARGINAL COST is a calculation sho%in' the chan'e in total cost as a result of
a chan'e in volume, e.'. if one more item of output increases the total cost "y
MDJ, the mar'inal cost is MDJ. (t is usually useful to determine mar'inal cost
"ecause it can aid in determinin' if the rate of production should "e altered.
MARGINAL REVENUE is the chan'e in total revenue as a result of producin'
one additional unit of output.
MARGINAL TAX RATE is the top rate of income tax that is char'ed to
individuals on their earnin's.
119
MARGIN CALL (S*&'@%) is a demand for additional funds "ecause of adverse
price movement is a stoc).
MARINE INSURANCE is insurance covera'e protectin' a'ainst loss or dama'e
of 'oods transported "y sea.
MARK ENDORSEMENT, normally, it is %hen a si'natory (payee) cannot
endorse %ith their si'nature, due to illiteracy or an infirmary, the si'natory is
allo%ed to ma)e a mar) that identifies that the si'natory has si'ned. !uch mar)
endorsements are normally %itnessed %ith the %itness endorsin' the mar)
endorsement.
MARKETABLE SECURITY is a readily trada"le e,uity or de"t security %ith
,uoted prices* to include commercial paper and $reasury "ills. (t is a ;close to
cash; asset %hich is classified as a current asset.
MARKET CAPITALIZATION is the total dollar value of all outstandin' shares. (t
is calculated "y multiplyin' the num"er of shares times the current mar)et price.
$he term is commonly referred to as Rmar)et capS.
MARKET DISCOUNT is the stated redemption price of a "ond at maturity minus
your "asis in the "ond immediately after you ac,uire it. Mar)et discount arises
%hen the value of a de"t o"li'ation decreases after it+s issue date.
MARKET DISCOUNT BOND is any "ond havin' mar)et discount except7 short9
term o"li'ations %ith fixed maturity dates of up to 4 year from the date of issue,
tax9exempt o"li'ations that you "ou'ht "efore May 4, 4<<>, .!. savin's "onds,
and certain installment o"li'ations
MARKETING LEVER is anythin' that provides positional advanta'e or po%er to
act effectively7 Potential levers may "e price, "rand name, corporate ima'e,
"road distri"ution, effective advertisin', etc.
MARKET MULTIPLE see P8(#E?EA83(3G! 8A$(2.
MARKET POSITION, from a mar)etin' context, is the stren'th of an entity or
product %ithin the tar'et mar)et. (n investin', it is the amount and?or depth and
"readth of holdin's %ithin identified sectors of the capital mar)et.
MARKET TO BOOK VALUE is calculated "y dividin' the mar)et value (M/) of a
company, i.e., the total value of all its outstandin' shares, "y the value of its
tan'i"le assets ($A). Also )no%n as $2B(3 8A$(2 N M/?$A.
MARKET VALUE, in 'eneral, is the price at %hich "uyers and sellers trade
similar items in an open mar)etplace. (n the a"sence of a mar)et price, it is the
estimated hi'hest price a "uyer %ould "e %arranted in payin' and a seller
12
-ustified in acceptin', provided "oth parties %ere fully informed and acted
intelli'ently and voluntarily. !ee also 2PE3 MA8:E$ /ABE (2M/).
MARKUP is the amount added to the cost of 'oods in order to produce the
desired profit.
MATCHING, in accountin', is the matchin' of invoices to purchase orders and
delivery notes prior to payment.
MATCHING CONCEPT is the accountin' principle that re,uires the reco'nition
of all costs that are directly associated %ith the reali&ation of the revenue
reported %ithin the income statement.
MATCHING PRINCIPLE see MA$#@(3G #23#EP$.
MATERIALITY is the importance of information or an event that influences a
company+s price of stoc).
MATERIALITY PRINICIPLE re,uires accountants to use 'enerally accepted
accountin' principles except %hen to do so %ould "e expensive or difficult, and
%here it ma)es no real difference if the rules are i'nored. (f a rule is temporarily
i'nored, the net income of the company must not "e si'nificantly affected, nor
should the reader+s a"ility to -ud'e the financial statements "e impaired.
MATERIALS are physical 'oods (and their cost) used in the manufacture of a
product, often separated into 1(8E#$ MA$E8(AB (that %hich 'oes directly into
the product such as cream into ice cream, or steel into cars) and (31(8E#$
MA$E8(AB (that %hich is used in maintainin' the manufacturin' environment
such as cleanin' fluids or oil for lu"rication of manufacturin' e,uipment). (ndirect
materials are usually part of the overhead component of cost. $he term material,
%hen used %ithout the direct or indirect ,ualifier, usually refers to direct
materials.
MATERIAL WEAKNESS is a condition that could potentially result in the
material misstatement of the financial statements.
MATRIX ORGANIZATION is %here a company superimposes a 'roup or
interdisciplinary team of pro-ect specialists on a functional or'ani&ational desi'n.
(n a matrix or'ani&ation the mem"ers have dual alle'iances, i.e., to that
particular assi'nment or pro-ect as %ell as their normal or'ani&ational
department.
MBO see MA3AGEME3$ B0 2BCE#$(/E!.
121
MD&A is an acronym for Mana'ement 1iscussion and Analysis. M1&A usually
refers to that section of a corporate annual or ,uarterly report that provides
mana'erial comment on corporate performance for the time period in ,uestion.
MEAN is the measure of central tendency* also called the +avera'e+. (t is
calculated "y the sum of the data points divided "y the num"er of data points.
MEASUREMENT THEORY involves the assi'nment of numerals to o"-ects or
events in order to represent certain attri"utes, or properties, of those o"-ects and
events.
MEDIAN is the value of the midpoint varia"le %hen the data are arran'ed in
ascendin' or descendin' order.
MEDIA PLAN, in advertisin', is the plan that details the usa'e of media in an
advertisin' campai'n includin' costs, runnin' dates, mar)ets, reach, fre,uency,
rationales, and strate'ies.
MEDIUM TERM ASSETS, usually, are those assets that are expected of havin'
a useful life of "et%een six months and t%o years of the present.
MER (M)+)7/:/+* EAB/+%/ R)*(&) is the percenta'e of the assets that %ere
spent to run a mutual fund. (t includes thin's li)e mana'ement and advisory fees,
travel costs and 4D"94 fees. $he expense ratio does not include "ro)era'e costs
for tradin' the portfolio. Also referred to as the Expense 8atio.
MERGER is the union of t%o or more commercial interests or corporations. $he
distinction "ein' that identity of the mer'ed companies, product lines, etc., may
or may not lose its individual identity.
MEZZANINE FINANCING usually is a class of investment that is a sta'e
intermediate "et%een venture capital and an initial pu"lic offerin'* or,
su"ordinated de"t used in levera'ed "uyouts (BB2s).
MIDCAP is a stoc) %ith a capitali&ation, total e,uity value, "et%een MJ55 million
and MJ "illion.
MIDDLE MARKET COMPANY" see M(19#AP.
MILLAGE is a rate (as of taxation) expressed in mills per dollar.
MINIMUM WAGE is the lo%est compensation you are allo%ed to pay an
employee for hourly %or). (t is defined "y .ederal, state, and sometimes local
la%s. !tate or local la%s may "e more restrictive than .ederal la%, and certainly
may differ.
122
MINORITY INTEREST is the interest or percenta'e o%nership of a 'roup of
stoc)holders %ho, in total, o%n less than J5K of the shares in the corporation.
MINOR MATTERS is a term used in accountin' and le'al reports to cover areas
considered to "e cosmetic or superficial* there"y deemed "y the author to "e of
little conse,uence.
MIS see MA3AGEME3$ (3.28MA$(23 !0!$EM.
MISCELLANEOUS INCOME is that income reali&ed that is not directly related to
the sale of standard products and services.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS) is a system
used in accountin' to define the rate and method under %hich a fixed asset %ill
"e depreciated for tax purposes.
MODIFIED ACCRUAL BASIS accountin' is a mixture of the cash and accrual
"asis. $he modified accrual "asis should "e used for 'overnmental funds. $o "e
reco'ni&ed as a revenue or expenditure, the actual receipt or dis"ursal of cash
must occur soon enou'h after a transaction or event has occurred to have an
impact on current spenda"le resources. (n other %ords, revenues must "e "oth
measura"le and availa"le to pay for the current period+s lia"ilities. 8evenues are
considered availa"le %hen collecti"le either durin' the current period or after the
end of the current period "ut in time to pay year9end lia"ilities. Expenditures are
reco'ni&ed %hen a transaction or event is expected to dra% upon current
spenda"le resources rather than future resources.
MONETARY is anythin' pertainin' to or havin' to do %ith money, money
creation, money supply, and the 'overnment mana'ement of money.
MONEY MEASUREMENT CONCEPT stipulates that all "usiness transactions
must "e expressed in money terms, i.e., if somethin' cannot "e measured in
money* it %ill not "e included in accountin' "oo)s.
MONEY MEASUREMENT PRINCIPLE see M23E0 MEA!8EME3$
#23#EP$.
MONETARY UNIT is the unit used to measure economic activity (e.'., .!. M).
MORTGAGE is a conditional conveyance of property as security for the
repayment of a loan.
MORTGAGE BOND is a "ond in %hich the issuer has 'ranted the "ondholders a
lien a'ainst the pled'ed assets.
MOU is Memorandum of nderstandin'.
123
MUD is Multi nit 1iscount.
MULTIPLE same as $rice%&arnin!s 'atio.
MULTIPLIER is a. the investment multiplier %hich ,uantifies the overall effects of
investment spendin' on total income* or, ". the deposit multiplier %hich sho%s
the effects of a chan'e in "an) deposits on the total amount of outstandin' credit
and the money supply.
MUTUAL AGENCY is the ri'ht of all partners in a partnership to act as a'ents for
the normal "usiness operations of the partnership, %ith the authority to "ind it to
"usiness a'reements.
124
NATURAL BUSINESS YEAR is a fiscal year "ased on the cycle of the 'iven
"usiness rather than a calendar year. $he year ends %ith inventories and
activities at a lo% level, e.'., after %inter shipments for a s)i manufacturer.
NATURAL CLASSIFICATION of costs focuses on the nature of the cost item. (n
this classification structure, the total operatin' costs of an activity can "e
classified into manufacturin' costs and commercial costs. Manufacturin' costs
include all direct materials and direct la"or, as %ell as, factory overhead. !uch
factory overhead costs include indirect materials (such as factory supplies &
lu"ricants), indirect la"or (such as supervision and inspection) and other indirect
costs (such as rent, insurance, and utilities). #ommercial expenses include
mar)etin' expenses (such as advertisin', printin', and sales salaries) and
administrative ('eneral and administrative (G&A)) expenses (such as
administrative office salaries, rent, and le'al expenses).
NCD is 3e'otia"le #ertificate of 1eposit.
NEARCASH ASSETS are non9cash assets that can "e readily exchan'ed for
cash %ithin a relatively short period (e.'., short9term #1+s and money mar)et
funds).
NEBT is 3et Earnin' Before $axes.
NEGATIVE AMORTIZATION is a loan repayment schedule in %hich the
outstandin' principal "alance of the loan increases, rather than amorti&in',
"ecause the scheduled monthly payments do not cover the full amount re,uired
to amorti&e the loan. $he unpaid (nterest is added to the outstandin' principal, to
"e repaid later.
NEGATIVE CONTRIBUTOR is any item, activity, or cost that offsets attainment
of positive results, e.'., a rise in unemployment and its effect upon the economy.
NEGATIVE GOODWILL arises %here the net assets at the date of ac,uisition,
fairly valued, exceed the cost of ac,uisition. (t is reflected on the "alance sheet
net of other intan'i"le assets. 3e'ative 'ood%ill is reco'ni&ed as income as
follo%s7
$o the extent that ne'ative 'ood%ill relates to expected future losses and
expenses, it is reco'ni&ed in the income statement %hen the future losses
and expenses are reco'ni&ed.
$he amount of ne'ative 'ood%ill relatin' to identifia"le non9monetary
assets (not exceedin' the fair values of such ac,uired assets), is
reco'ni&ed as income on a systematic "asis over the remainin' useful
lives of the identifia"le ac,uired
deprecia"le?amorti&a"le assets %ith a maximum of D5 years.
125
$he amount of the ne'ative 'ood%ill in excess of the fair values of the
ac,uired identifia"le non9monetary assets is reco'ni&ed as income
immediately.
$he amount of the ne'ative 'ood%ill relatin' to monetary assets is
reco'ni&ed as income immediately
32$E7 (ntan'i"le assets are not revalued.
NEGATIVE PLEDGE CLAUSE is a covenant or promise in an indenture
a'reement that states the corporation %ill not pled'e any of its assets if doin' so
%ould result in less security to the de"t holders covered under the indenture
a'reement. Also called covenant of e,ual covera'e.
NEGLIGENCE is the omission to do somethin' %hich a reasona"le man, 'uided
"y those ordinary considerations %hich ordinarily re'ulate human affairs, %ould
do, or the doin' of somethin' %hich a reasona"le and prudent man %ould not do.
NEGOTIABLE INSTRUMENT is an unconditional order or promise to pay an
amount of money* it is easily transfera"le from one person to another, e.'. a
chec), promissory note, "earer "ond, and draft ("ill of exchan'e).
NET, in 'eneral, is the fi'ure remainin' after all relevant deductions have "een
made from the startin', or 'ross, amount.
NET ACCOUNTS RECEIVABLE is e,ual to total accounts receiva"le, minusan
estimate for amounts the company "elieves it %ill never collect.
NET ASSETS is the difference "et%een total assets and current lia"ilities
includin' noncapitali&ed lon'9term lia"ilities.
NET ASSETS BASIS is a simple division of net asset attri"uta"le to the class of
shareholders %ith the num"er of shares, i.e. the per share value of net assets.
NET ASSET VALUE (NAV) in securities, except money mar)et funds %hich
al%ays have a 3A/ of M4.55, represents the mar)et value or price of one fund
share. (t is calculated "y the total value of the fund+s portfolio less lia"ilities
divided "y the num"er of shares* or, in corporate valuations, it is a measure of
the shareholdersA a''re'ate %ealth in the company, %hich is defined as the
actual or hypothetical mar)et value of the companyAs assets less its lia"ilities.
NET BOOK VALUE is the current "oo) value of an asset or lia"ility* i.e., its
ori'inal "oo) value net of any accountin' ad-ustments such as depreciation.
NET CHANGE IN CASH is calculated "y addin' cash from operatin', investin',
and financin' activities and forei'n exchan'e effects from the !tatement of #ash
.lo%s.
126
NET CONTRIBUTION is the amount remainin' after all relevant deductions have
"een made to the 'ross amount, e.'., Net Contribution to ar!in.
NET DEBT is7 de"t Q short term loans less cash on hand.
NET INCOME is the difference "et%een a "usinesses total revenue and its total
expenses. $his caption and amount is usually found at the "ottom of a
company+s Profit and Boss statement. !ame as 3et Profit.
NET LEASES, typically, there are three net leases7 net lease, dou"le9net lease,
and triple9net lease. A net lease is a "ase rent plus an additional char'e for
taxes. A dou"le9net lease is a "ase rent plus an additional char'e for taxes and
insurance. A triple9net lease is "ase rent plus an additional char'e for taxes,
insurance, and common area expenses.
NET OF TAXES means the effect of applica"le taxes (usually income taxes) has
"een considered in determinin' the overall effect of an item on the financial
statements. $he phrase is used %hen a company has items that must "e
disclosed in a separate section. Each such item should "e reported net of the
applica"le taxes.
NET OPERATING INCOME (NOI) is income after deductin' for operatin'
expenses "ut "efore deductin' for income taxes and interest.
NET OPERATING LOSS (NOL) is experienced "y a "usiness %hen "usiness
deductions exceed "usiness income for the fiscal year. .or income tax purposes,
a net operatin' loss can "e used to offset income in a prior year, or a taxpayer
can elect to fore'o the carry "ac) and carry the net operatin' loss for%ard.
NET PRESENT VALUE (NPV) is a method used in evaluatin' investments,
%here"y the net present value of all cash outflo%s (such as the cost of the
investment) and cash inflo%s (returns) is calculated usin' a 'iven discount rate,
usually 8EU(8E1 8A$E 2. 8E$83. An investment is accepta"le if the 3P/
is positive. (n capital "ud'etin', the discount rate used is called the @81BE
8A$E and is usually e,ual to the (3#8EME3$AB #2!$ 2. #AP($AB.
NET PROFIT is the company+s total earnin's, reflectin' revenues ad-usted for
costs of doin' "usiness, depreciation, interest, taxes and other expenses. !ame
as 3et (ncome.
NET PROFIT MARGIN (NPM A,*/4 T)A) measures profita"ility as a percenta'e
of revenues after consideration of all revenue and expense, includin' interest
expenses, non9operatin' items, and income taxes. .or a "usiness to "e via"le in
the lon' term profits must "e 'enerated* ma)in' the net profit mar'in ratio one of
the )ey performance indicators for any "usiness. (t is important to analy&e the
ratio over time. A variation in the ratio from year9to9year may "e due to a"normal
127
conditions or expenses %hich need to "e addressed. A decline in the ratio over
time may indicate a mar'in s,uee&e su''estin' that productivity improvements
may need to "e initiated. (n some cases, the costs of such improvements may
lead to a further drop in the ratio or even losses "efore increased profita"ility is
achieved.
NET PROFIT MARGIN (NPM P4/T)A) incorporates all of the expenses
associated %ith ordinary "usiness (excludin' taxes) thus is a measure of the
overall operatin' efficiency of the firm prior to any tax considerations %hich may
mas) performance. .or a "usiness to "e via"le in the lon' term profits must "e
'enerated* ma)in' the net profit mar'in ratio one of the )ey performance
indicators for any "usiness. (t is important to analy&e the ratio over time. A
variation in the ratio from year9to9year may "e due to a"normal conditions or
expenses %hich need to "e addressed. A decline in the ratio over time may
indicate a mar'in s,uee&e su''estin' that productivity improvements may need
to "e initiated. (n some cases, the costs of such improvements may lead to a
further drop in the ratio or even losses "efore increased profita"ility is achieved.
NET PURCHASES are those items purchased less returns, discounts and
allo%ances on those purchases.
NET RECEIVABLES are a company+s accounts receiva"le (money o%ed to the
company) minus any provisions for "ad de"ts.
NET REVENUE is G82!! 8E/E3E less discounts, allo%ances, sales returns,
frei'ht out, etc.
NET SALES is 'ross sales less discounts, allo%ances, sales returns, frei'ht out,
etc.
NET SALES TO GROSS SALES sho%s the percent of all transactions that may
"e considered as ;'ood; net transactions. 1ifferences may arise from returns,
"ad product, or other sales concessions.
NET ;9# C9# /*'3 usually refers to payment terms on an invoice, e.'. +3et 45 DK,
>5+, %ould mean that if a purchaser pays the invoice %ithin 45 days a DK
reduction in invoice amount may "e en-oyed, "ut full invoice amount is due %ithin
>5 days.
NET WORTH is the difference "et%een $otal Bia"ilities and $otal Assets.
Minority interest is included here.
NEUTRALITY, in an economic model, is %here money is said to "e neutral in the
model if chan'es in the level of nominal money have no effect on the real
e,uili"rium.
128
NEXUS, dependent upon usa'e, is a. the means of connection "et%een thin's
lin)ed in series* or, ". a connected series or 'roup* or, c. is the sufficient
presence %ithin the -urisdiction of a taxin' authority. $he taxa"le income of a
multistate corporation may "e apportioned to a specific state only if the
corporation has a sufficient nexus in the state. $he nexus for state sales tax
re,uires a physical presence in the state, %hereas the nexus for state income tax
purposes re,uires more than -ust solicitations of sales.
NIM is 3et (nterest Mar'in.
NOMINAL means small payment, or value.
NOMINAL ACCOUNTS are those accounts that are closed out each period7
revenue accounts, expense accounts, and dividend or %ithdra%als accounts.
NOMINAL DOLLARS are dollars that have not "een ad-usted for inflation.
NOMINAL CAPITAL is total face value of authori&ed issua"le capital.
NOMINAL LEDGER is the account "oo) sho%in' expenditure on nominal
accounts i.e. named "usiness accounts such as posta'e, printin', etc.
NOMINAL VALUE is the par, or face, value of somethin' e.'. a share issue.
NONCASH EXPENSE is that expense %hich is reco'ni&ed %ithin the financial
statements %ithout actual cash "ein' dis"ursed (e.'., depreciation, amorti&ation,
and %rite9offs).
NONCURRENT ASSETS includes PPE (property, plant and e,uipment) as
opposed to current assets %hich includes cash, cash e,uivalents (e.'. securities,
short9term notes, etc.), inventory and accounts receiva"le.
NONDISCRETIONARY means it is mandatory, not up to the individual or
company.
NONDISCRETIONARY ACCRUAL is a mandatory expense?asset that is
recorded %ithin the accountin' system that has yet to "e reali&ed. An example of
this %ould "e payroll taxes.
NONEQUITY SHARE is a share in an entity that a. evidences inde"tedness of
the entity to the holder of the share, and ". does not represent an e,uity interest
in the entity.
NONEXPENDABLE PROPERTY is dura"le (e.'., e,uipment and furniture),
lastin' for a year or lon'er, and 'enerally has a hi'h dollar value. 3on9
expenda"le property must "e accounted for throu'hout its useful life.
129
NONEXPENSE CASH DISBURSEMENT is spendin' not sho%n on the income
statement, i.e., the expenditure of cash on somethin' that does not appear on
the profit9and9loss statement, for example, spendin' on a fixed asset or
dischar'in' part or the entire principal in a de"t.
NONFIXED ASSET is normally e,uipment and furnishin's %ith an ori'inal
purchase value less than some pre9determined value (e.'., \M4,555 in
ac,uisition cost assets are considered to "e non9fixed assets). $hese items are
not assi'ned asset inventory ta's. $ypical examples of non9fixed asset items are
calculators, type%riters, chairs, des)s, filin' ca"inets, shelvin' units and small
tools.
NONPERFORMING ASSET is an asset not effectual in the production of
income. .or example, in "an)in', commercial loans <5 days past due and
consumer loans 4I5 days past due are classified as non9performin'.
NONPROFIT ORGANIZATION is one that has committed le'ally not to distri"ute
any net earnin's (profits) to individuals %ith control over it such as mem"ers,
officers, directors, or trustees. (t may pay them for services rendered and 'oods
provided. Also )no%n as 32$9.289P82.($ 28GA3(HA$(23.
NONRECURRING is an income statement item that is infre,uent in occurrence
or unusual in nature.
NOPAR VALUE CAPITAL STOCK are shares desi'nated in the charter that do
not have a par or assi'ned value printed on the issued stoc) certificate.
NOPAT (NET OPERATING PROFIT AFTER TAX) is a company+s potential cash
earnin's if its capitali&ation %as unlevera'ed. 32PA$ is commonly used in E/A
calculations.
NOPLAT is 3et 2peratin' Profit Bess Ad-usted $axes.
NORMALIZED EARNINGS is earnin's that have "een ad-usted in order to ta)e
into account the effect of cycles in the economy.
NORMAL PROFIT is the opportunity cost of usin' entrepreneurial a"ilities in the
production of a 'ood, or the profit that could have "een received "y
entrepreneurship in another "usiness venture. Bi)e the opportunity costs of other
resources, normal profit is deducted from revenue to determine economic profit.
(t is, ho%ever, never included as an accountin' cost %hen accountin' profit is
computed.
NORMAL RATE OF RETURN, for individuals, is the avera'e rate of return on all
investments, i.e. the avera'e of all returns yields the normal rate of return. .or
capital investments for "usinesses, it is the profit relative to capital investment.
13
NORMATIVE ACCOUNTING THEORY is %here theorists tend to advocate their
opinions on accountin' "ased upon su"-ective opinion, deductive lo'ic, and
inductive methods. (n the final analysis, nearly all standards are "ased upon
normative theory. Generally conclude that some accountin' rule is "etter or
%orse than its alternatives. 3ormative theorists tend to rely heavily upon
anecdotal evidence (e.'., examples of fraud) that 'enerally fails to meet tests of
academic ri'or. .or example, the Gi&ard reported that Mont'omery Gard %ould
fail. @o%ever, the Gi&ard al%ays reports that every company %ill fail or lose its
self identity in a pattern of ac,uisitions and mer'ers. Eventually, he %ill al%ays
"e correct.
NOSTRO ACCOUNT is an account held "y a "an) in a forei'n country in the
currency of that country e.'., a German "an) %ith an account in 3e% 0or) %ill
call the record in its o%n "oo)s of its 3e% 0or) account a nostro account.
NOTARIAL is relatin' to or done "y a notary pu"lic.
NOTARY PUBLIC is a certifier of le'al documents, i.e., some"ody %ho is le'ally
authori&ed to certify the authenticity of si'natures and documents. Also called
notary.
NOTE see P82M(!!280 32$E.
NOTES PAYABLESHORT TERM are all short term note o"li'ations, includin'
"an) and commercial paper. 1oes not include trade notes paya"le.
NOTES TO THE FINANCIAL STATEMENTS is a detailed set of notes
immediately follo%in' the financial statements contained in the annual report that
expands upon and?or explains in some depth the information contained in the
financial statements.
NOTFORPROFIT ORGANIZATION see 323P82.($ 28GA3(HA$(23.
NPV is an acronym for 3et Present /alue.
NRGT (N&+R/%/**)01/ G4)+5 T&*)1) is a concept used in retail point of sale
(P2!) terminals that does not allo% the Grand $otal to "e reset, "ut does allo%
ad-ustments to "e entered, e.'., errors, over%rin', etc. (mproved security and
control is provided for independent retail and chain operations %ith a 3on9
8esetta"le Grand $otal (38G$). pdated "y all sales, this valua"le audit fi'ure
may "e selected "y pro'ramma"ility to print on the 1aily Business 8eport.
NTA can mean either 3et $an'i"le Assets or 3et $otal Assets.
NWC is 3et Gor)in' #apital.
131
OAC is 2n Approved #redit.
O&M is an acronym for either 2perations & Maintenance or 2perations &
Mana'ement.
OB!ECT CODE desi'nates the type of expense or revenue to "e char'ed to an
account.
OB!ECT COST is the total cost of producin' an item7 direct cost (la"or &
material) Q overhead cost N $otal 2"-ect #ost.
OB!ECTIVE is a statement that is %ritten in terms of specific measura"le time9
"ased and verifia"le outcomes that challen'e the or'ani&ation to "e more
responsive to the environment to achieve the desired 'oals. 1ependent upon
usa'e, G2AB! are 'eneral in nature, %hile 2BCE#$(/E! are specific,
measura"le and time9"ased. (n some or'ani&ations, the meanin's for G2AB and
2BCE#$(/E are reversed.
OB!ECTIVITY PRINCIPLE states that accountin' %ill "e recorded on the "asis
of o"-ective evidence. 2"-ective evidence means that different people loo)in' at
the evidence %ill arrive at the same values for the transaction. !imply put, this
means that accountin' entries %ill "e "ased on fact and not on personal opinion
or feelin's.
OBLIGATION, in "usiness, is a le'al duty to pay or do somethin'.
OCCUPANCY COST is any cost or char'e incurred "y a tenant pursuant to its
lease, such as rent, operatin' expense increases, par)in' char'es, movin'
expenses, remodelin' costs, etc.
OCF is 2peratin' #ash .lo%.
OCOR see 2PP28$3($0 #2!$ 2. 8E/E3E.
OEM is an acronym for 2ri'inal E,uipment Manufacturer.
OFA is 2racle .lexi"le Architecture or 2racle .inancial Accountin'.
OFFBALANCE SHEET ASSET is an item representin' a resource of the entity
or somethin' that is pro-ected to have future economic value. (t is a positive
indicator of the entities financial position even thou'h it is not contained %ithin
the "alance sheet.
OFFBALANCE SHEET FINANCING is a method of o"tainin' funds throu'h a
lon'9term non9cancela"le lease that is accounted for as an operatin' lease. $he
132
lease does not meet the criteria of a +capital lease+. $his "ein' the case, the
present value of the lease o"li'ation in not included in the lessee+s "alance
sheet.
OFFBALANCE SHEET LIABIILITY is an item not reported %ithin the "ody of a
financial statement as a lia"ility that may re,uire future payment or services, e.'.,
liti'ation, rene'otiated claims %ithin a 'overnment contract, and 'uarantees of
future performance.
OFFBOOK PARTNERSHIP is a type of "lind trust. (t offers some advanta'es
over the traditional methods of capital procurement. (n some cases there is a
fatal lac) of transparency (e.'. Enron) that allo%s off9"oo) partners to hide de"ts,
pump profits, launder money and enrich insiders, "ut ultimately "an)ruptin' the
company and strippin' assets from its employeesA pension funds. !ee BB(31
$8!$.
OFFER PRICE see A!: P8(#E.
OFFICIAL INTEREST RATE, normally, is the rate of interest char'ed "y the
'overnment or traders %ithin the money mar)et, e.'., federal funds rate and "an)
repurchase a'reement (repo rate).
OFFSET is7 a. (n "an)in', the deduction "y a de"tor from a claim or demand of a
de"t or o"li'ation. !uch an offset is "ased upon a counterclaim a'ainst the party
ma)in' the ori'inal claim. Example7 !eller ma)es a claim or files a la%suit as)in'
for MD5,555 from 1e"tor as the final payment in purchase of a restaurant* as part
of his defense 1e"tor claims an offset of M45,555 for alle'ed funds o%ed "y
!eller for repairs 1e"tor made on property o%ned "y !eller, thus reducin' the
claim of !eller to M45,555* ". in accountin', the amount e,ualin' or
counter"alancin' another amount on the opposite side of the same led'er or the
led'er of another account* c. in securities, the elimination of a lon' or short
position "y ma)in' an opposite transaction. !ee also 2..!E$ A##23$.
OFFSET ACCOUNT is an account that is setup for elimination of a lon' or short
position "y ma)in' an opposite transaction.
OFFSOURCE, slan', is to outsource to an offshore location to primarily save on
the cost of la"or. !ee 2$!28#E.
ON ACCOUNT is a partial payment made to%ards satisfaction of a de"t.
ONESHOTS is slan' for 'overnmental expenditures done on a one time
appropriation.
ONEWRITE SYSTEM (also )no%n as PEGB2A81 !0!$EM) is a useful system
for small and home9"ased "usinesses. (t captures information at the time the
133
transaction ta)es place. $hese 2ne9Grite !ystems are efficient "ecause they
eliminate the need for recopyin' the data and are compati"le %ith electronic data
processin' if you should decide to computeri&e. Many small "usinesses rely
totally on the 2ne9Grite !ystem for simplicity and versatility. Gith only t%o pieces
of paper, a chec) and a led'er, you 'et all the "enefits of sound "oo))eepin'7
accuracy, money distri"ution, chec) control, audit trail, runnin' "an) "alance,
and instant revie%.
OPEN ACCOUNT is a non9'uaranteed payment arran'ement, e.'. similar to
department store credit. Goods are purchased and delivered %ithout payment.
.uture payment for delivered 'oods is dependent on the 'ood faith of the
purchaser.
OPEN ALLOTMENT is %here there is no restriction as to an amount that may "e
ta)en from that %hich is "ein' allotted.
OPENBOOK CREDIT is a form of trade credit in %hich sellers ship merchandise
on faith that payment %ill "e forthcomin'.
OPEN INFLATION means that prices are risin' on consumer 'oods and
services.
2PE3(3G BABA3#E is the "alance of an account at the start of an accountin'
period.
OPEN MARKET VALUE (OMV) is an opinion of the "est price at %hich the sale
of an interest in an asset %ould have "een completed unconditionally for cash
consideration on the date of valuation, assumin'7
(a) a %illin' seller*
(") that, prior to the date of valuation, there had "een a reasona"le period
(havin' re'ard to the nature of the asset and state of the mar)et) for the proper
mar)etin' of the interest, for the a'reement of price and terms and for the
completion of the sale*
(c) that the state of the mar)et, level of values and other circumstances %ere, on
any earlier assumed date of exchan'e of contracts, the same as on the date of
valuation*
(d) that no account is ta)en of any additional "id "y a purchaser %ith a special
interest* and
(e) that "oth parties to the transaction had acted )no%led'ea"ly, prudently and
%ithout compulsion.
OPEN TO BUY is the dollar amount "ud'eted "y a "usiness for inventory
purchases for a specific time period.
134
OPERATING ALLOWANCE is an advance?reim"ursement a'ainst certain
costs?expenses and?or a reduction in amount paya"le to cover those certain
costs?expenses.
OPERATING EXPENDITURES is the amount used durin' a particular period
directly in support of day9to9day operations such as %a'es, maintenance, office
supplies, etc.
OPERATING EXPENSES is all sellin' and 'eneral & administrative expenses.
(ncludes depreciation, "ut not interest expense.
OPERATING EXPENSE TO SALES reports the operatin' expenses as a
percent of 3et 8evenues. $his then is a measure of the total overhead employed
in the firm per 3et !ales 8evenue 1ollar* there"y 'ivin' an indication of the
efficiency of the cost structure of the company. (t 'ives an indication of the a"ility
of a "usiness to convert income into profit. Generally, "usinesses %ith lo% ratios
%ill 'enerate more profit than others. (n 'eneral "usiness operations %ith lar'er
and more sta"le cash flo%s can sustain hi'her ratios than smaller and less sta"le
operations. !cale and income sta"ility are important considerations thou'h it is
up to the mana'ement of a "usiness to monitor costs in an appropriate manner
%hatever its si&e.
OPERATING EXPOSURE, in forei'n exchan'e, is currency fluctuations
com"ined %ith price level chan'es that can alter the amounts and ris)iness of a
firmAs future revenues and costs. (t is typified "y evaluatin' real exchan'e 'ains
or losses. (t is prospective and lon'9term in nature.
OPERATING INCOME is revenue less cost of 'oods sold and related operatin'
expenses that are applied to the day9to9day operatin' activities of the company.
(t excludes financial related items (i.e., interest income, dividend income, and
interest expense), extraordinary items, and taxes.
OPERATING INTEREST is the le'al ri'ht to assets used to produce revenue,
e.'., produce oil or 'as from a %ell, accompanied "y the responsi"ilities to pay
production costs and assume the ris)s.
OPERATING LEASE is a short9term, cancela"le lease.
OPERATING LEVERAGE is fixed operatin' costs divided "y total (fixed plus
varia"le) operatin' costs.
OPERATING MARGIN is the ratio of operatin' income to sales revenue.
OPERATING PROFIT is Gross Profit minus 2peratin' Expenses.
135
OPERATING PROFIT TO SALES is a useful ratio %hen evaluatin' value of a
firm. (t discounts the effect of varyin' tax rates and "enefits to 'ive a more
accurate indication of the return associated %ith the firm.
OPERATING RATIO measures a firm+s operatin' efficiency* calculated7
company operatin' expenses divided
"y its operatin' revenues.
OPERATING REVENUE is that revenue reali&ed from the day9to9day operations
of the entity, e.'., sales revenue.
OPPORTUNITY COST is %idely used in "usiness plannin' in evaluatin' capital
investment. A company measures the pro-ected return a'ainst the anticipated
return it %ould receive on a hi'hest yieldin' alternative investment that contains a
similar ris) profile.
OPPORTUNITY COST OF REVENUE (OCOR) is %here revenue?money held
no% may "e invested to produce more money 9 thus %e consider opportunity cost
a return or more revenue.
OPPORTUNITY LOSS see ($$(')*N+)Y C(S)
OPTION is the formal reservation of the ri'ht to "uy or sell property ? assets at a
certain price and ? or %ithin a 'iven time in the future.
OPTIONALITY TEST is part of the 3A(# security insurer provisional exemption
rules7 A. 2ptionality $est7 for corporate and municipal issues, principal and
interest must "e paid in ! dollars, contract terms state that principal is
repaya"le in full and the principal repayment schedule is fixed. .urther the
principal is set at closin', fixed in ! dollars and coupon payments cannot "e
less than &ero in any period. B. 2ptionality $est7 for Asset9Bac)ed?8esidential
Mort'a'e9Bac)ed securities, the principal and interest must "e paid in !
dollars, and the coupon payment cannot "e less than &ero in any payment
period. (n addition, %ith the exception for credit enhancements, the timin' and
amount of cash flo%s to pay the o"li'ation must depend on the timin' and
amount of cash flo% from the assets underlyin' the "ond. (f the "ond is prepaid
immediately, the insurer must receive at least <IK of the purchase price.
ORDER OF LIQUIDITY is %hen items on a "alance sheet are listed in order of
li,uidity. After cash, the other current assets are listed in order of li,uidity or
nearness to cash (i.e. Accounts 8eceiva"le first, then (nventory])
ORDER OF PERMANENCE is %here fixed assets are entered in the "alance
sheet in descendin' order of permanence (i.e. land first, then "uildin's, then
e,uipment ...).
136
ORDINARY ASSET is a non9capital asset used for "usiness purposes. !ee
#AP($AB A!!E$.
ORDINARY INCOME is the income derived from the re'ular operatin' activities
of a "usiness or individual, "ut exclusive of capital 'ains. 3et income from a
"usiness, alon' %ith personal %a'es, interest, and dividends are examples of
ordinary income.
ORGANIZATIONAL COSTS see 28GA3(HA$(23 #2!$.
ORGANIZATION COST is amounts spent to "e'in a "usiness entity, e.'.,
"usiness filin' fees, franchise ac,uisition, and le'al fees. (n the nited !tates,
costs associated %ith a corporation issuin' or sellin' shares or other securities
are capitali&ed and not tax deducti"le. 2ther or'ani&ation expenses may "e
capitali&ed and amorti&ed over a period of sixty (L5) months or more* there"y
providin' possi"le tax relief throu'h or'ani&ation cost deductions. !ee also
!$A8$P #2!$!.
ORIGINAL EQUIPMENT MANUFACTURER is a company that "uilds
components or systems that are used in systems or products sold "y another
company usin' the purchasin' company+s "rand. !ometimes referred to as
;private la"el.;
ORIGINAL ISSUE DISCOUNT is %hen a lon'9term de"t instrument is issued at a
price that is lo%er than its stated redemption value* the difference is called
2ri'inal (ssue 1iscount (2(1).
OSHA (OCCUPATIONAL SAFETY AND HEALTH ACT) is a federal la% in the
nited !tates that re,uires employers to provide employees %ith a %or)place
that is relatively free of ha&ardous conditions.
OTC see 2/E8 $@E #23$E8.
OUTOFP9CKET are expenses re,uirin' an outlay of cash in a 'iven time
period, e.'., payroll, advertisin' and other operatin' expenses, "ut not
depreciation.
OUTSOURCE is to o"tain 'oods or services from an outside supplier* i.e., to
contract %or) outside of your "ud'et and control. (An example %ould "e
companies outsourcin' a percenta'e of their direct la"or in order to maintain a
flexi"le %or)force.).
OUTSTANDING SHARES is the num"er of shares that are currently o%ned "y
all investors. (t also includes restricted shares (shares o%ned "y officers and
insiders of the company) as %ell as shares held "y the pu"lic. !hares that the
company has repurchased or retired are not considered outstandin' stoc).
137
OVERDRAFT is, a. a draft in excess of the credit "alance %ithin an account* or
". a facility (usually at a "an) or other financial institution) ena"lin' an account
holder to "orro% up to an a'reed amount and often for an a'reed time.
OVERHEAD is the costs associated %ith providin' and maintainin' a
manufacturin' or %or)in' environment. .or example7 rentin' the "uildin', heatin'
and li'htin' the %or) area, supervision costs and maintenance of the facilities.
(ncludes indirect la"or and indirect material.
OVERHEAD ABSORPTION is the term used for descri"in' the transfer of value
from a fixed asset such as a "uildin' or machine to the final product. (n this %ay
the indirect costs of the entity can "e assi'ned to the products or services
supplied.
OVERHEAD RATE is calculated "y totalin' all your expenses for one year,
excludin' la"or and materials, and then divide this num"er "y your total cost of
la"or and materials.
OVERLEVERAGED is a "alance sheet condition %here the entity is incapa"le of
servicin' its de"t load (interest payments) %ith availa"le capital sources. !imply
put, the entity is carryin' too much de"t.
OVER THE COUNTER (OTC) is a .!. mar)et for securities that are not listed
on an exchan'e. !ecurity orders are transacted via telephone and a computer
net%or) that connect dealers. As opposed to the 30!E, %hich is an auction
mar)et, the 2$# is a ne'otiated mar)et. 2$# dealers may either act either as
principals or as a'ents for customers. $he 2$# mar)et is re'ulated "y the
3A!1.
OVERTRADING# in securities, is7 a. excessive "uyin' and sellin' "y a "ro)er in
a discretionary account, or, ". practice of a mem"er of an under%ritin' 'roup
inducin' a "ro)era'e client to "uy a portion of a ne% issue "y purchasin' other
securities from the client at a premium. (n finance, it is %hen a firm expands sales
"eyond a level that can "e financed %ith normal %or)in' capital.
OVERSTATED is %hen somethin' is represented as 'reater than is true or
reasona"le.
OWNERS DRAW see P82P8(E$28! 18AG.
OWNERS EQUITY see !@A8E@2B1E8+! EU($0
OWN WORK CAPITALIZED represents the value of %or) performed for o%n
purposes and capitali&ed as part of fixed assets.
138
PACKING CREDIT is any loan or advance 'ranted or any other credit provided
"y a "an) to an exporter for financin' the purchase, processin', manufacturin'
or pac)in' of 'oods prior to shipment, on the "asis of letter of credit opened in
his favor or in favor of some other person, "y an overseas "uyer or a confirmed
and irrevoca"le order for the export of 'oods from the producin' country or any
other evidence of an order for export from that country havin' "een placed on the
exporter or some other person, unless lod'ment of export orders or letter of
credit %ith the "an) has "een %aived.
PACKING LIST is a statement of the contents of a container, usually put into the
container so that the ,uantity of merchandise may "e counted "y the person %ho
opens the container. Also )no%n as a pac)in' slip.
PACKING SLIP see PA#:(3G B(!$.
PAIDINCAPITAL is capital received from investors for stoc), e,ual to capital
stoc) plus paid9in capital, 32$ that capital received from earnin's or donations.
Also called contri"uted capital.
PAIDUP CAPITAL is the total amount paid "y shareholders for their shares of
capital stoc).
PARENT COMPANY is a company of %hich others are su"sidiaries.
P&L see P82.($ A31 B2!! !$A$EME3$.
PARETO PRINCIPLE/LAW see I59D5 8BE.
PARTNERSHIP is an unincorporated "usiness that has more than one o%ner. (t
is different from a sole proprietorship in that a sole proprietorship can have only
one o%ner.
PAR VALUE is a. the maturity value or face value, i.e., the amount that an issuer
a'rees to pay at the maturity date* ". the official exchan'e rate "et%een t%o
countries+ currencies* or, c. the value of a security that is set "y the company
issuin' it* unrelated to mar)et value.
PAS could mean7 Personal Accountin' !ystem, Personnel Accountin' !ystem,
or Personnel Accountin' !ym"ol.
PASSIVE ACTIVITY is defined in the ! $ax #ode as one or more trades,
"usiness or rental activity, that the taxpayer does not materially participate in
mana'in' or runnin'. All income and losses from passive activities are 'rouped
to'ether on an income tax return and, 'enerally, loss deductions are limited or
139
suspended until the passive activity that 'enerated them is disposed of in its
entirety.
PATENT is a le'al form of protection that provides a person or le'al entity %ith
exclusive ri'hts to exclude others from ma)in', usin', or sellin' a concept or
invention for the duration of the patent. $here are three types of patents
availa"le7 desi'n, plant, and utility.
PAYABLE TO SHAREHOLDERS normally refers to distri"ution of dividends to
shareholders and ? or repayment of notes held "y shareholders.
PAYBACK PERIOD, in capital "ud'etin', is the len'th of time needed to recoup
the cost of #AP($AB (3/E!$ME3$. $he pay"ac) period is the ratio of the initial
investment (cash outlay, re'ardless of the source of the cash) to the annual cash
inflo%s for the recovery period. $he ma-or shortcomin' for the pay"ac) period
method is that it does not ta)e into account cash flo%s after the pay"ac) period
and is therefore not a measure of the profita"ility of an investment pro-ect. .or
this reason, analysts 'enerally prefer the 1(!#23$E1 #A!@ .B2G methods
of capital "ud'etin'* primarily, the (3$E83AB 8A$E 2. 8E$83 and the 3E$
P8E!E3$ /ABE methods.
PAY CYCLE is a set of rules that defines the criteria "y %hich scheduled
payments are selected for payment creation, e.'., payroll may "e on a %ee)ly, "i9
%ee)ly, or monthly pay cycle.
PAYMENT is the satisfaction of a de"t or claim* primarily money paid to fulfill an
o"li'ation.
PAYMENT ON ACCOUNT see 23 A##23$.
PAYOUT RATIO is dividends paid divided "y company earnin's over some
period of time, expressed as a percenta'e.
PAYROLL BURDEN, in the .!., includes the cost of your payroll administration,
.(#A, .$A, !$A, %or)ersA compensation, etc., "ased on each M455.55 of
payroll. .or example7 M455.55 of payroll earned Q >=.JL payroll "urden N M4>=.JL
total payroll.
PBC LIST (PROVIDED BY CLIENT LIST) is a re,uest "y external auditors of
items that %ill "e re,uired from the client "y the auditor prior to the
commencement of field%or). !uch PB# lists are preliminary and %ill li)ely "e
expanded once the audit commences.
PC is an acronym for Professional #orporation ("usiness le'al entity).
PEGBOARD SYSTEM see 23E9G8($E !0!$EM.
14
PEG RATIO compares earnin's 'ro%th and the Price Earnin's 8atio. $he PEG
8atio (formula) is the current Price Earnin's 8atio divided "y the expected lon'9
term 'ro%th rate (per the earnin's per share).
PENDING usually refers to either7 4. 3ot yet decided* or, D. Bein' in continuance.
PENSION MAXIMIZATION is a controversial strate'y, often espoused "y life
insurance a'ents, of usin' insurance to au'ment a company "enefit plan. nder
this arran'ement, a retiree ta)es pension payments for his or her o%n life only
and "uys life insurance to provide for a survivin' spouse. Also )no%n as pension
max.
P/E RATIO (PRICE/EARNINGS RATIO) is a stoc) analysis statistic in %hich the
current price of a stoc) (today+s last sale price) is divided "y the reported actual
(or sometimes pro-ected, %hich %ould "e forecast) earnin's per share of the
issuin' firm* it is also called the ;multiple;.
PER CAPITA INCOME is the mean income computed for every man, %oman,
and child in a particular 'roup. (t is derived "y dividin' the total income of a
particular 'roup "y the total population in that 'roup.
PERCENTAGE DESIGN, in construction, is the percenta'e expended for desi'n
and construction mana'ement services in proportion to total construction.
PERCENTAGE LEASE is a type of lease %here the landlord char'es a "ase rent
plus an additional percenta'e of any profits reali&ed "y the "usiness tenant.
PERCENTAGE OF COMPLETION METHOD OF ACCOUNTING is instituted if
your revenues exceed M45,555,555 (>9year avera'e) or your contracts %ill not "e
completed %ithin a t%o9year period, you are 'enerally re,uired to use the
percenta'e of completion accountin' for contracts. $here are many advanta'es
to usin' to percenta'e of completion method includin'7
(t is the "est measurement of income.
Percenta'e of completion normally needs to "e computed for financial
statement purposes eliminatin' confusin' timin' differences from tax to
financial statements.
$here is no increase in alternative minimum taxa"le income.
Bosses can "e reco'ni&ed on contracts "efore the -o" is complete.
(t is useful in levelin' taxa"le income, permittin' use of lo%er tax "rac)ets
each year.
Ghen usin' the percenta'e of completion method, it is important to
carefully compute the percent complete, for it may have a 'reat impact on
your taxa"le income.
141
Estimated costs to complete the contract, a component of calculatin' the
percent to complete, determine %hat your taxa"le income %ill "e. Also,
carefully revie%in' the over9head allocation may result in lo%er tax.
PER DIEM is a. one every day (e.'., save 45 man9hours per diem)* or, ".
payment of daily expenses and?or fees of an employee or an a'ent.
PERFORMANCE BUDGET is a "ud'et format that relates the input of resources
and the output of services for each or'ani&ational unit individually. !ometimes
used synonymously %ith pro'ram "ud'et.
PERFORMANCE INDICATORS are those empirical data points that indicate
ho% %ell, or poorly, an entity is performin' a'ainst preset 'oals and o"-ectives.
3ormally, in "usiness or strate'ic plannin', a company %ill set tar'ets over a
specified period that the "usiness "elieves are attaina"le and trac) performance
over time to those tar'ets or o"-ectives.
PERFORMING ASSET is an asset that provides a dependa"le annual financial
return* for example, production machinery or, in transportation, an airliner.
PERIOD COST is an expense that is not inventoria"le* it is char'ed a'ainst sales
revenues in the period in %hich the revenue is earned (e.'., !G&A is a period
cost). Also called period expense.
PERIODICITY CONCEPT is the concept that each accountin' period has an
economic activity associated %ith it, and that the activity can "e measured,
accounted for, and reported upon.
PERMANENCE is the ,uality or state of "ein' permanent* primarily -ud'ed "y
dura"ility and useful life. !ee 281E8 2. PE8MA3E3#E.
PERPETUAL INVENTORY is an inventory accountin' system %here"y "oo)
inventory is )ept in continuous a'reement %ith stoc) on hand. A daily record is
maintained of the dollar amount and physical ,uantity. $here are periodic
physical inventories ta)en to reconcile at short intervals.
PERPETUAL SUCCESSION is one of the le'al distinctions "et%een a "usiness
and a company. A company has perpetual succession meanin' that a chan'e in
the mem"ership does not affect the existence of the company %hereas a
"usiness does not en-oy this perpetual succession. .or example, in the case of a
partnership, %hich is one form of "usiness re'istration, a chan'e in the
mem"ership affects the partnership.
PERSONAL LOAN is a short9term loan that is extended "ased on the personal
inte'rity of the "orro%er.
142
PERVASIVENESS OF ESTIMATES means that the estimates have to "e
complete, of hi'h ,uality and in depth, i.e., they have to ade,uately cover the
%hole accountin' entity.
PETTY CASH, normally, is an account and location %here tan'i"le cash is
stored for usa'e in purchasin' or the reim"ursin' of inexpensive out9of9poc)et
expenditures.
PHANTOM PROFIT is hypothetical profit, i.e., no cash flo% is 'enerated.
Appreciation on any asset, e.'. stoc), is considered phantom profit unless or until
the asset is sold, there"y 'eneratin' cash flo%.
PHYSICAL INVENTORY is the countin' of all merchandise or e,uipment on
hand.
PIERCING THE CORPORATE VEIL is a le'al concept throu'h %hich a
corporation+s shareholders, %ho 'enerally are shielded from lia"ility for the
corporation+s activities, can "e held responsi"le for certain actions.
PIGGYBACK, dependent upon usa'e, can mean7 4. 2n the "ac) or shoulder or
astraddle on the hip* D. $%o lenders participatin' in the same loan (pi''y"ac)
loan)* >. nauthori&ed access to a data processin' system via an authori&ed
user+s le'itimate connection (pi''y"ac) entry)* 6. @aul "y railroad car* J. !E#
re'istration of existin' holdin's of shares in a corporation com"ined %ith an
offerin' of ne% pu"lic shares (pi''y"ac) re'istration)* L. 8i'hts that entitle an
investor to re'ister and sell his or her stoc) %henever the company conducts a
pu"lic offerin' (pi''y"ac) ri'hts).
PINK PEARL is a type of a pencil9lead eraser that auditin' companies use.
PIPE is an acronym for Private (nvestment in a Pu"lic Entity.
PITI is an acronym for Principal, (nterest, $axes and (nsurance %hen dealin' %ith
property mort'a'es.
PLACEMENT is "an) depositin' Eurodollars %ith (sellin' Eurodollars to) another
"an) is said to "e ma)in' a placement.
PLANT ASSET is a non9current physical asset applica"le to manufacturin'
activities.
PLEDGE is a %ritten or oral a'reement to contri"ute cash or other assets.
PLEDGED ASSET is an asset that is transferred to a lender as security for de"t.
$he lender of the de"t ta)es possession of the pled'ed asset, "ut does not have
o%nership unless default occurs.
143
PLS see Profit and Boss !harin'.
PLUG is a varia"le that handles financial slac) in the financial plan.
PLUG NUMBER see #2!$ 2. G221! !2B1.
POINTS are additional fee paid to a lender. Points are 'enerally stated as a
percent of the total amount "orro%ed and are in essence prepaid interest. Points
paid can "e deducted over the life of the loan.
POOLINGOFINTERESTS, in the !, is the method of accountin' used in a
"usiness com"ination in %hich the ac,uirin' company has issued votin' common
stoc) in exchan'e for votin' common stoc) of the ac,uired company. $he
features of the method are that the ac,uired company+s net assets are "rou'ht
for%ard at "oo) value, retained earnin's and paid9in capital are "rou'ht for%ard,
the net income is reco'ni&ed for the full financial year re'ardless of the date of
ac,uisition, and the expenses of poolin' are immediately char'ed a'ainst
earnin's. (n order to use the method there are a num"er of criteria to "e met
concernin' the prior independence of the companies and the nature and timin'
of the ac,uisition. !ee P22B(3G 2. (3$E8E!$ ME$@21.
POOLING OF INTEREST METHOD is an accountin' method for reportin'
ac,uisitions accomplished throu'h the use of e,uity. $he com"ined assets of the
mer'ed entity are consolidated usin' "oo) value, as opposed to the P8#@A!E
ME$@21, %hich uses mar)et value. $he mer'in' entities^ financial results are
com"ined as thou'h the t%o entities have al%ays "een a sin'le entity. !ee
P22B(3G92.9(3$E8E!$!.
POP is an acronym for, amon' others, Point 2f Presence or Post 2ffice Protocol
((nternet e9mail protocol).
PORTFOLIO is a term for descri"in' all the investments that an entity o%ns. A
diversified portfolio contains a variety of investments.
POSTIVE ACCOUNTING THEORY is %here theorists tend to explain %hy some
accountin' practices are more popular than others (e.'., "ecause they increase
mana'ement compensation). $hey tend to support their conclusions %ith
inductive theory and empirical evidence as opposed to deductive methods.
Generally avoid advocacy of one accountin' rule as "ein' "etter or %orse than
its alternatives. Positivists are inspired "y anecdotal evidence, "ut anecdotal
evidence is never permitted %ithout more ri'orous and controlled scientific
investi'ation.
POST it the transfer of accountin' entries from a -ournal of ori'inal entry into a
led'er "oo), in chronolo'ical order accordin' to %hen they %ere 'enerated.
144
POST DATE is placin' on a document or a chec) a date that follo%s the date of
the initiation or execution of the document. .or example, a post dated chec)
cannot "e cashed until the date %ritten on the chec).
POSTING, in "oo))eepin', is to list on the company+s records, such as to list the
detail of sales and purchases on the accounts receiva"le or paya"le records.
PPE can mean either Property, Plant, and E,uipment, or Pay Period Endin'.
PPI see P821#E8 P8(#E (31EO.
PR is an acronym for, amon' others, +pu"lic relations+, +payroll+ and +purchase
re,uest+.
PRACTICAL CAPACITY is %here the cost of production is "ased on the
+practical capacity+ of production facilities. $herefore, the proportion of overheads
allocated to a unit of production is not to "e increased as conse,uence of idle
capacity of the plant.
PREDICTOR RATIOS7 Most ratios are descriptive in nature* that is, they
descri"e the firm as it is no%. As you mi'ht expect, Predictor 8atios provide
su''estions a"out li)ely future conditions for the firm. /entureBine provides t%o
industry standard Predictor 8atios7
4. Altman H9!core 9 a valid predictor or "an)ruptcy, and,
2. !ustaina"le Gro%th 8ate 9 sho%s the de'ree to %hich a concern can 'ro%
usin' their retained earnin's to fund 'ro%th.
PREEMPTIVE RIGHT is the ri'ht of a current stoc)holder to maintain the
percenta'e o%nership interest in the company "y "uyin' ne% shares on a pro
rata "asis "efore they are issued to the pu"lic.
PREFERENCE SHARE CAPITAL is capital raised "y an entity throu'h the sale
of preferred shares.
PREFERRED STOCK, usually, non9votin' capital stoc) that pays dividends at a
specified rate and has preference over common stoc) in the payment of
dividends and the li,uidation of assets.
PREMIUM ON CAPITAL STOCK is excess received over the par value of stoc)
issued. $he premium account is sho%n under the paid9in capital section of
stoc)holder+s e,uity "ecause it resulted from the issuance of stoc). (t is not an
income statement account since the company earns profit "y sellin' 'oods and
services to outsiders, not "y issuin' shares of stoc) to o%ners.
145
PREPAID EXPENSES are amounts that are paid in advance to a vender or
creditor for 'oods and services. $ypically, insurance premiums are paid in
advance of the covera'e contained in the policy. Prepaid Expenses is a #urrent
Asset for your "usiness. $his is "ecause you have paid for somethin' and
someone o%es you the service or the 'oods for %hich you prepaid.
PRESENT VALUE is the discounted value of a payment or stream of payments
to "e received in the future, ta)in' into consideration a specific interest or
discount rate. Present /alue represents a series of future cash flo%s expressed
in today+s dollars. A 'iven amount of money is almost al%ays more valua"le
sooner than later, so present values are 'enerally smaller than correspondin'
future values.
PRICE EARNINGS MULTIPLE7 $he price9earnin's ratio (P?E) is simply the price
of a company+s share of common stoc) in the pu"lic mar)et divided "y its
earnin's per share. Multiply this multiple "y the net income and you %ill have a
value for the "usiness. (f the "usiness has no income, there is no valuation. (f the
common stoc) in not pu"licly traded, valuation of the stoc) is purely su"-ective.
$his may not "e the "est method, "ut can provide a "enchmar) valuation.
PRICE EARNING RATIO see P8(#E EA83(3G! MB$(PBE.
PRICE ELASTICITY is the de'ree to %hich customers respond to price chan'es
(calculation7 K chan'e in ,uantity divided by K chan'e in price). A value 'reater
than 4 N customers exhi"it a 'ood sensitivity to price. A value less than 4 N
customers are insensitive to price. Price Elasticity is if a small chan'e in price is
accompanied "y a lar'e chan'e in ,uantity demanded, the product is said to "e
/1)%*(' (or responsive to price chan'es). A product is (+/1)%*(' if a lar'e chan'e
in price is accompanied "y a small amount of chan'e in demand.
PRICE FIXING is an ille'al practice %here competin' companies a'ree,
informally or formally, to -ointly restrict or control prices %ithin a specified ran'e.
PRICE MIX is the value of the product determined "y the producers. Price mix
includes the decisions as to7 Price level to "e adopted* discount to "e offered*
and, terms of credit to "e allo%ed to customers.
PRICE TO BOOK is a financial ratio that is derived "y dividin' a stoc)As
capitali&ation "y its "oo) value. Also called Mar)et9to9Boo).
PRICE TO EARNINGS RATIO (P/E) is a performance "enchmar) that can "e
used as a comparison a'ainst other companies or %ithin the stoc)+s o%n
historical performance. .or instance, if a stoc) has historically run at a P?E of >J
and the current P?E is 4D, you may %ant to explore the reasons for the drastic
chan'e. (f you "elieve that the ratio is too lo%, you may %ant to "uy the stoc).
0ou %ill 'enerally find a P?E ratio "ased on either the prior reportin' year+s
146
earnin's, or the earnin's of the prior four ,uarters added to'ether (B$M or Batest
$%elve Months)
PRICE TO REVENUE is a financial ratio derived "y dividin' current stoc) price
"y revenue per share (ad-usted for stoc) splits).
PRIMARY DEALER is a desi'nation 'iven "y the .ederal 8eserve !ystem to
commercial "an)s or "ro)er?dealers %ho meet specific criteria, includin' capital
re,uirements and participation in $reasury auctions. A primary dealer is entitled
and o"li'ated to purchase and sell 'overnment securities %ith the .ederal
8eserve directly. $hey serve as the conduits for .ederal 8eserve open mar)et
activities. $here are approximately >5965 such dealers.
PRIMARY MARKET is the first sale of a ne%ly issued security. $hose securities
are purchased in the primary mar)et. All su"se,uent tradin' of those securities is
done in the secondary mar)et.
PRIME BROKERS are providers of "ac)9office administration and stoc) lendin'
for hed'e funds.
PRIME COST is e,ual to the sum of 1(8E#$ MA$E8(AB plus 1(8E#$ BAB28.
PRIME RATE is the interest rate that "an)s char'e to their preferred customers.
#han'es in the prime rate influence chan'es in other rates* mort'a'e interest
rates for example.
PRINCIPAL is the amount of a loan, excludin' interest, or the amount you invest,
excludin' income.
PRIVATE CORPORATION is a corporation that o%nership is held "y the private
sector, i.e. individuals or companies.
PRIVATE PLACEMENT is investments in companies that are privately o%ned*
i.e, they are companies that are not traded on a pu"lic stoc) exchan'e (e.'.,
30!E, 3A!1AU, and AMEO).
PRIVATE PLACEMENT (1EB$) is the sale of a "ond or other security directly to
a limited num"er of investors* used in the context of 'eneral e,uities. .or
example, sale of stoc)s, "onds, or other investments directly to an institutional
investor li)e an insurance company, avoidin' the need for the re'istration %ith
the re'ulator if the securities are purchased for investment as opposed to resale.
PROCESS COSTING is a method of cost accountin' applied to production
carried out "y a series of chemical or operational sta'es or processes. (ts
characteristics are that costs are accumulated for the %hole production process
and that avera'e unit costs of production are computed at each sta'e.
147
PRODUCER PRICE INDEX (PPI) measures the avera'e chan'e over time in the
sellin' prices received "y domestic producers for their output. $he prices
included in the PP( are from the first commercial transaction for many products
and some services.
PRODUCT COST is cost of inventory on hand, also called (nventoria"le #ost.
$hey are assets until the products are sold. 2nce they are sold, they "ecome
expense, i.e. #ost of Good !old (#2G!). All manufacturin' costs are product
costs, e.'., direct material, direct la"or, and factory overhead.
PRODUCTIVE ACTIVITY usually is defined as includin' activities that have
economic value in the mar)etplace. A more contemporary definition of productive
activity includes any activity that produces a valued 'ood or service, even if it is
not actually paid for.
PRODUCTIVITY is a measured relationship of the ,uantity and ,uality of units
produced and the la"or re,uired per unit of time.
PRODUCTIVITY RATIO is the ratio of outputs to inputs. $he closer the ratio is to
4.5, the hi'her the productivity* the closer the ratio is to 5.5, the lo%er the
productivity. Productivity is important "ecause it relates to an or'ani&ation+s
a"ility to compete, and to the overall %ealth and standard of livin' of a nation.
Productivity is affected "y %or) methods, capital, ,uality, technolo'y, and
mana'ement.
PRODUCT MIX involves plannin' and developin' the ri'ht type of product that
%ill satisfy fully the needs of customers. A product has several dimensions.
$hese dimensions are collectively called +product mix+. Product mix for example
may consist of si&e and %ei'ht of the product, volume of output, product ,uality,
product desi'n, product ran'e, "rand name, pac)a'e, product testin', %arranties
and after sales services and the li)e.
PROFITABILITY is company+s a"ility to 'enerate revenues in excess of the costs
incurred in producin' those revenues.
PROFITABILITY RATIOS are measures of performance sho%in' ho% much the
firm is earnin' compared to its sales, assets or e,uity.
PROFIT AFTER TAX (PAT) is the net profit earned "y the company after
deductin' all expenses li)e interest, depreciation and tax. PA$ can "e fully
retained "y a company to "e used in the "usiness. 1ividends, if declared, are
paid to the share holders from this residue.
PROFIT AND LOSS SHARING (PLS) is the method utili&ed in (slamic "an)in' to
comply %ith the prohi"ition of interest. $he (slamic solution, commonly referred to
as Profit & Boss !harin' (PB!), su''ests an e,uita"le sharin' of ris)s and profits
148
"et%een the parties involved in a financial transaction. (n the "an)in' "usiness,
there are three parties 9 the entrepreneur or the actual user of capital, the "an)
%hich serves as a partial user of capital funds and as a financial intermediary,
and the depositors in the "an) %ho are the suppliers of savin's or capital funds.
$here are t%o different partnerships of the type mentioned in (slam7 the
partnership "et%een the depositors and the "an), and the partnership "et%een
the entrepreneur (or the "orro%er) and the "an). nder this proposal, financial
institutions %ill not receive a fixed rate of interest on their outstandin' loans,
rather, they share in profits or in losses of the "usiness o%ner to %hom they have
provided the funds. !imilarly, those individuals %ho deposit their funds in a "an)
%ill share in the profit?loss of the financial institution.
PROFIT AND LOSS STATEMENT (P&L) is also )no%n as an income statement.
(t sho%s your "usiness revenue and expenses for a specific period of time. $he
difference "et%een the total revenue and the total expense is your "usiness net
income. A )ey element of this statement, and one that distin'uishes it from a
"alance sheet, is that the amounts sho%n on the statement represent
transactions over a period of time %hile the items represented on the "alance
sheet sho% information as of a specific date (or point in time).
PROFIT BEFORE TAXES is operatin' profit minus all other expenses (net).
PROFIT CENTER is a section of an or'ani&ation that is responsi"le for
producin' profit, e.'., a division of a corporation that is not a stand9alone entity
"ut is re,uired to produce profits %ithin the corporation.
PROFIT MARGIN ON SALES is a profita"ility ratio calculated "y dividin' 3et
(ncome "y Avera'e $otal Assets.
PROFIT MULTIPLE" Profit and sales multiples are the most %idely used
valuation "enchmar)s used in valuin' a "usiness. $he information needed are
pretax profits and a mar)et multiplier, %hich may "e 4, D, >, or 6 and usually a
ceilin' of J. $he mar)et multiplier can "e found in various financial pu"lications,
as %ell as analy&in' the sale of compara"le "usinesses. $his method is easy to
understand and use. $he profit multiple is often used as the valuation ceilin'
"enchmar).
PROFORMA is to provide in advance to a prescri"ed form or to descri"e items
\pro #orma financial statement or pro #orma invoice_.
PROFORMA INVOICE is a price ,uote. (t is %ritten as an invoice, and, in effect,
says7 +$his is the purchase price and terms %e are offerin'.+
PROGRAM BUDGET is a "ud'et %herein inputs of resources and outputs of
services are identified "y pro'rams %ithout re'ard to the num"er of
or'ani&ational units involved in performin' various aspects of the pro'ram.
149
PROGRESSIVE TAX is an income tax system to %here the more income that is
made the hi'her the tax percenta'e that must "e paid.
PROGRESS BILLINGS are interim "illin's for construction %or) or 'overnment
contract %or). $he entry is to de"it pro'ress "illin's receiva"le and credit
pro'ress "illin's on construction in pro'ress. Pro'ress "illin's is a contra
account to #23!$8#$(239(39P82G8E!!.
PRO!ECTION is an approximation of future events. sually a pro-ection is made
"y extrapolatin' )no%n information into the future period, considerin' events that
could affect the outcome. !ee .28E#A!$, B1GE$.
PROMISES FOR THE FUTURE is not a standard term, "ut is sometimes used in
contracts to delineate %hat orders?commitments may exist in the future.
1ependent upon the contractual lan'ua'e, it may or may not "e "indin'.
PROMISSORY NOTE, usually -ust called a +note+, is a 3EG2$(ABBE
(3!$8ME3$ %herein the ma)er a'rees to pay a specific sum at a definite time.
PROPRIETARY is an account, item, or information "elon'in' to a company or
individual. !ee P82P8(E$A80 A!!E$.
PROPRIETARY ASSET# usually, is any asset that is considered in the realm of
intellectual property that should not "e disclosed, e.'., all information havin' to
do %ith clients?customers, includin' "ut not limited to names, addresses,
telephone num"ers and other contact information, as %ell as any other personal
or "usiness related information, as it may exist from time to time is a valua"le,
and uni,ue proprietary asset to a company. Proprietary assets %ould also
include trade secrets and undisclosed inventions.
PROPRIETORS DRAW is %hen a "usiness proprietor dra%s money for personal
needs, "ut is taxed on "usiness results (at individualsA mar'inal rate) re'ardless
of dra%in's.
PROPRIERTORSHIP see !2BE P82P8(E8$28!@(P.
PRO RATA is the "asis for allocatin' an amount proportionally to the items
involved. An amount may "e proportionally distri"uted to assets, expenses,
funds, etc.
PROSPECTIVE PAYMENT SYSTEM (PPS), in healthcare, is a Medicare
administered payment plan %here providers are paid a predetermined sum for
carin' for a 'iven num"er of consumers. $he "uilt in incentive is for providers to
control costs, theoretically leadin' to more cost effective care.
15
PROSPECTIVE REIMBURSEMENT, in healthcare, is a reim"ursement method
%here the third party payer set the amount of money for a particular service to "e
delivered to clients in a'reement %ith the or'ani&ation "efore the service is
delivered.
PROSPECTUS is the disclosure document for an offerin' re'istered %ith the
!E#. $he final prospectus is issued on the effective date, i.e., %hen the offerin'
is released "y the !E#.
PROVISION, 'enerally, is to prepare in advance for an event that is pro-ected to
place in the future. (n accountin', it is an amount char'ed a'ainst profits for a
specific lia"ility (for example7 "ad de"ts, depreciation or taxes). A lia"ility may "e
)no%n, "ut the amount is often uncertain. $his uncertainty may lead to an
ad-ustment in a later income statement once the final amount of the lia"ility is
ascertained.
PROX see P82O(M2.
PROXIMO (usually a""reviated to +P82O+) means of or in the follo%in' month.
PRUDENCE is havin' foresi'ht and caution alon' %ith discretion, and to not act
rec)lessly.
PRUDENCE CONCEPT, other%ise )no%n as conservatism, says that %henever
there are alternative procedures or values, the accountant %ill choose the one
that results in a lo%er profit, a lo%er asset value and a hi'her lia"ility value.
PUBLIC CORPORATION is a corporation formed "y federal, state or local
'overnments for specific pu"lic purposes.
PUBLIC OWNERSHIP is either7 a. Government o%nership and operation of a
productive facility for the purposes of providin' some 'oods or services to
citi&ens* or, ". (n investments, portion of a corporations stoc) that is pu"licly
traded and o%ned in the open mar)et.
PURCHASE METHOD is accountin' for an ac,uisition usin' mar)et value for the
consolidation of the t%o entities^ net assets on the "alance sheet. Generally,
depreciation?amorti&ation %ill increase for this method (due to the creation of
'ood%ill) compared to the P22B(3G 2. (3$E8E!$ ME$@21 resultin' in lo%er
net income.
PURCHASE MONEY AGREEMENT is an a'reement under %hich a person
pled'es the property or item "ou'ht as security.
PURCHASE MONEY INTEREST is that interest associated %ith the purchase
money mort'a'e.
151
PURCHASE MONEY MORTGAGE (PMM) is seller financin' as a part of the
purchase price.
PURCHASE ORDER is a %ritten authori&ation for a vendor to supply 'oods or
services at a specified price over a specified time period. Acceptance of the
purchase order constitutes a purchase contract and is le'ally "indin' on all
parties.
PURE COST is any direct readily verifia"le cost assi'na"le to the su"-ect or item,
e.'., the direct cost of producin' a product.
PURE RESEARCH is motivated exclusively "y the search for )no%led'e for its
o%n sa)e.
PUSHPULL STRATEGY is the effective simultaneous use of a com"ination of
t%o mar)etin' strate'ies7 PUSH N 4. (physical distri"ution definition) A
manufacturin' strate'y aimed at other channel mem"ers rather than the end
consumer. $he manufacturer attempts to entice other channel mem"ers to carry
its product throu'h trade allo%ances, inventory stoc)in' procedures, pricin'
policies, etc. D. (sales promotion definition) $he communications and promotional
activities "y the mar)eter to persuade %holesale and retail channel mem"ers to
stoc) and promote specific products. PULL N 4. (physical distri"ution definition) A
manufacturin' strate'y aimed at the end consumer of a product. $he product is
pulled throu'h the channel "y consumer demand initiated "y promotional efforts,
inventory stoc)in' procedures, etc. D. (sales promotion definition) $he
communications and promotional activities "y the mar)eter to persuade
consumers to re,uest specific products or "rands from retail channel mem"ers.
PUT is (4) A stipulated privile'e of "uyin' or sellin' a stated property, security, or
commodity at a 'iven price (stri)e price) %ithin a specified time (for an American9
style option, at any time prior to or on the expiration date). A securities option is a
ne'otia"le contract in %hich the seller (%riter), for a certain sum of money called
the option premium, 'ives the "uyer the ri'ht to demand %ithin a specified time
the purchase (call) or sale (put) "y the option seller of a specified num"er of
"onds, currency units, index units, or shares of stoc) at a fixed price or rate
called the stri)e price. Many options are settled for cash e,ual to the difference
"et%een the a''re'ate spot price and the a''re'ate stri)e price rather than "y
delivery of the underlyin'. (n the .!. and many other countries, stoc) options
are usually %ritten for units of 455 shares. 2ther units of underlyin' covera'e are
standard in other option mar)ets. 2ptions are ordinarily issued for periods of less
than one year, "ut lon'er9term options are increasin'ly common. (D) Any
financial contract that chan'es in value li)e an option (asymmetrically), even if
the terms of the contract do not state the price relationship in terms of a ri'ht or
privile'e or in other lan'ua'e usually associated %ith options.
152
PUT OPTION is the ri'ht "ut not the o"li'ation to sell an underlyin' at a
particular price (stri)e price) on or "efore the expiration date of the contract.
Alternatively, a short for%ard position %ith an upside insurance policy.
PUT WARRANT is a security that, in contrast to a conventional %arrant, 'ives
the holder the ri'ht to sell the underlyin' or to receive a cash payment that
increases as the value of the underlyin' declines. Put %arrants, li)e their call
%arrant counterparts, 'enerally have an initial term of more than one year.
153
QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) is %hen a state court
allocates an interest in a ,ualified retirement plan to a former spouse throu'h a
,ualified domestic relations order. Payments made to a former spouse as the
result of a U182 %ill not result in the taxpayer "ein' assessed a penalty for
early %ithdra%al from the plan* the former spouse %ill "e taxed on the "enefits
%hen received, or the "enefits can "e rolled over tax free into an (8! or another
,ualified retirement plan.
QUALIFIED OPINION is the auditorAs opinion accompanyin' a financial
statement that calls attention to limitations in the audit or exceptions the auditor
has ta)en %ith the audit of the statements.
QUALITATIVE INFORMATION is information that is descriptive in nature,
relatin' to, or involvin' ,uality or )ind.
QUANTATIVE INFORMATION is information relatin' to, or expressi"le in, terms
of ,uantity.
QUARTERLY REPORT see (3$E8(M !$A$EME3$.
QUICK ASSETS is current assets minus inventories.
QUICK RATIO (or Acid $est 8atio) is a more ri'orous test than the #urrent 8atio
of short9run solvency, the current a"ility of a firm to pay its current de"ts as they
come due. $his ratio considers only cash, mar)eta"le securities (cash
e,uivalents) and accounts receiva"le "ecause they are considered to "e the
most li,uid forms of current assets. A Uuic) 8atio less than 4.5 implies
;dependency; on inventory and other current assets to li,uidate short9term de"t.
QUOTE TO CASH covers the "usiness process for creatin' a ,uote for a
prospect or customer, order mana'ement, invoicin' and cash receipt. $he
functionality is hi'hly inte'rated %ith !upply #hain Mana'ement and #ustomer
Mana'ement. (n traditional systems, it is funded in modules li)e order entry and
accounts receiva"le.
154
RABBI TRUST is a non,ualified deferred compensation plan %here"y an
employer and employee a'ree to defer payment for the employee+s services until
a specified future date. $he ra""i trust features an irrevoca"le 'rantor trust that is
set up "y the employer to hold the contri"utions set aside for the employee.
Ghile this provides the employee some de'ree of safety that the money %ill "e
availa"le %hen desired, the terms of the trust must "e such that exposes the trust
assets to the claims of the employer+s creditors.
R&D see 8E!EA8#@ & 1E/EB2PME3$.
RANDOM SELECTION is a pro"a"ility9"ased selection protocol in %hich each
unit has a )no%n pro"a"ility of "ein' selected. $he chances of selection need not
"e e,ual for each unit, as lon' as the chances are )no%n for each unit.
RATE OF RETURN is the 'ain or loss for a security in a particular period,
consistin' of income plus capital 'ains relative to investment, usually ,uoted as a
percenta'e. $he real rate of return is the annual return reali&ed on that
investment, ad-usted for chan'es in the price due to inflation.
RATIO is the relative si&e, expressed as the num"er of times one ,uantity is
contained in another (for example, the ratio of assets to lia"ilities of a company
havin' total assets of MD55,555 and lia"ilities of M4J5,555 %ould "e MD55,555
divided "y M4J5,555 N 4.>>).
RATIO ANALYSIS involves conversion of financial num"ers for a firm into ratios.
8atio analysis allo%s comparison of one firm to another. !ince ratios loo) at
relationships inside the firm, a firm of one si&e can "e directly compared to a
second firm (or a collection of firms) %hich may "e lar'er or smaller or even in a
different "usiness. .inancial 8atio Analysis is a method of comparison not
dependent on the si&e of either firm. .inancial 8atios provide a "roader "asis for
comparison than do ra% num"ers. (n the /entureBine data"ase the comparison
is conducted a'ainst the industry (!(# #ode) in %hich each particular listin' is
associated.
REACH, in advertisin', is the total num"er of people %ithin a tar'et mar)et that
%ill "e reached throu'h an advertisin' campai'n.
REAL, dependent upon usa'e, means either 4. in economics, refers to measures
such as cost, price and income, %hich are corrected for inflation over time in
order to permit a comparison of actual purchasin' po%er* or, D. actual cost, as
opposed to nominal.
REALIZATION PRINCIPLE is that revenue should "e reco'ni&ed at the time
'oods is sold and services are rendered.
155
REALIZED INCOME see 8EAB(HE1 3E$ (3#2ME.
REALIZED NET INCOME, in relation to a particular investment, is the amount "y
%hich the total cash 'ains from an investment exceeds the total losses from the
investment. $he 8eali&ed 3et (ncome from any investment cannot "e less than
&ero.
REAL PROPERTY is land and ? or any permanent structures attached to it* to
include salea"le natural resources, e.'., vacant land, "uildin's, farms, oil, 'as,
tim"er, etc.
REASONABLE CERTAINTY is the de'ree of certainty that %ould "e found to "e
in existence "y a reasona"le person.
REASONABLENESS TEST is %here the expected value is determined "y
reference to data partly or %holly independent of the accountin' information
system, and for that reason, evidence o"tained throu'h the application of such a
test may "e more relia"le than evidence 'athered usin' other analytical
procedures.
REASONABLE PERSON is a phrase to denote a hypothetical person %ho
exercises ,ualities of attention, )no%led'e, intelli'ence, and -ud'ment that
society re,uires of its mem"ers for the protection of their interest and the interest
of others.
REBATE is a. payment to a customer upon completion of a purchase as an
inducement or sales promotion tactic* ". unearned interest refunded to "orro%er
if the loan is paid off prior to maturity* c. amount paid "ac) or credit allo%ed
"ecause of an over9collection or the return of an o"-ect sold (i.e., a refund).
RECAPITALIZATION7 (t is dependent upon ho% you use the term. $he term
recapitali&ation in itself is, dependent upon the scenario, simply an ad-ustment of
the relationships "et%een the de"t and e,uity that funds a firms assets.
@o%ever, it can "ecome ,uite complex dependent upon under %hat conditions or
reasons the firm is "ein' recapitali&ed. $his is specially true if recapitali&ation is
"ein' pursued to %ard off a hostile ta)eover.
RECAST EARNINGS is a recalculation of earnin's "ased on the assumption
that certain expenses could "e eliminated throu'h ne% forms of cost savin's.
8ecast earnin's are often used in the analysis of a ta)eover or mer'er.
RECEIPT is a %ritten ac)no%led'ment that a specified article, sum of money, or
shipment of merchandise has "een received.
RECEIPTS this term, unless other%ise ,ualified, in accountin' means cash
received.
156
RECEIVER is a court appointed person %ho ta)es possession of, "ut not title to,
the assets and affairs of a "usiness or estate that is in a form of "an)ruptcy
called 8E#E(/E8!@(P. $he receiver collects rents and other income and
'enerally mana'es the affairs of the entity until a disposition is made "y the
court.
RECEIVERSHIP is e,uita"le remedy %here"y a court orders property placed
under the control of a 8E#E(/E8 so that it may "e preserved for the "enefit of
affected parties. A failin' company may "e placed in receivership in an action
"rou'ht "y its creditors. $he "usiness is often continued "ut is su"-ect to the
receiver+s control. !ee also BA3:8P$#0.
RECIPROCAL INVESTMENT is primarily a protection measure "et%een states
('overnments) that ensures that investment "et%een t%o or more states is
"alanced.
RECONCILIATION is the ad-ustin' of the difference "et%een t%o items (e.'.,
"alances, amounts, statements, or accounts) so that the fi'ures are in
a'reement. 2ften the reasons for the differences must "e explained. 2ne
example %ould "e reconcilin' a chec)in' account ("rin'in' the chec)in' led'er
and "an) "alance statement into a'reement).
RECOURSE, in finance, is the ri'ht to demand payment from the ma)er or
endorser of a ne'otia"le instrument (as a chec)).
RECOVERY, in finance, a. a"sorption of cost throu'h the allocation of
depreciation* ". residual cost or salva'e value of a fixed asset after all allo%a"le
depreciation* or, c. collection of an accounts receiva"le that had "een previously
"een %ritten off as a "ad de"t.
RED HERRING is a preliminary re'istration statement descri"in' the issue (the
(P2) and prospects of the company that must "e filed %ith the !E# or provincial
securities commission. $here is no price or issue si&e stated in the red herrin'.
8ed @errin'+s are sometimes updated several times "efore it is called the final
prospectus. (t is )no%n as a red herrin' "ecause it contains a statement typed in
red that the company is not attemptin' to sell their shares "efore the re'istration
is approved "y the !E#.
REDWELLS are %hen le'al records are set up in file folders and file poc)ets
called ;red9%ells.; #lients usually have several matters. 8ed9%ells are usually
four9inch filin' media in %hich file folders are inserted. A le'al file may have
several standard components called ;su"9files.; $hese su"9files are normally
inserted into red9%ells.
REFERENDUM is %hen a le'islative act is referred for final approval to a popular
vote "y the electorate, e.'., a "ond referendum.
157
REGISTER, in accountin', is a formal or official recordin' of items %ithin a "oo)
or re'ister, e.'., .ixed Asset 8e'ister or (nvoice 8e'ister.
REGISTERED BONDS are "onds for %hich the names and addresses of the
"ondholders are )ept on file "y the issuin' company.
REGISTERED INVESTMENT ADVISOR (RIA) is an investment advisor
re'istered %ith the !E#. 3o certification is re,uired.
REGISTRATION RIGHTS is the ri'ht to re,uire that a company re'ister
restricted shares. 1emand 8e'istered 8i'hts ena"le the shareholder to re,uest
re'istration at any time, %hile Pi''y Bac) 8e'istration 8i'hts ena"le the
shareholder to re,uest that the company re'ister his or her shares %hen the
company files a re'istration statement (for a pu"lic offerin' %ith the !E#).
REGRESSIVE TAX is a tax system to %here the more income that is reali&ed the
lo%er the tax rate "ecomes.
REIMBURSEMENT is to pay "ac) to someone, e.'. to pay an employee for
travel expenses that %as paid "y the employee out of that employees o%n
personal funds.
RELATED PARTY TRANSACTION is an interaction "et%een t%o parties, one of
%hom can exercise control or si'nificant influence over the operatin' policies of
the other. A special relationship may exist, e.'. a corporation and a ma-or
shareholder.
RELEVANT COST, in mana'erial accountin' decision9ma)in' situations, is any
ne'ative9implications phenomenon %hich is conse,uent upon the production
process, %hether it is denominated in money terms or not.
REMITTING BANK is a "an) that sends a draft to the overseas "an) for
collection.
REMUNERATION is the act of payin' for 'oods or services or to recompense for
losses (Example7 8eceivin' remuneration for %or), i.e., a paychec)).
RENT EXPIRED is "ased upon prepaid rent and the amount of time that has
elapsed that is covered under the prepaid term of the rental.
REPLACEMENT VALUE is a valuation similar to an ad-usted "oo) value
analysis. 8eplacement value is different than li,uidation value in that is uses the
value of the replacement value of assets, %hich is usually hi'her than "oo)
value. Bia"ilities are deducted from the replacement value of the assets to
determine the replacement value of the "usiness.
158
REPO is a contract under %hich the seller of securities, such as $reasury Bills,
a'rees to "uy them "ac) at a specified time and price. Also called repurchase
a'reement or "uy"ac).
REPORTABLE CONDITION is a matter comin' to the auditorAs attention relatin'
to !(G3(.(#A3$ 1E.(#(E3#(E! in the desi'n or operation of the entity+s internal
control that could A1/E8!B0 A..E#$ an entityAs a"ility to fulfill future
o"li'ations %ith customers and?or the satisfaction of lia"ilities.
REPORTABLE SEGMENT is a "usiness se'ment or 'eo'raphical se'ment for
%hich (A! 46 re,uires se'ment information to "e reported.
REPORTING ENTITY is the le'al entity for %hich financial reports are prepared
and made availa"le.
REPORTING PERIOD see A##23$(3G PE8(21.
REQUIRED RATE OF RETURN see @81BE 8A$E.
REQUISITION is a %ritten re,uest to "uy somethin'. sually, once approved,
the re,uisition is then transformed into a purchase order.
RESEARCH & DEVELOPMENT (R&D) is research as a planned activity aimed
at discovery of ne% )no%led'e %ith the hope of developin' ne% or improved
products and services. 1evelopment is the translation of the research findin's
into a plan or desi'n of ne% or improved products and services.
RESERVE is an accountin' entry that properly reflects contin'ent lia"ilities.
RESERVE ACCOUNTS, 'enerally, are those accounts %here retained earnin's
are set aside to satisfy dividends, improvements, contin'encies, retirement of
preferred stoc), etc.
RESIDUAL CLAIM is a claim to a share of earnin's after de"t o"li'ations have
"een satisfied.
RESIDUAL EQUITY THEORY is the theory that common stoc)holders are
considered to "e the real o%ners of the "usiness, i.e., Assets 9 Bia"ilities 9
Preferred !toc) N #ommon !toc).
RESIDUAL INCOME is income from efforts %hich continue to 'enerate revenue
over time %ithout re,uirin' any additional effort (e.'., a stream of future royalty
payments from a "oo)).
RESIDUAL OWNERSHIP see 8E!(1AB EU($0 $@E280.
159
RESIDUAL VALUE is7 a) 8eali&a"le value of a fixed asset after deductin' costs
associated %ith its sale* ") !crap value or the value to a -un) dealer* or c) $he
amount remainin' after all depreciation has "een deducted from the ori'inal cost
of a deprecia"le asset.
RESOURCE ABSORPTION, in "usiness, is the depletion of the finite resources
availa"le to a company, i.e., la"or, machinery, materials, etc.
RESPONSIBILITY ACCOUNTING is the collection, summari&ation, and
reportin' of financial information a"out various decision centers throu'hout an
or'ani&ation* can also "e called profita"ility accountin' or activity accountin'. (t
trac)s costs, revenues, or profits to the individual mana'ers %ho are responsi"le
for ma)in' the decisions a"out costs, revenues, or profits and ta)in' action a"out
them.
RESPONSIBILITY CENTER is a su"unit in an or'ani&ation %hose mana'er is
held accounta"le for specified financial results of its activities.
RESTATEMENT OF FINANCIALS are sometimes re,uired "y the (8! %hen the
(8!, throu'h audit, determines that (8! rules %ere not follo%ed* either la%fully or
fraudulently. !uch restatements usually have a ne'ative effect on the financial
results of the audited entity for the periods in ,uestion.
RESTRICTED ASSETS are assets ? resources %hich are restricted "y le'al or
contractual re,uirements for use under specific circumstances or purposes.
RESULTS FROM OPERATION is a synonym for the financial statement of a
corporation7 P&B, "alance sheet, statement of cash flo%s, and sometimes a
statement of o%ners e,uity. !ee .(3A3#(AB !$A$EME3$.
RETAINAGE, in a construction contract, is the money earned "y a contractor "ut
not paid to the contractor until the completion of construction or another
predetermined date. $he retaina'e is held "ac) as assurance for the ,uality of
the contractors %or).
RETAINED EARNINGS are profits of the "usiness that have not "een paid out to
the o%ners as of the "alance sheet date. $he earnin's have "een ;retained; for
use in the "usiness (8etained Earnin's is an account in the e,uity section of the
"alance sheet). (t is comprised of the "alance, either de"it or credit, of
appropriated or unappropriated earnin's of an entity that are retained in the
"usiness. 32$E7 Appropriated earnin's are not availa"le for dividends, "ut may
"e used to reduce a deficit or may "e transferred to stated capital. 2ther
appropriations of profits re,uire a vote of the shareholders.
RETAINED EARNINGS STATEMENT see !$A$EME3$ 2. 8E$A(3E1
EA83(3G!.
16
RETROSPECTIVE REIMBURSEMENT, in healthcare, is %here reim"ursement
came after medical care %as delivered.
RETURN ON ASSETS (ROA) sho%s the after tax earnin's of assets. 8eturn on
assets is an indicator of ho% profita"le a company is. se this ratio annually to
compare a "usiness+ performance to the industry norms7 $he hi'her the ratio the
'reater the return on assets. @o%ever this has to "e "alanced a'ainst such
factors as ris), sustaina"ility and reinvestment in the "usiness throu'h
development costs.
RETURN OF CAPITAL is the distri"ution of cash that resulted from tax savin's
on depreciation, sale of a capital asset or securities, or any other sources
unrelated to retained earnin's.
RETURN ON CAPITAL EMPLOYED (ROCE) is a measure of ho% effectively the
company is usin' its capital. $he formula to measures the return on all the assets
the company is usin'7 Profit "efore interest and tax (PB($) ? (total assets 9 current
lia"ilities)
RETURN ON EQUITY (ROE) measures the overall efficiency of the firm in
mana'in' its total investments in assets and in 'eneratin' a return to
stoc)holders. (t is the primary measure of ho% %ell mana'ement is runnin' the
company. 82E allo%s you to ,uic)ly 'au'e %hether a company is a value
creator or a cash consumer. By relatin' the earnin's 'enerated to the
shareholders+ e,uity, you can see ho% much cash is created from the existin'
assets. #learly, all thin's "ein' e,ual, the hi'her a company+s 82E, the "etter
the company.
RETURN ON INVESTED CAPITAL (ROIC) is a measure of ho% effectively a
company uses the money (o%ned or "orro%ed) invested in its company
operations. (t is calculated "y7 net income after taxes ? (total assets less excess
cash minus non9interest9"earin' lia"ilities).
RETURN ON INVESTMENT (ROI) is a profita"ility measure that evaluates the
performance of a "usiness. 82( can "e calculated in various %ays. $he most
common method is 3et (ncome as a percenta'e of 3et Boo) /alue (total assets
minus intan'i"le assets and lia"ilities).
RETURN ON NET WORTH see 8E$83 23 !$2#:@2B1E8! EU($0.
RETURN ON SALES is a measure of a company+s profita"ility, e,ual to a fiscal
year+s pre9tax income divided "y total sales.
RETURN ON STOCKHOLDERS EQUITY is a measure of ho% profita"ly the
company is utili&in' shareholders+ funds. (t is calculated7 profit after tax ` total
stoc)holder+s e,uity. Also called 8E$83 23 3E$ G28$@.
161
REVALUATION, in 'eneral, is the reconsideration of the value or %orth of a
property. (n currency, it is the increase in the exchan'e rate of a currency as a
result of official action.
REVALUATION SURPLUS, under the revaluation model, increases in carryin'
amount a"ove a cost9"ased measure are reco'ni&ed as revaluation surplus.
REVENUE is the inflo%s of assets from sellin' 'oods and providin' services to
customers* includin' the reduction of lia"ilities from sellin' 'oods and providin'
services to customers.
REVENUE BONDS are a type of municipal "ond %here principal and interest are
secured "y revenues such as char'es or rents paid "y users of the facility "uilt
%ith the proceeds of the "ond issue. Pro-ects financed "y revenue "onds include
hi'h%ays, airports, and not9for9profit health care and other facilities.
REVENUE CONTRACT is a "indin' a'reement "et%een a 'overnmental "ody
and another party that defines the terms under %hich revenue %ill "e received. A
contract can "e distin'uished from a customer purchase order "y the fact that a
contract %ill contain the si'natures of "oth parties, %hile a purchase order %ill
contain only the si'nature of the customer.
REVENUE EXPENDITURE is an outlay than only "enefits the current "usiness
year. (t is treated as an expense that is matched a'ainst revenues.
REVENUE RECOGNITION is the process of recordin' revenue, under one of the
various accepta"le methods, in the accountin' period. (n each period of revenue
reco'nition, all related expenses should "e matched to revenue. $he most
common method of reco'ni&in' revenue is at the time of sale or provisionin' of
service.
REVENUE RESERVE is a fund that is not a #AP($AB 8E!E8/E, i.e. the funds
are distri"uta"le.
REVERSE TAKEOVER can occur in different forms7 4. a smaller corporate entity
ta)es over a lar'er one.* D. a private company purchases a pu"lic one* or, >. a
method of listin' a private company %hile "ypassin' most securities re'ulations,
%here"y %hich a shell pu"lic company "uys out a functionin' private company
%hose mana'ement then controls the pu"lic company.
REVERSING ENTRY is a very special type of ad-ustin' entry. Generally, it is a
de"it or credit "oo))eepin' entry made to reverse a prior "oo))eepin' entry.
$hey can "e extremely useful and should "e used %here necessary. A reversin'
entry comes in t%o parts7 the ori'inal ad-ustin' entry, and the reverse, or
opposite entry. $he second entry is %ritten "y simply reversin' the position of all
de"its and credits. ltimately, the end result on the "oo)s is &ero, "ut the
162
ad-ustin' entry serves to correctly allocate an expense, so the financial
statements are correct.
.or example7 O #ompany has a payroll department, and cuts chec)s every t%o
%ee)s after ta"ulatin' hours, and calculatin' net pay. A lar'e num"er of
allocations have to "e made to various %ithholdin' accounts. $he accountants
don+t %ant to interfere %ith the operations of the payroll department. And the
employees also %ant the department to run efficiently so they can 'et their pay
chec)s on time.
At the end of the year the accountants need to appropriately allocate payroll
expenses, plus taxes due and paya"le. 8ather than interfere %ith the payroll
department the calculation is made on paper (or computer), and entered as an
ad-ustin' entry. (t is mar)ed to "e reversed. After the closin' entries are made,
the first entries of the ne% year are the reversin' entries. $hey undo the effects
of the ad-ustin' entry.
(f the ad-ustin' entry is not reversed, the "oo)s %ill not "e correct. Both the
accountants and payroll department %ill "e ma)in' entries related to payroll. $he
reversin' entry effectively allo%s the accountants to ma)e ad-ustin' entries
%ithout causin' the "oo)s to "e incorrect* the payroll department continues to
ma)e routine entries, and doesn+t need to ma)e any special entries or
allocations.
REVERSION ASSET see A!!E$ 8E/E8!(23.
REVIEW is an accountin' service providin' some assurance to the Board of
1irectors and interested parties as to the relia"ility of financial data %ithout the
#PA conductin' an examination in accordance %ith 'enerally accepted
accountin' standards. $he A(#PA auditin' standards "oard formulates revie%
standards for pu"lic companies %hile the A(#PA Accountin' and 8evie%
!ervices #ommittee provides revie% standards for non9pu"lic "usinesses.
REVOCABLE LETTER OF CREDIT is a letter of credit %hich can "e cancelled
or altered "y the dra%ee ("uyer) after it has "een issued "y the dra%ee+s "an).
REVOLVING COLLATERAL are accounts receiva"le or inventory %hich chan'e
from day to day.
REVOLVING LINE OF CREDIT in commercial "an)in' is a contractual
a'reement "et%een a "an) and, usually, a company %here the "an) a'rees to
provide loans up to a specified maximum over a specified period, usually a year
or more. (n consumer "an)in', it is a loan account re,uirin' monthly payments
less than the full amount of the loan, and the "alance is carried for%ard %ith a
finance char'e on that "alance.
163
REVOLVING FINANCING is financin' secured "y collateral.
REVOLVING FUND is money that is rene%ed as it is used.
REVOLVING LOAN is a loan that is automatically rene%ed upon maturity.
RFP is 8e,uest for Proposal.
RISK is the measura"le possi"ility of losin' or not 'ainin' value. 8is) is different
from uncertainty. ncertainty is not measura"le.
RISK AD!USTED RETURN is %hen %e su"tract from the rate of return on an
asset a rate of return from another asset that has similar ris). $his 'ives an
a"normal rate of return that sho%s ho% the asset performed over and a"ove a
"enchmar) asset %ith the same ris). Ge can also use the "eta a'ainst the
"enchmar) to calculate an alpha %hich is also ris) ad-usted performance.
ROA see 8E$83 23 A!!E$!.
ROBUST is %hen a "usiness is considered fully developed and healthy.
ROCC is an acronym for 8eturn 2n #ommitted #apital.
ROE see 8E$83 23 EU($0.
ROG, in "usiness, is an acronym meanin' R8eceipt 2f GoodsS.
ROI (R/*-4+ &+ I+6/%*:/+*) can "e calculated in various %ays. $he most
common method is 3et (ncome as a percenta'e of 3et Boo) /alue (total assets
minus intan'i"le assets and lia"ilities).
ROIC see 8E$83 23 (3/E!$E1 #AP($AB.
ROLL FORWARD BUDGET see #23$(32! B1GE$.
ROLLING STOCK is the e,uipment availa"le for use as transportation, as
automotive vehicles, locomotives, or railroad cars, o%ned "y a particular
company or carrier. 1oes not include aircraft or %ater "orne craft.
ROLLOVER is7 a. in .!. real estate tax la%, a delayed tax that allo%s you to
apply the profit you ma)e sellin' your old house to pay for the ne% one %ithout
payin' capital 'ains taxes on the profit. (n order to rollover the profits, the ne%
house must "e more expensive than the old and the t%o sales must occur %ithin
t%o years of each other* ". in investments, it is the transferrin' of funds from one
investment to another such as rollin' over the proceeds from a "ond %hich has
matured into another "ond, or the rollin' over of the proceeds of a share sale into
164
a tax9efficient investment vehicle li)e a /enture #apital $rust* or, c. in "an)in', it
is the term used %hen a "orro%er o"tains authority from a "an) to delay a
principal payment on a loan.
ROYALTY is the share of the product, or of the proceeds reali&ed from the
product, reserved "y an o%ner for permittin' another entity to exploit and use
that entityAs property, i.e. it is the rental paid to the ori'inal o%ner of property
"ased upon a percenta'e of sales, profit or production. 8oyalty can involve
literary %or)s, inventions, and other intellectual property, as %ell as minin'
leases and conveyances.
RUNNING RATE is a sustained constant rate, often the only important sin'le
rate except for &ero o"served under a 'iven schedule (as in some ratio
performances)* also )no%n as stream rate.
RUNNING TOTAL is the sum of any 'iven set of num"ers that is
incremented?decremented as additional num"ers "ecome availa"le over time.
.or example, a retail store ma)es sales throu'hout a time period, the runnin'
total is the sum of their sales, includin' returns?credits, at any 'iven point of time
durin' that time period7 day, %ee), month, ,uarter, year.
RUN RATE, in finance, is ho% the financial performance of a company %ould
loo) if you %ere to extrapolate current results out over a certain period of time. (n
accountin', it is the avera'e annual dilution from stoc) option 'rants at a
company over the most recent three year period reported in the annual report.
165
SAFE HARBOR RULE is a concept in statutes and re'ulations %here"y a
person %ho meets listed re,uirements %ill "e preserved from adverse le'al
action. .re,uently, safe har"ors are used %here a le'al re,uirement is some%hat
am"i'uous and carries a ris) of punishment for an unintended violation.
SALES CONTRACT see !ABE! 281E8.
SALES INVOICE is a document that records the sale of 'oods or services from a
vendor to a customer.
SALES / RECEIVABLES (R/'/(6)01/% T-4+&6/4) is a ratio that measures the
num"er of times trade 8eceiva"les turn over durin' the year. Generally, the
hi'her the turnover of receiva"les, the shorter the time "et%een sale and cash
collection. (t indicates ho% fast the company is 'ettin' paid for 'oods and
services. 8eceiva"les turnover is "est compared to the industry in order to
determine if the company should improve their collection rate. $he faster the
receiva"les turnover, the "etter cash flo% %ill loo). !lo% or "elo% par turnover
can "e an indication of systemic pro"lems %ithin the company. (t is "est to
compare receiva"les turnover %ith that of industry avera'es.
SALES MULTIPLE is the most %idely used valuation "enchmar) used in the
valuation of a "usiness. $he information needed are annual sales and an
industry multiplier, %hich is usually a ran'e of .DJ to 4 or hi'her. $he industry
multiplier can "e found in various financial pu"lications, as %ell as analy&in'
sales of compara"le "usinesses. $his method is easy to understand and use.
$he sales multiple is often used as the valuation "enchmar).
SALES ORDER, also )no%n as !ABE! #23$8A#$, is a contract "y %hich
"uyer and seller a'ree to the terms and conditions of a sale.
SALES PROCEEDS are the sum of the service units (products, services) sold "y
a corporation %ithin a particular period. $he sales proceeds are calculated from
the ,uantities sold (pcs, )', hrs) multiplied "y the sales price per unit %ithin a
particular period.
SALVAGE VALUE is7 a) 8eali&a"le value of a fixed asset after deductin' costs
associated %ith its sale* ") !crap value or the value to a -un) dealer* or c) $he
amount remainin' after all depreciation has "een deducted from the ori'inal cost
of a deprecia"le asset.
SAME STORE SALES is used %hen analy&in' the retail industry. (t compares
sales in stores %hich have "een open for a year or more.
S&P =99 see !$A31A81 A31 P228+! (!&P) J55.
166
SAP is an inte'rated enterprise resource plannin' (E8P) system that seamlessly
inte'rates most activities of a company.
SCHEDULE is an ordered list of times at %hich thin's are planned to occur, e.'.,
cash receipts schedule and amorti&ation schedule.
SCIENTER THEORY is "ased on the %ord +scienter+, %hich is Batin for ;havin'
)no%led'e.; (n criminal la%, the theory refers to )no%led'e "y a defendant that
his?her acts %ere ille'al or his?her statements %ere lies and thus fraudulent. (n
securities, it is to )no%in'ly transact a fraudulent securities deal.
S CORPORATION see !B#@AP$E8 !.
SDCF is !ales & 1istri"ution #ash .lo%.
SEC is the !ecurities Exchan'e #ommission.
SECURED is an o"li'ation "ac)ed "y a pled'e of collateral. 2pposite of
unsecured.
SECURED LIABILITY is a lia"ility that has a de'ree of protection to%ards
satisfaction if unpaid "ecause the de"tor has pled'ed personal?company assets
to%ards satisfaction of that lia"ility* e.'., a property mort'a'e is a secured lia"ility
"ecause the mort'a'e holder has a 'uarantee throu'h a lien on the property.
SECURITIES FRAUD, in most cases, is nothin' more than stealin'. .ederal and
state securities la%s contain more technical definitions. But %hen investors are
enticed into purchasin' security instruments "ased on untrue data, statements or
promises, it is securities fraud.
SECURITIZATION is the process of creatin' a pass9throu'h, such as the
mort'a'e pass9throu'h security, "y %hich the pooled assets "ecome standard
securities "ac)ed "y those assets. Also, refers to the replacement of non9
mar)eta"le loans and?or cash flo%s provided "y financial intermediaries %ith
ne'otia"le securities issued in the pu"lic capital mar)ets.
SEGMENT REVENUE is revenue, includin' interse'ment revenue, %hich is
directly attri"uta"le or reasona"ly alloca"le to a se'ment. (ncludes interest and
dividend income and related securities 'ains only if the se'ment is a financial
se'ment ("an), insurance company, etc.).
SEGREGATED FUND is a pooled investment fund, much li)e a mutual fund,
esta"lished "y an insurance company and se're'ated from the 'eneral capital of
the company. (ts chief distinction from a mutual fund is its 'uarantee that,
re'ardless of fund performance, at least a minimum percenta'e of the investor+s
payments into the fund %ill "e returned %hen the fund matures.
167
SELFCONTRUCT ASSETS is the costs incurred to "uild it yourself.
SEMIVARIALBLE COST is one that varies %ith chan'es in volume, "ut, unli)e
varia"le cost, does not vary in direct proportion. $his component contains "oth
fixed and varia"le elements, e.'., a rented vehicle may have a rental fee (fixed),
"ut contain a milea'e adder (varia"le).
SENIOR DEBT/NOTE are loans or de"t securities that have a claim prior to
-unior o"li'ations and e,uity on a corporationAs assets in the event of a
li,uidation.
SENSEX is a Bom"ay !toc) Exchan'e (ndex (B!E >59!hare Benchmar)
!ensex (ndex).
SENSITIVE ASSETS are those assets that can "e affected "y uncontrolla"le
external factors. $here are interest rate sensitive assets (assets yieldin' cash9
flo%s at some fixed points in the future) and theft9sensitive assets (inventory for
example).
SENSITIVE LIABILITIES normally refers to +interest rate sensitive lia"ilities+ (i.e.,
lia"ilities %here there is a floatin' interest rate).
SENSITIVITY ANALYSIS is the analysis of ho% sensitive outcomes are to
chan'es in the assumptions. $he assumptions that deserve the most attention
should depend lar'ely on the dominant "enefit and cost elements and the areas
of 'reatest uncertainty of the pro'ram or process "ein' analy&ed.
SERIAL BOND is a "ond issue in %hich the "onds mature periodically over a
num"er of years.
SERVICE BUSINESS is a form of "usiness providin' different types of la"or
services in a %ide variety of "usiness sectors, e.'., la%n mo%in', housecleanin'
and clothes cleaners are three types of consumer services offered to the 'eneral
pu"lic.
SERVICE CHARGE ACCOUNTING, in property mana'ement, is estate and
property service char'e accountin' system that provides the mechanism for
comprehensive service char'e reconciliation reports for "oth the tenant and the
property mana'er. Expenditure can "e apportioned e,ually over the entire
service char'e period or can "e allocated to a specific date ran'e %ithin the
period. .ull "ud'et reportin' and next period "ud'et calculation routines are
usually provided.
SERVICE LEVEL AGREEMENT (SLA) is performance o"-ectives reached "y
consensus "et%een the user and the provider of a service, or "et%een an
168
outsourcer and an or'ani&ation. A service level a'reement specifies a variety of
performance standards that may or may not include ;service level.;
SETOFF is the dischar'e of a de"t "y settin' a'ainst it a distinct claim in favor of
the de"tor.
SETUP COST see .(OE1 #@A8GE.
SEVERANCE TAX is levied on production of natural resources ta)en from land
or %ater "ottoms %ithin the territorial "oundaries of a state.
SG&A refers to the indirect overhead costs contained %ithin the !ales, General
and Administrative expense ? cost cate'ories.
SGD is an acronym for !(G3E1.
SHARE is one unit of o%nership interest in a company, mutual fund, limited
partnership, etc.
SHARE APPLICATION MONEY is that money received "y a company durin' an
(P2. Payments received for a su"scription of stoc) is normally received over the
(P2 life. .or example7 Gid'ets Bimited has "een re'istered %ith an authori&ed
capital of MD,55,555 divided into D,555 shares of M455 each of %hich, 4,555
shares %ere offered for pu"lic su"scription at a premium of MJ per share, paya"le
as7
on application M45
on allotment MDJ (includin' premium)
on first call M65
on final call M>5
.or a total of M45J?share
$he amounts received %ould "e carried as a current lia"ility until such time as
the stoc) is issued, then it %ould "e considered as part of e,uity.
SHARE BUYBACK is %hen a company ma)es an offer to "uy "ac) some of its
o%n shares. $here are several types of "uy9"ac)s. $hree common types are7 4.
an e,ual access scheme 9 %hen the company offers to "uy "ac) the same
proportion of each shareholder+s shares* D. a selective "uy9"ac) 9 %hen the
company offers to "uy "ac) shares from only one or some of its shareholders* or,
>. the company may "uy the shares on the exchan'e %here the shares are
traded.
SHARE CAPITAL is that portion of a corporation+s e,uity o"tained from issuin'
shares in return for cash or other considerations.
169
SHAREHOLDER is an individual or company, (includin' corporations) that
le'ally o%ns one or more shares of a company.
SHAREHOLDER OF RECORD is any individual or company that o%ns at least
one share of stoc) of a corportion* such shares represented "y a stoc) certificate
or record of shares held "y the o%ner+s "ro)er.
SHAREHOLDERS FUND is e,uity plus accumulated profits.
SHAREHOLDER'S EQUITY is total assets minus total lia"ilities. (t is the same as
EU($0, 3E$ G28$@ and stoc)holderAs e,uity.
SHARE PREMIUM is the difference "et%een the hi'her price paid for a share of
stoc) and the stoc)s par value %hen issued.
SHARPE RATIO, named after Gilliam P. !harpe, is a measurement of portfolio
tradin' performance. (t is calculated "y su"tractin' ris) free rate from total
portfolio return, then dividin' "y the standard deviation of the portfolio7!harpe
ratio N $otal portfolio return T 8is) free rate ? Portfolio standard deviation.
SHIP IN PLACE is sales "illed to customers prior to delivery and held "y the
seller (also7 ;"ill and hold; or ;"ill in place; sales).
SHIPPING NOTICE is a formal notification that 'oods ordered are en9route to
their destination.
SHORT TERM ASSET is an asset expected to "e converted into cash %ithin the
normal operatin' cycle (usually one year), e.'. accounts receiva"le and
inventory.
SHORT TERM LIABILITY is a lia"ility that %ill come due %ithin one year or less.
SIC (STANDARD INDUSTRIAL CLASSIFICATION) is a .!. Government
numerical codin' system used in the .!. to 'roup and classify "asically all
products and services existin' %ithin the .!. economy.
SIGHT DRAFT is a draft %hich is paya"le on demand.
SIGNATURE LOAN is a loan secured "y the "orro%er %ith nothin' more than
the si'nature of that "orro%er.
SILENT PARTNERSHIP is the relation of partnership sustained "y a person %ho
furnishes capital only, i.e., the partner is not involved in the day9to9day operations
or decisions of the entity.
17
SIMPLE INTEREST is interest computed on principal alone, as opposed to
compound interest %hich includes accrued interest in the calculation.
SIMPLE !OURNAL ENTRY is a -ournal entry that involves only one de"it and
one credit in the transaction.
SINGLEENTRY BOOKKEEPING is a simple "oo))eepin' system in %hich all
transactions are recorded in a sin'le record (e.'., a chec)"oo) that indicates
expenditures only). !in'le9entry does not rely upon e,ual de"its and credits.
SINKING FUND is a sum set apart periodically from the income of a 'overnment
or a "usiness and allo%ed to accumulate in order ultimately to pay off a de"t. A
preferred investment for a sin)in' fund is the purchase of the 'overnment+s or
firm+s "onds that are to "e paid off. sually the fund is administered "y a trustee.
SIPS is an acronym for !ecure (nternet Payment !ervice (e.'., #y"ercash).
SKIP PERSON is a transfer of property to a person %ho is in a 'eneration "elo%
a child of the transferor, referred to as a ;s)ip; person, typically a 'randchild or
'reat 'randchild.
SKU is an acronym for !toc) :eepin' nit. (t is usually used to identify an item
carried in inventory or stoc).
SLA see !ervice Bevel A'reement.
SLIPPAGE is the difference "et%een estimated transactions costs and actual
transactions costs. $he difference usually represents revisions to price difference
or spread and commission costs.
SLR is an acronym %ith several possi"le meanin's, e.'., !toc) Bevel 8eport,
!toc) Bevel 8e,uirement, !ystem Bevel 8e,uirement(s).
SMALLCAP is a stoc) %ith a capitali&ation, meanin' a total e,uity value, of less
than MJ55 million.
SOCIAL ENTITY is the separate existence of an or'ani&ation that is perceived to
exist, "y its mem"ers and the pu"lic at lar'e, as a +'iven+, i.e. somethin' that
exists "efore and outside of them.
SOES (S:)11 O45/4 EA/'-*(&+ SD%*/:) tradin' is an electronic method of day
tradin' the 3A!1 mar)et. At present, !2E! tradin' is at the center of
controversy "et%een the 3A!1, !E#, individual traders, and the courts. !2E! is
chan'in' the %ay tradin' is done on the 3A!1, and it may re%rite the rules of
the 'ame for tradin'. Bandits is -ust a term "ein' used for the individuals usin'
the !2E! system for day tradin'.
171
SOFT COSTS are those extraneous costs that are not readily foreseen or
"ud'eted for, e.'. le'al fees, loan fees and interest, etc.
SOLE PROPRIETOR is an individual %ho o%ns a "usiness as opposed to stoc)
in a corporation. A sole proprietor pays no corporate income tax "ut has
unlimited lia"ility for his?her "usiness de"ts and o"li'ations. !ee !2BE
P82P8(E8$28!@(P.
SOLE PROPRIERTORSHIP is a "usiness structure in %hich an individual and
his?her company are considered a sin'le entity for tax and lia"ility purposes. A
sole proprietorship is a company %hich is not re'istered %ith the state as a
limited lia"ility company or corporation. $he o%ner does not pay income tax
separately for the company, "ut he?she reports "usiness income or losses on
his?her individual income tax return. $he o%ner is insepara"le from the sole
proprietorship, so he?she is lia"le for any "usiness de"ts* also called
proprietorship. $he distin'uishin' characteristics of a sole proprietorship include7
only one o%ner for the "usiness (hence, ;sole;) and the "usiness is
unincorporated.
SOLVENCY is a company+s lon'9term a"ility to meet all financial o"li'ations.
SOUND, %hen used in a financial context, means financially secure and safe.
SOURCE DOCUMENTS are the primary documents used %hen for%ardin' an
ar'ument or ma)in' a presentation of fact. sually used as a direct reference as
a source of empirical data, expert opinion or information. !ee !PP28$(3G
12#ME3$!.
SPE see !PE#(AB9P8P2!E E3$($0.
SPECIAL !OURNAL contains records of ori'inal entry other than the 'eneral
-ournal that are desi'ned for recordin' specific types of transactions of similar
nature, e.'. !ales Cournal, Purchase Cournal, #ash 8eceipts Cournal, #ash
1is"ursements Cournal, and Payroll Cournal.
SPECIALPURPOSE ENTITY (SPE) is a financin' vehicle that is not a
su"stantive operatin' entity, usually one created for a sin'le specified purpose.
An !PE may "e in the form of a corporation, trust, or partnership. !pecial9
purpose entities have "een used for several decades for asset securiti&ation, ris)
sharin', and to ta)e advanta'e of tax statutes.
SPECIAL PURPOSE VEHICLE (SPV) is an or'ani&ation constructed %ith a
limited purpose or life. .re,uently, these !pecial Purpose /ehicles serve as
conduits or pass throu'h or'ani&ations or corporations. (n relation to
securitisation, it means the entity %hich %ould hold the le'al ri'hts over the
assets transferred "y the ori'inator.
172
SPECIFIC RESEARCH is a method used %hen 'atherin' primary information for
a mar)et survey %here tar'eted customers ? consumers are as)ed very specific
and in9depth ,uestions 'eared to%ard resolvin' pro"lems found throu'h prior
exploratory research.
SPENDING LEVEL is the true expenditure or cash outlay of any entity in a 'iven
cate'ory or "ud'etary area.
SPINOFF is a type of corporate reor'ani&ation in %hich the ori'inal corporation
transfers some of its assets to a ne%ly formed corporation. (n exchan'e for the
spun off assets, the ori'inal corporation receives all of the ne% corporation+s
capital stoc), %hich it then distri"utes to its shareholders as a property dividend.
SPINOFF RULING is a le'ally "indin' rulin' "y the (nternal 8evenue !ervice as
to any aspect of a spin9off "y a corporation. !ee also !P(32...
SPLITINTEREST AGREEMENT, in not9for9profits, is a contri"ution to the
institution in %hich the institution must share the investment income?"enefits %ith
the donor and other "eneficiaries if desi'nated.
SPLITOFF POINT is the sta'e in the production process at %hich -oint products
"ecome identified as distinct products %hich can "e sold or processed further*
this is called the split9off point.
SPLIT PAYMENT allo%s the customer to7 a. pay part of the "ill %ith cash and
part %ith a credit card* or, ". apply portions of payments across several invoices.
SPONTANEOUS ASSETS are assets that arise automatically, in the course of
operatin' a company day9to9day, %hen a company purchases assets and they
are delivered.
SPONTANEOUS LIABILITIES are o"li'ations that are reali&ed automatically, in
the course of operatin' a company day9to9day, %hen a company "uys 'oods and
services on credit.
SPOT COMMODITY is a commodity traded %ith the expectation that it %ill
actually "e delivered to the "uyer, as contrasted %ith to a .$8E!
#23$8A#$ that %ill usually expire %ithout any physical delivery actually ta)in'
place. !pot commodities are traded in the !P2$ MA8:E$.
SPOT RATE is the price at %hich a currency can "e purchased or sold and then
delivered %ithin t%o "usiness days, e.'., spot dollar.
SPREAD see A!: P8(#E.
173
SPREADSHEET is (4) A multi9column sheet of paper used for performin'
numeric %or), especially accountin' and "usiness related %ee)ly or monthly
summaries. (D) A computer application pro'ram that supports a user in numeric
manipulation, especially in column ? ro% format.
SPV see !pecial Purpose /ehicle.
SRO is !elf98e'ulatory 2r'ani&ation.
STATEMENT OF AFFAIRS is the listin' of a de"tor+s assets and lia"ilities s%orn
under oath "y the de"tor "efore a la%yer or desi'nated le'al?court entity.
STOCK POWER is a form that permits a 1onor to provide the authority to
chan'e the name on a stoc) certificate from the 1onorAs name to the name of
another party, such as a charita"le or'ani&ation, %ithout usin' a Rtransfer a'entS.
$his form, to'ether %ith the desi'nated stoc) certificate and Better of
Authori&ation, 'iven to the charita"le or'ani&ation %ill expedite the transfer of the
1onorAs stoc) certificate "y the charita"le or'ani&ationAs "ro)era'e to expedite
the sale and receipt of proceeds from the 'ift of securities.
STAKE is a share or an interest in an enterprise, especially a financial share.
STALE CHECK is a chec) that is six months or older than the date affixed to the
chec) "y the ma)er. (f a customerAs chec) is presented more than six months
after the date appearin' on the chec), the payin' "an) has the option of payin'
or dishonorin' the chec) "ecause the chec) is deemed ;stale;.
STANDARD AND POOR'S (S&P) =99 is an index of the J55 lar'est, most
actively traded stoc)s on the 3e% 0or) !toc) Exchan'e. (t provides a 'uide to
the overall health of the ! stoc) mar)et.
STANDARD COST is production or operatin' cost that is carefully
predetermined. A standard cost is a tar'et cost that should be attained. $he
standard cost is compared %ith the actual cost in order to measure the
performance of a 'iven costin' department or operation. !ee !$A31A81 #2!$
!0!$EM.
STANDARD COST SYSTEM is an accountin' system desi'ned to properly
allocate costs of direct la"or, indirect la"or, materials, overhead, and sellin'?
'eneral?administrative accounts on a unit "asis for the purpose of accurately
costin' products and the su"se,uent control of those costs in mana'in' the
production, mar)etin', purchasin', and administrative functions of the "usiness.
STANDARD RATE AND DATA SERVICE (SRDS), in advertisin', is a company
that produces a directory for each different type of media* normally listin'7 rates,
circulation, contacts, mar)ets serviced, etc.
174
STARTUP COSTS or 2r'ani&ation #ost, in the .!., is %hen a ne% corporation
is created, the costs associated %ith the formation are not deducti"le. An election
must "e made to amorti&e or'ani&ational costs no later than the due date
(includin' extensions) of the return for tax year in %hich the active trade or
"usiness "e'ins. (f an election is not made to amorti&e these costs, they must "e
capitali&ed on the "oo)s and are not su"-ect to amorti&ation resultin' in
permanent capitali&ation. pon ma)in' the timely election, the corporation may
recover these costs throu'h amorti&ation deductions over a L5 month period.
2r'ani&ational expenditures include any expenditure %hich is7[ incident to the
creation of the corporation,[ char'ea"le to capital account, and [ is of a character
%hich, if expended incident to the creation of a corporation havin' a limited life,
%ould "e amorti&a"le over such life.$he follo%in' are examples of or'ani&ation
costs7[ le'al services incident to the or'ani&ation of the corporation, such as
draftin' the corporate charter, "y9la%s, minutes of or'ani&ational meetin's, terms
of ori'inal stoc) certificates, etc.[ necessary accountin' services.[ expenses of
temporary directors and of or'ani&ational meetin's of directors or stoc)holders.[
fees paid to state of incorporation.
STATED CAPITAL is the declared total amount of money or other resources
o%ned or used to ac,uire future income or "enefits.
STATED VALUE is the per share value sometimes assi'ned to no9par stoc) "y
the corporation.
STATEMENT OF CASH FLOWS measures the flo% of money in and out of a
"usiness. 2ne of four financial statements found in the annual report, it
cate'ori&es a company+s cash receipts and dis"ursements for a 'iven fiscal year
"y three ma-or activities7 operations, investments and financin'.
STATEMENT OF RETAINED EARNINGS is one of the four "asic financial
statements* the !tatement of 8etained Earnin's is a reconciliation of the
8etained Earnin's account. (nformation such as dividends or announced income
is provided in the statement. $he !tatement of 8etained Earnin's provides
information a"out %hat a company+s mana'ement is doin' %ith the company+s
earnin's.
STATE UNEMPLOYMENT TAX ACT (SUTA), in the .!., is the same as .$A
except from an individual .!. state in compliance to federal 'uidelines. !ee also
.E1E8AB 3EMPB20ME3$ $AO A#$.
STATUTORY ACCOUNT is an involuntary account, %hich is created "y la%
rather than "y "usiness need. An example of a statutory account %ould "e taxes.
STATUTORY LAW is la% enacted "y the le'islative "ranch of 'overnment, as
distin'uished from case la% or common la%.
175
STATUTORY LIEN is an involuntary lien, %hich is created "y la% rather than "y
contract. !tatutory liens include tax liens, -ud'ment liens, mechanic+s liens, etc.
STEAMSHIP CONFERENCE is an a'reement "et%een multiple shippin'
companies to provide common frei'ht rates. !ome shippin' lines %ill state that
they are Rnon9conferenceS, i.e., they char'e an independent and li)ely lo%er rate.
STEP LEASE is type of lease that outlines or stipulates the expected annual
increases in the tenant+s "ase rent "ased on an approximation of %hat the
landlord "elieves %hat the landlordAs expenses may "e.
STEWARDSHIP is responsi"ility for ta)in' 'ood care of resources entrusted to
one, e.'., "oards of directors must sho% 'ood ste%ardship to%ards the company
for %hich they are a "oard mem"er.
STOCKHOLDER see !@A8E@2B1E8.
STOCKHOLDER'S EQUITY see !@A8E@2B1E8+! EU($0.
STOCK SALE is %here the e,uity price is assumed to include the operatin'
assets and operatin' lia"ilities of the seller+s "usiness and not include the lon'
term lia"ilities assumed. $he lon' term lia"ilities assumed are sho%n as a
separate line item and %hen added to the e,uity price results in the deal price. (n
those transactions indicated as an asset sale the e,uity price is assumed to
include the operatin' assets.
STOCK SPLIT is the issuance of a su"stantial amount of additional shares,
there"y reducin' the par value of the stoc) on a proportionate "asis.
STOCKTAKING is the process of countin' and evaluatin' stoc)9in9trade, usually
at an or'ani&ation+s year end in order to value the total stoc) for preparation of
the accounts. (n more sophisticated or'ani&ations, in %hich permanent stoc)
records are maintained, stoc) is counted on a random "asis throu'hout the year
to compare ,uantities counted %ith the ,uantities that appear in the, usually,
computeri&ed records.
STOCK TURNOVER PERIOD is calculated7 Bon' $erm 1isa"ilities O 455K ?
#ost of !ales.
STOCK TURNS is the num"er of times per year that the stoc) (ra% material, %ip
& finished 'oods) is turned over in relation to the sales revenue of a 'iven
product. #alculation 9 !toc) turns N !ales turnover of products ? /alue of ra%
material, %ip & finished 'oods.
STRAIGHTLINE DEPRECIATION METHOD allo%s an e,ual amount to "e
char'ed as depreciation for each year of the expected use of the asset. (t is
176
computed "y dividin' the ad-usted "asis of a property "y the estimated num"er
of years of remainin' useful life.
STRANDED PLANT is a cost that has "een incurred, "ut can not "e reversed.
sually referred to as a sun) cost.
STRATEGIC ASSET, in relation to the assets held "y a le'al entity, means an
asset or 'roup of assets that the entity needs to retain if the entity is to maintain
the entity+s capacity to achieve or promote any outcome that the entity
determines to "e important to the current or future %ell9"ein' of the entity.
STRATEGIC PERFORMANCE MANAGEMENT provides a detailed "lueprint for
turnin' corporate vision into reality 9 "rea)in' do%n the thin's an entity needs to
achieve as a "usiness into real actions that can "e measured. !ee BABA3#E1
!#28E#A81.
STRATEGIC PLANNING is the activity of definin' %hat you %ant to accomplish
in your "usiness and then identifyin' the path that %ill allo% you to reach your
'oal in the most efficient and sensi"le manner.
STRAW MAN is a %ea) or ima'inary opposition (as an ar'ument or adversary)
set up only to "e easily confuted. 2ften done to create an environment for
"rainstormin' from a certain startin' point.
STRIPPED BOND is a "ond that can "e su"divided into a series of &ero9coupon
"onds.
STUMPAGE refers to7 a. $im"er in standin' trees* usually sold %ithout the land
at a fixed price per tree or per stump, the stumps "ein' counted %hen the land is
cleared. (32$E7 2nly trees a"ove a certain si&e are allo%ed to "e cut "y lo''ers
"uyin' stumpa'e from the o%ners of land)* or, ". A tax on the amount of tim"er
cut, re'ulated "y the price of lum"er.
SUBCHAPTER S is a le'al corporate entity or'ani&ed under the nited !tates
.ederal $ax #ode that allo%s !u"chapter ! #orporations to distri"ute all
income ? loss proportionately to its shareholders, %ho then claim that income ?
loss on their personal income taxes* there"y avoidin' the payment of corporate
taxes.
SUBLET, in real estate, refers to the leasin' of space %ithin a leased facility "y
the ori'inal lessee.
SUBLEDGER is for the purpose of or'ani&in' revenue and expense transaction
for only one account, e.'., .or an individual salesperson, li)e a 'eneral led'er,
the su"led'er has different default account types, each from a salesperson+s
177
perspective, not a company perspective. $hus, 1ue is due to the salesperson
and Paya"le is paya"le "y the salesperson.
SUBORDINATED DEBT is de"t over %hich senior de"t ta)es priority. (n the
event of "an)ruptcy, su"ordinated de"t holders receive payment only after senior
de"t claims are paid in full. $here is a pec)in' order determinin' the se,uence in
%hich a company %ill pay off its de"t instruments, su"ordinate (or -unior) issues
%ill not "e repaid until unsu"ordinated (or senior) de"t has "een repaid in full.
SUBPRIME CREDIT CARDS are credit cards offered to consumers %ith credit
pro"lems or no esta"lished credit* as opposed to prime cards for those %ith 'ood
credit ratin's. !u"9prime cards do not offer as many "enefits and possi"ly could
"e more costly.
SUBSCRIPTION, in securities, is an a'reement to "uy a ne% issue of securities.
SUBSIDIARY is a company %hose votin' stoc) is more that J5K o%ned "y
another company.
SUBSTANCE OVER FORM is an accountin' concept %here the entity is
accountin' for items accordin' to their su"stance and economic reality and not
merely their le'al form. $his concept is one of the )ey determinants of relia"le
information. .or most transactions there %ill "e no difference, so no issue arises.
(n some cases ho%ever, the t%o diver'e and the choice of ho% to present the
transactions can 'ive very different results. $his difference occurs %hen an asset
or lia"ility is not reco'ni&ed in the accounts even thou'h "enefits or o"li'ations
may result from the transaction, or oppositely.
SUBVENTION is the provision of assistance or financial support such as an
endo%ment or a su"sidy from a 'overnment or foundation.
SUI is either !tate nemployment (nsurance (tax) or !tate nemployment
(ncome.
SUMOFTHEYEARS DIGITS (SYD) is the accelerated depreciation method in
%hich a constant "alance (cost minus salva'e value) is multiplied "y a declinin'
depreciation rate.
SUNDRY ACCOUNT is an account %here miscellaneous items are recorded,
e.'., !3180 8E#E(/ABBE! represent miscellaneous receiva"les.
SUNK COST is the cost expended that cannot "e retrieved on a product or
service.
178
SUPPORTING DOCUMENTS assist in ma)in' a case (prove a point or for%ard
an ar'ument) "y providin' additional depth and analysis for much of the case in
,uestion. !ee !28#E 12#ME3$!.
SUPPRESSED INFLATION means that a situation exists in %hich prices %ould
rise 99 if 'overnment re'ulations did not esta"lish artificial limits on prices, %a'es,
etc.
SURCHARGE is a char'e added on top of another char'e for a specific service,
product or purpose.
SURETY BOND is a contract "y %hich one party a'rees to ma)e payment on
any default or the de"t of another party.
SURPLUS 'enerally means any excess amount, "ut in finance it is the
remainder of a fund appropriated for a particular purpose. (n a corporation,
surplus means assets left after lia"ilities and de"t, includin' capital stoc), have
"een su"tracted.
SUSPENSE ACCOUNT, in accountin', is an account that is used on a
temporary "asis for receipts, dis"ursements, or discrepancies until such time as
the analysis is complete and they can "e properly classified.
SUSTAINABLE GROWTH RATE(SGR) sho%s ho% fast a company can 'ro%
usin' internally 'enerated assets %ithout issuin' additional de"t or e,uity. !G8
provides a useful "enchmar) for -ud'in' a company+s appropriate rate of 'ro%th.
A company %ith a lo% sustaina"le 'ro%th rate "ut lots of opportunities for
expansion %ill have to fund that 'ro%th via outside sources, %hich could lo%er
profits and perhaps strain the company+s finances. Gro%th can "e a ma-or
dilemma "ecause %ith 'ro%th comes a spontaneously 'enerated need for
increased %or)in' capital. /entureBine calculates a !ustaina"le Gro%th 8ate
from the data entered into the (ncome !tatement and Balance !heet. $he
!ustaina"le Gro%th 8ate is the rate at %hich the firm may 'ro% the !toc)holder+s
E,uity Account (3et Gorth) usin' only increases in 8etained Earnin's (3et
Profit+s contri"ution to retained earnin's) to fund the 'ro%th. Gro%th "eyond this
amount %ill force the firm to o"tain additional financin' from external sources to
finance 'ro%th.
SUTA see !$A$E 3EMPB20ME3$ $AO A#$.
SWOT ANALYSIS is one of the most used forms of "usiness analysis. A !G2$
examines and assesses the impacts of internal stren'ths and %ea)nesses, and
external opportunities and threats, on the success of the ;su"-ect; of analysis. An
important part of a !G2$ analysis involves listin' and evaluatin' the firm+s
stren'ths, %ea)nesses, opportunities, and threats. Each of these elements is
descri"ed7
179
4. !tren'ths7 !tren'ths are those factors that ma)e an or'ani&ation more
competitive than its mar)etplace peers. !tren'ths are %hat the company has a
distinctive advanta'e at doin' or %hat resources it has that is strate'ic to the
competition. !tren'ths are, in effect, resources, capa"ilities and core
competencies that the or'ani&ation holds that can "e used effectively to achieve
its performance o"-ectives.
D. Gea)nesses7 A %ea)ness is a limitation, fault, or defect %ithin the or'ani&ation
that %ill )eep it from achievin' its o"-ectives* it is %hat an or'ani&ation does
poorly or %here it has inferior capa"ilities or resources as compared to the
competition.
>. 2pportunities7 2pportunities include any favora"le current prospective
situation in the or'ani&ation+s environment, such as a trend, mar)et, chan'e or
overloo)ed need that supports the demand for a product or service and permits
the or'ani&ation to enhance its competitive position.
6. $hreats7 A threat includes any unfavora"le situation, trend or impendin'
chan'e in an or'ani&ation+s environment that is currently or potentially dama'in'
or threatenin' to its a"ility to compete. (t may "e a "arrier, constraint, or anythin'
that mi'ht inflict pro"lems, dama'es, harm or in-ury to the or'ani&ation.
A firm+s stren'ths and %ea)nesses (i.e., its internal environment) are made up of
factors over %hich it has 'reater relative control. $hese factors include the firm+s
resources* culture* systems* staffin' practices* and the personal values of the
firm+s mana'ers. Mean%hile, an or'ani&ation+s opportunities and threats (i.e., its
external environment) are made up of those factors over %hich the or'ani&ation
has lesser relative control. $hese factors include, amon' others, overall demand,
the de'ree of mar)et saturation, 'overnment policies, economic condition, social,
cultural, and ethical developments* technolo'ical developments* ecolo'ical
developments, and the factors ma)in' up Porter+s .ive .orces (i.e., intensity of
rivalry, threat of ne% entrants, threat of su"stitute products, "ar'ainin' po%er of
"uyers, and "ar'ainin' po%er of suppliers.)
SWEEPING ACCOUNTS is %hen an entity &eros out a monetary asset account
(ta)es the money) that does not meet an esta"lished mandatory monetary hurdle
at %hich they %ill ma)e a payment to the holder of that account, e.'., if a
salesman does not ma)e a certain amount of sales re,uired over a time period,
his company %ill not pay him commission on the sales that %ere made durin'
that period and s%eep his account "alance to &ero at the end of the time period.
SWIFT CODE, %ithin the context of international payment transactions, is a code
issued "y the !ociety for Gorld%ide (nter"an) .inancial $elecommunication
(!G(.$) that ena"les "an)s %orld%ide to "e identified %ithout the need to
specify an address or "an) num"er. !G(.$ codes are used mainly for automatic
payment transactions.
18
SYNDICATE is a 'roup of investment "an)ers or "an)s that acts -ointly, on a
temporary "asis, to, in the case of investment "an)ers, sell securities or to
under%rite a ne% issue of "onds (syndicated capital), or, for the "an) syndicate
to loan money in a "an) credit (syndicated credit).
SYNERGY is the %or)in' to'ether of t%o or more thin's to produce an effect
'reater than the sum of their individual effects. .or example, in the context of
mer'ers, cost syner'y is the savin's in operatin' costs expected after t%o
companies, %ho compliment each other+s stren'ths, -oin.
SYNTHETIC LEASE is a transaction that appears, from an accountin'
standpoint, as a lease, "ut as a loan from a tax standpoint* resultin' in an off9
"alance sheet account of the financin' and the tax "enefits that accompany the
financed asset.
181
TACCOUNT is the "asis for -ournal entry in accountin'. $9accounts have three
"asic elements. A title, a left side (de"it side) and a ri'ht side (credit side). $o
ma)e an entry in a t9account, put the currency (dollar, pound, etc.) amount on the
appropriate side (de"it or credit). $here are five "asic types of accounts7 assets,
lia"ilities, e,uity, revenue and expenses. Assets, lia"ilities and e,uity are the
"alance sheet accounts.
TAINTED ACCOUNTS RECEIVABLE is receiva"les that are considered to "e
le'ally suspect due to acts of fraud, misuse, or a"use.
TAKEOVER refers to one company (the ac,uirer) purchasin' another (the
tar'et). !uch events resem"le mer'ers, "ut %ithout the formation of a ne%
company.
T&E is an acronym for $ravel & Entertainment.
T&M is $ime and Materials.
T&R, amon' others, can mean7 $echnical & 8esearch or $ermination &
8ecoupment.
TANGIBLE normally refers to assets that can "e held or seen and that are
capa"le of "ein' appraised at an actual or approximate value (e.'. inventory,
land & "uildin's, etc.).
TANGIBLE BOOK VALUE is different than "oo) value in that it deducts from
asset value intan'i"le assets, %hich are assets that are not hard (e.'., 'ood%ill,
patents, capitali&ed start9up expenses and deferred financin' costs).
TANGO SHEETS is a not often used slan' term referin' to a document that
compares forecasted financial data to actual financial performance for the
purposes of ille'ally ad-ustin' the reported financial data to more closely match
the prior forecasted performance.
TARE WEIGHT is the %ei'ht of pac)in' container and pac)a'in' material
%ithout the %ei'ht of the 'oods contained therein.
TARGET COSTING is a disciplined process for determinin' and reali&in' a total
cost at %hich a proposed product %ith specified functionality must "e produced to
'enerate the desired profita"ility at its anticipated sellin' price in the future.
TARIFF, usually, a country+s tax on imports. May sometimes refer to the rate of
tax* and, is used interchan'ea"ly %ith the term RdutyS.
182
TARIFF# AD VAL OREM is a tariff determined as a percenta'e of the value of
the 'oods.
TAXABLE INCOME is that income that is reported to the 'overnment for the
purposes of calculatin' income taxes. $axa"le income normally is not ali'ned
%ith the financial income reported %ithin financial statements. !ee .(3A3#(AB
(3#2ME.
TAX EQUIVALENT YIELD is the yield that must "e offered "efore factorin' in
taxes so that an investment pays off a certain after9tax yield. $his measure is
often necessary to compare taxa"le and tax9free investments, since tax9free
issues tend to have lo%er pre9tax yields due to the fact that the investment+s
proceeds %ill not "e reduced "y taxes. $ax e,uivalent yield is e,ual to re,uired
after9tax yield divided "y (4 minus the tax rate).
TAX LOSS CARRY FORWARD/BACKWARD is a tax "enefit that lets a
company or individual to deduct losses in order to reduce a tax lia"ility.
TAX SHELTER are le'al methods taxpayers can use to reduce tax lia"ilities. An
example is the use of depreciation of assets.
TERM BONDS are "onds %hose principal is paya"le at maturity. !ometimes
referred to as "ullet9maturity "onds or "ullet "onds.
TERM DEBT, as in $erm Bonds, is de"t that mature in one lump sum at a
specified future date. $erm de"t is usually carried as one type of lon'9term de"t.
TERM ENDOWMENT are endo%ments %ith time restrictions re,uired "y the
donor such as a restriction that the income from the endo%ment may not "e
utili&ed until a future period or a specific date for condition is met.
TERMINAL VALUE, %hen used in a discounted cash flo% valuation, the cash
flo% is pro-ected for each year into the future for a certain num"er of years, after
%hich uni,ue annual cash flo%s cannot "e forecasted %ith reasona"le accuracy.
At that point, rather than attemptin' to forecast the varyin' cash flo% for each
individual year, one uses a sin'le value representin' the discounted value of all
su"se,uent cash flo%s. $his sin'le value is referred to as the terminal
value.Ghen a firm+s cash flo%s 'ro% at a ;constant; rate forever, the present
value of those cash flo%s can "e %ritten as7 /alue N Expected #ash .lo% 3ext
Period ? (r 9 ')%here, r N 1iscount rate (#ost of E,uity or #ost of #apital) ' N
Expected 'ro%th rate. $his ;constant; 'ro%th rate is called a sta"le 'ro%th rate
and cannot "e hi'her than the 'ro%th rate of the economy in %hich the firm
operates. Ghile companies can maintain hi'h 'ro%th rates for extended periods,
they %ill all approach ;sta"le 'ro%th; at some point in time. Ghen they do
approach sta"le 'ro%th, the valuation formula a"ove can "e used to estimate the
;terminal value; of all cash flo%s "eyond.
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TERM LOAN is a "an) loan, typically %ith a floatin' interest rate, for a specified
amount that matures in "et%een one and ten years and re,uires a specified
repayment schedule.
TESTIMONY is evidence 'iven "y a competent %itness under oath.
THIRD PARTY is someone other than the principals directly involved in a
transaction or a'reement.
THIRD PARTY RECOVERY normally refers to delin,uent accounts receiva"le
recovered "y a collection a'ency for a fee.
THREE PERCENT (CE) RULE is a rule used in vestin' pension plan "enefits.
$he participant+s accrued "enefit must "e at least e,ual to >K of the participant+s
normal pro-ected retirement "enefit for each year of participation, %ith a
maximum of 455K after >> 4?> years of participation.
TI is an acronym that could mean, amon' others, $otal (ncome or $enant
(mprovements.
TILL ROLL is a roll of paper on %hich the separate amounts of money paid for
'oods are recorded in a retail shop+s cash re'ister.
TIME LAG see BAG $(ME.
TIME PERIOD CONCEPT provides that accountin' ta)e place over specific time
periods )no%n as fiscal periods. $hese fiscal periods are of e,ual len'th, and are
used %hen measurin' the financial pro'ress of a "usiness.
TIMES FIXED CHARGES EARNED see #2/E8AGE 2. .(OE1 #@A8GE!.
TIMES INTEREST EARNED (TIE) measures the extent to %hich operatin'
income can decline "efore the firm is una"le to meet its annual interest costs.
$he $(E ratio is used "y "an)ers to assess a firmAs a"ility to pay their lia"ilities.
$(E determines ho% many times durin' the year the company has earned the
annual interest costs associated %ith servicin' its de"t. 3ormally, a "an)er %ill
"e loo)in' for a $(E ratio to "e D.5 or 'reater, sho%in' that a "usiness is earnin'
the interest char'es t%o or more times each year. A value of 4.5 or less su''ests
that the firm is not earnin' sufficient amounts to cover interest char'es.
TIME TO MARKET (TTM) is the len'th of time it ta)es to develop a ne% product
from an early initial idea for a ne% product to initial mar)et sales. Precise
definitions of the start and end point vary from one company to another, and may
vary from one pro-ect to another %ithin the company.
184
TIME VALUE OF MONEY is the idea that a dollar today is %orth more than a
dollar in the future, "ecause the dollar received today can earn interest up until
the time the future dollar is received.
TOBIN RATIO see MA8:E$ $2 B22: /ABE.
TO DATE is prior to the current date.
TOP DOWN is a concept of analy&in' a su"-ect, such as costs or revenue,
startin' from the hi'hest level %or)in' to%ards the "ottom.
TOPLINE of a company is its 'ross sales, or revenue fi'ure.
TOTAL ASSETS is the total of all assets* "oth current and fixed.
TOTAL ASSET TURNOVER measures mana'ement+s efficiency in mana'in' all
of a firmAs assets 9 specifically the 'eneration of revenues from the firm+s total
investments in assets. $his ratio is extremely important in hi'h asset firms such
as manufactures and telecommunications companies. Generally, the hi'her this
ratio as compared to li)e companies or the industry7
the smaller the investment re,uired to 'enerate sales, thus the more
profita"le the firm.
indicates the firm has less money tied up in fixed assets for each dollar of
sales revenue.
TOTAL CURRENT ASSETS is total of cash & e,uivalents, trade receiva"les,
inventory and all other current assets.
TOTAL CURRENT LIABILITIES is the total of notes paya"le9short term, current
maturities9B$1, trade paya"les, income taxes paya"le, and all other current
lia"ilities.
TOTAL LIABILITIES & NET WORTH is the sum of all lia"ility items and 3et
Gorth.
TOTAL QUALITY MANAGEMENT (TQM) is a structured system for satisfyin'
internal and external customers and suppliers "y inte'ratin' the "usiness
environment, continuous improvement, and "rea)throu'hs %ith development,
improvement, and maintenance cycles %hile chan'in' or'ani&ational culture.
TQM see $2$AB UAB($0 MA3AGEME3$.
TRACEABLE, in accountin', is to discover "y 'oin' "ac)%ard over the
transactions (evidence) step "y step esta"lishin' a ;paper9trail; for a transaction.
185
3on9tracea"le is %here the ;paper9trail; of a transaction is "ro)en or non9
existent.
TRADE DISCOUNT is a producer discount 'iven to retail trade mem"ers to
assist them in increasin' sales of the producer+s product.
TRADE DRAFT is a draft addressed to a commercial enterprise.
TRADE EXCHANGE is a "arter system %here people or companies trade 'oods
and services %ithout the use of money. (n the .!., income from "arter
transactions is considered taxa"le.
TRADE NAME is a distinctive name used to identify a product or company and
"uild reco'nition. Many corporations* e.'. #oca #ola, .ord, (BM, etc.*
a''ressively protect their trade names %ithin the mar)et.
TRADE PAYABLE, also )no%n as an account paya"le, is an amount o%ed to a
creditor for 'oods and services received.
TRADE RECEIVABLES (NET) are all accounts from trade, net of allo%ance for
dou"tful accounts.
TRADING CONCERN is an entity that derives its products for sale, there"y
revenue, throu'h purchasin' products for sale from other producers ?
manufacturers for resale to their customer "ase.
TRADING PROFIT is that profit earned from the short9term tradin' of securities
that %ere held for less than one year. !uch profit is usually su"-ect to tax at
re'ular income tax rates.
TRAILING, in time periods, is the most recently completed time period. .or
example, trailin' t%elve months %ould "e the t%elve9month period %hich ended
on the final day of the last month.
TRANCHES are related securities that are offered at the same time "ut have
different ris), re%ard, and?or maturity.
TRANSACTION is an event or happenin' that chan'es financial position and?or
earnin's.
TRANSACTION DRIVERS are used to count the fre,uency of an activity, i.e.,
the num"er of times an activity is performed.
TRANSACTION EXPOSURE, in forei'n exchan'e, is the possi"ility of incurrin'
exchan'e 'ains or losses on transactions already entered into and denominated
186
in a forei'n currency. (t is typified "y real exchan'e 'ains or losses and mixes
retrospective and prospective vie%s. (t is short9term in nature.
TRANSFER PRICE is the price char'ed "y an individual entity in a multi9entity
corporation on transactions amon' the entities involved.
TRANSLATION EXPOSURE, in forei'n exchan'e, is to convert the results of
forei'n operations from the local currency to the home currency in the areas of
paper exchan'e 'ains or losses* it is retrospective and short9term in nature.
TRANSPARENCY, in economics, (4) Principle adopted in the General
A'reement on $ariffs and $rade that 'overnments must ma)e their rules,
re'ulations, and practices open and accessi"le to the pu"lic and other
'overnments. (D) General A'reement on $rade in !ervices re,uirement that its
mem"er states pu"lish their re'ulations affectin' trade in services, that they
notify the #ouncil for $rade in !ervices of any relevant chan'es, and that they
respond promptly to re,uests for information from other mem"ers.
TRANSPOSITION ERROR is the unintentional exchan'e of t%o elements of an
ordered list %ith all others stayin' the same. A transposition is therefore a
permutation of t%o elements. .or example, the s%appin' of D and J to ta)e the
list 4D>6JL to 4J>6DL is a transposition. (n this example, if the ne%ly ordered list
of 4J>6DL %as unintentional, it %ould "e commonly called a transposition error.
(n accountin', an error in copyin' a num"er from one place to another is a
transposition error.
TREASURY CERTIFICATE is a . !. $reasury security usually issued at par
%ith a specified rate of interest and a maturity of one year or less. (t is issued
paya"le to the "earer and sold in minimum amounts of Ml5,555.
TREASURY STOCK is stoc) reac,uired "y the issuin' company and availa"le
for retirement or resale. (t is issued "ut not outstandin'. (t cannot "e voted and it
pays or accrues no dividends. (t is not included in any of the ratios measurin'
values per common share.
TREND ANALYSIS is the analysis of chan'es over time throu'h the use of
analytical techni,ues, such as time series analysis, to discern trends.
TRIAL BALANCE is a listin' of the accounts in your 'eneral led'er and their
"alances as of a specified date. A trial "alance is usually prepared at the end of
an accountin' period and is used to see if additional ad-ustments are re,uired to
any of the "alances. !ince the "asic accountin' system relies on dou"le9entry
"oo))eepin', a trial "alance %ill have the same total de"it amount as it has total
credit amounts.
187
TRIPLE BOTTOM LINE (TBL) is a metric for a corporation+s social,
environmental, and economic performance. $BB is the latest series of "u&&
%ords to descri"e "usiness involvement in sustaina"ility. $BB is all a"out
droppin' the financial "ottom line as a meanin'ful indicator of %here you stand in
the mar)et place and replacin' it %ith a "ottom line that properly ac)no%led'es
the interplay of the social economic and environmental dimensions of our lives.
TRIPLE NET LEASE is a real property lease that re,uires the tenant to pay for
all maintenance expenses, utilities, taxes, and insurance. sually done under a
limited partnership, resultin' in lo%er ris) for investors.
TRIPLE P is a productivity model %herein the interrelationship "et%een
productivity, profita"ility and performance, as %ell as, effectiveness and efficiency
are plotted in a schematic vie% %here the main difference "et%een these five
terms can "e captured.
TRUE AND FAIR VIEW is one of the most prominent principles of accountin'. (t
su''ests that an enterprise should provide a true and fair vie% a"out its financial
conditions and operatin' results. $he concept of true and fair vie% does not
mean a"solute truth a"out enterprises. .inancial statements are a product of
mana'ement+s -ud'ments and estimates. $he principle of true and fair vie%
re,uires comparative truth a"out the enterprises+ picture. $rue and fair vie% is
rather defined operationally* it is thou'ht to "e accomplished "y complyin' %ith
all other lo%er accountin' principles.
TRUE VALUE is the amount that a "uyer is finally %illin' to pay.
TRUST ACCOUNT is a separate "an) account, se're'ated from a "ro)er+s o%n
funds, in %hich the "ro)er is re,uired "y state la% to deposit all monies collected
for clients* in some states called an E!#82G A##23$.
TRUST DEED is an instrument of conveyance of title to property %herein the
transferee %ill "e holdin' the title to the property on "ehalf of another person.
TRUST FUND is a fiduciary relationship callin' for a trustee to hold the title to
assets, usually monetary, for the "enefit of the "eneficiary.
T/T is a payment or financial transaction desi'nation meanin' ;$ele'raphic
$ransfer; of funds.
TTM see $ime $o Mar)et.
TURNOVER, in .!. accountin', is the num"er of times an asset is replaced
durin' a financial period* often used in terms of inventory turnover or accounts
receiva"le turnover. (n securities, for either a portfolio or exchan'e, $832/E8
188
is the num"er of shares traded for a period as a percenta'e of the total shares. (n
Great Britain, $832/E8 means sales.
TWO PARTY ENDORSEMENT, normally, is %hen t%o si'natures are re,uired to
ma)e a document or "an) draft le'al or authori&ed.
189
ULLAGE is the empty space present %hen a shippin' container is not full.
UNALLOCATED COSTS represents corporate costs not associated either
directly or indirectly in providin' a product or service for sale. nallocated costs
are not included in the calculation of #2!$ 2. G221! !2B1.
UNAUDITED OPINION is a ,ualified opinion "y a #ertified Pu"lic Accountant
%ho has not audited the relevant financial statements.
UNBUDGETED are items and?or amounts that are currently not included %ithin a
"ud'et.
UNCONTROLLABLE EXPENSE is expense that cannot "e controlled or
restrained. !ome of the costs of doin' "usiness can not "e postponed or spread
out over a lon'er period of time (e.'., taxes, rent and utilities).
UNDERBUDGETED is a line item %ithin a "ud'et to %here the "ud'eted amount
is not sufficient to cover the actual amount.
UNDERLYING is the security, cash commodity, for%ard, futures contract, s%ap,
or other contract or instrument that is the su"-ect of a derivative contract or
instrument.
UNDERRECORDED normally refers to an understatement as to %hat a total
%ould "e if all data %as accurately included or considered* e.'. underrecorded
costs, revenues, population, etc.
UNDERSTATED is to represent as less than is the case.
UNEXPIRED means not havin' come to an end or "een terminated "y the
passa'e of time.
UNDISTRIBUTED EARNINGS see 'etained &arnin!s.
UNEARNED REVENUE / INCOME represents money that you have received in
advance of providin' the 'oods or services to your customer. nearned revenue
is a lia"ility of your "usiness until you provide the 'oods or services you a'reed
to provide to the customer.
UNICAP see 3(.28M #AP($AB(HA$(23 8BE!.
UNIFORM CAPITALIZATION RULES (UNICAP), in the .!., is a method of
valuin' inventory for tax purposes that re,uires capitali&ation of direct costs, e.'.
material and la"or, and an alloca"le portion of indirect costs that "enefit or are
incurred "ecause of production or resale activities. #ertain expenses must "e
19
included in the "asis of the property or in inventory costs rather than currently
deducted. $hese costs are then recovered throu'h depreciation or amorti&ation
or as cost of 'oods sold.
UNITCONTROL SYSTEM is an accountin' system used in inventory
mana'ement that trac)s inventory usin' "in tic)ets and physical inventory
chec)s.
UNIT COST see 2BCE#$ #2!$.
UNITLEVEL ACTIVITY, in Activity Based #ostin', is an activity that must "e
done for each unit of production.
UNREALIZED INCOME (paper profit) is profit %hich has "een made "ut not yet
reali&ed or collected throu'h a transaction, such as a stoc) %hich has risen in
value "ut is still "ein' held. also called unreali&ed 'ain or unreali&ed profit or
paper 'ain or "oo) profit.
UNREALIZED LOSS is a term that commonly refers to the %rite9do%n of an
investment portfolio resultin' from applyin' the lo%er of cost or mar)et value on
an a''re'ate "asis. 2n a short9term portfolio, the unreali&ed loss is sho%n on
the income statement. 2n a lon'9term portfolio, the unreali&ed loss is presented
as a separate item in the stoc)holder+s e,uity section of the "alance sheet.
UNRESTRICTED ASSETS are assets ? resources %hich are not restricted for
use "y le'al or contractual re,uirements and may "e used for any purpose.
UNSECURED is o"li'ation "ac)ed not "y collateral "ut only "y the inte'rity of
the "orro%er. 2pposite of secured.
UPSTREAM / DOWNSTREAM SALES is normally associated %ith inter9
company sales7 pstream is a su"sidiary sellin' into the parent entity* %hile
do%nstream is the parent sellin' into a su"sidiary.
UNUSUAL GAINS AND LOSSES are material 'ains and losses that are either
unusual or occur infre,uently, "ut not "oth, are excluded from the extraordinary
item classification (see EO$8A281(3A80 ($EM!).
USEFUL LIFE is the expected period of time, in years, durin' %hich a
depreciatin' asset %ill "e productive.
191
VAD, in "usiness, can mean7 /alue of Annual 1emand, /alue9Added 1ata,
/alue9Added 1ealer, or, /alue9Added 1istri"utor.
VALIDATE is to a. declare or ma)e le'ally valid* ". mar) %ith an indication of
official sanction* or, c. to esta"lish the soundness of* corro"orate.
VALUATION ALLOWANCE/RESERVE is an allo%ance to provide for chan'es
in the value of a company+s assets, such as depreciation or if an asset is deemed
impaired.
VALUE is a term that defines the %orth of a thin'. $he term is usually preceded
"y the %ord, or %ords such as +.air; or ;.air Mar)et;, and it is usually defined in
the document %here it is found. 3ot all value for an item is the same, i.e. value is
usually perceived.
VALUE ADDED is the difference, at each sta'e of production or the provisionin'
of a service, "et%een the price of a product or service and all materials or
activities paid for to produce the product or provide the service.
VALUE ADDED TAX is a consumption tax %here taxes are levied at each step
of a manufacturin' process %here value is added to that product at that point in
the manufacturin' cycle* as %ell as at the point %here the consumer purchases
the end product.
VALUE ADDED VERTICAL INTEGRATION is controllin' as much of the "uild
stream, "oth upstream and do%nstream, in producin' a product or service as
possi"le %hile ensurin' that every part of the stream provides added value. !ee
also /ABE A11E1 and /E8$(#AB (3$EG8A$(23.
VALUE CHAIN is the se,uential set of primary and support activities that an
enterprise performs to turn inputs into value9added outputs for its external
customers. As developed "y Michael E. Porter, it is a connected series of
or'ani&ations, resources, and )no%led'e streams involved in the creation and
delivery of value to end customers. /alue systems inte'rate supply chain
activities, from determination of customer needs throu'h product?service
development, production?operations and distri"ution, includin' (as appropriate)
first9, second9, and third9tier suppliers. $he o"-ective of value systems is to
position or'ani&ations in the supply chain to achieve the hi'hest levels of
customer satisfaction and value %hile effectively exploitin' the competencies of
all or'ani&ations in the supply chain.
VALUE FOR MONEY is in the perception of the "uyer or receiver of 'oods
and?or services. Proof of 'ood value for money is in "elievin' or concludin' that
the 'oods?services received %as %orth the price paid. Examples of the types of
factors that may "e considered are suita"ility, ,uality, s)ills, price, %hole of life
192
costs and other criteria. $he mix of these and other factors and the relevant
importance of each %ill vary on a case "y case "asis.
VALUE IN USE is the value of an asset in the opinion of the o%ner.
VALUE MANAGEMENT is the application of esta"lished techni,ues to help
define and refine "usiness need, delivery strate'y and the "est value concept "y
settin' customer o"-ectives and values and determinin' success criteria for the
pro-ect.
VAR is an acronym for /alue9Added 8eseller (usually of technolo'y products)*
or, in finance, /alue at 8is).
VARIABLE COSTS are those costs associated %ith production that chan'es
directly %ith the amount of production, e.'.,the direct material or la"or re,uired to
complete the "uild or manufacturin' of a product.
VARIANCE ANALYSIS is the analysis of performance "y means of variances.
sed to promote mana'ement action at the earliest possi"le sta'es. After a
"ud'et ("ased on standard costs) has "een set, its usefulness lies in the revie%
procedures %hich compare actual results a'ainst the "ud'et. /ariance analysis
is the process of examinin' in detail each variance "et%een actual and
"ud'eted?expected?standard costs to determine the reasons %hy "ud'eted
results %ere not met (material costs too hi'h, sales prices too lo%, etc.).
VARIABLE EXPENSES are those "usiness expenses that usually fluctuate
dependent upon production or sales volume. #ontrast %ith .(OE1 EOPE3!E!.
VARIANCE, in accountin', is the difference "et%een a pro-ected num"er and the
actual num"er, e.'. 4. a "ud'et variance is spendin' either more or less from the
amount that %as "ud'eted* and D. a cost variance is the difference "et%een
actual cost and standard cost in the cate'ories of direct material, direct la"or,
and direct overhead.
VAT see /ABE A11E1 $AO.
VENDOR MANAGED INVENTORY (VMI) is a process in %hich a supplier
'enerates orders for its distri"utor "ased on demand information sent "y the
distri"utor. /endor Mana'ed (nventory %as first applied to the 'rocery industry,
"et%een companies li)e Procter & Gam"le (supplier) and Gal9Mart (distri"utor).
But increasin'ly, /endor Mana'ed (nventory is providin' the "enefits of
smoother demand, increased sales, lo%er inventories and reduced costs to other
industries.
193
VENDOR STATEMENT is a statement "y the seller to the "uyer detailin'
material particulars re'ardin' the property in ,uestion (suita"ility for intended
use).
VENTURE CAPITAL is capital committed to an unproven venture. $he initial,
start9up money is referred to as ;seed money; and entails the 'reatest ris). (f the
pro-ect 'ets off the 'round it may re,uire additional financin' at additional
;rounds; or the ;me&&anine level; "efore the company is finally "rou'ht to the
mar)et and the venture capitalist can en-oy handsome re%ards. Experienced
investors in venture capital situations typically plan on turnin' a%ay a minimum of
< out of every 45 proposals %hich are "rou'ht to them, and then they expect as
many failures as successes from their selected investments.
VERIFIABILITY is %here the fact is capa"le of "ein' tested (verified or falsified)
"y experiment or o"servation.
VERTICAL FINANCIAL ANALYSIS allo%s comparison of the financial ratios of a
company in time T past, present and future.
VERTICAL INTEGRATION is the extent to %hich a firm o%ns its upstream
suppliers and its do%nstream "uyers. #ontrol upstream is referred to as
"ac)%ard inte'ration (to%ards suppliers of ra% material), %hile control of
activities do%nstream (to%ards the eventual "uyer) is referred to as for%ard
inte'ration.
VESTED refers to havin' an a"solute ri'ht or title, %hen previously the holder of
the ri'ht or title only had an expectation. Example7 after D5 years of employment
Barry Boyal+s pension ri'hts are no% vested.
VIABILITY, in economics, is the capa"ility of developin' and survivin' as a
relatively independent social, economic or political unit.
VMI see /E3128 MA3AGE1 (3/E3$280.
VOLUME GAIN is to o"tain advanta'es due to increase in volume, such as value
increase, points in 'ross mar'in or profit.
VOSTRO ACCOUNT is a local currency account maintained %ith a "an) "y
another "an). $he term is normally applied to the counterparty+s account from
%hich funds may "e paid into or %ithdra%n, as a result of a transaction.
VOUCHER is a. a piece of su"stantiatin' evidence* a proof* or, ". a %ritten
record of expenditure, dis"ursement, or completed transaction* or, c. a %ritten
authori&ation or certificate, especially one exchan'ea"le for cash or representin'
a credit a'ainst future expenditures.
194
WACC see Gei'hted Avera'e #ost of #apital.
WAGE is actual remuneration paid to an employee for services rendered.
Minimum %a'es, in the .!.A., are esta"lished "y the federal .air Ba"or
!tandards Act.
WARRANT, in 'overnment accountin', is an order dra%n authori&in' payment to
a desi'nated payee. (n securities, it is a security entitlin' the holder to "uy a
proportionate amount of stoc) at some specified future date at a specified price,
usually one hi'her than current mar)et. $his ;%arrant; is then traded as a
security, the price of %hich reflects the value of the underlyin' stoc). Garrants
are issued "y corporations and often used as a ;s%eetener; "undled %ith another
class of security to enhance the mar)eta"ility of the latter. Garrants are li)e call
options, "ut %ith much lon'er time spans 99 sometimes years. (n addition,
%arrants are offered "y corporations %hereas exchan'e traded call options are
not issued "y firms.
WARRANTY is a 'uarantee 'iven to a "uyer from a seller that the 'oods or
services purchased %ill perform as promised, or a refund %ill "e 'iven, repair %ill
"e done at no char'e, or an exchan'e made.
WEIGHTED AVERAGE is one in %hich different data in the data set are 'iven
different ;%ei'hts.; /aryin' su"-ective assumptions are derived for determinin'
the level of importance for each data cate'ory. .or example, many teachers %ill
use a ;%ei'hted avera'e; %hen calculatin' a student+s 'rade in a course. A
teacher mi'ht determine the final 'rade for the course "y calculatin' that the test
avera'e is L5K of the 'rade, ,ui& avera'e is >5K of the 'rade, and a sin'le
pro-ect is 45K of the 'rade.
WEIGHTED AVERAGE COST OF CAPITAL (WACC) is an avera'e
representin' the expected return on all of a company+s securities. Each source of
capital, such as stoc)s, "onds, and other de"t, is %ei'hted in the calculation
accordin' to its prominence in the company+s capital structure.
WHITE PAPER 4. in a technolo'ical industry, is an informational "rief offerin' an
overvie% of a technolo'y, product, issue, standard, policy, or solution 9 its
importance, use and implementation, and "usiness "enefits. Ghite Papers have
emer'ed as the standard %ay of communicatin' more in9depth information to
"usiness decision9ma)ers in terms of pro"lems solved and mar)ets addressed*
or, D. a Ghite Paper can "e an official 'overnment report of an investi'ation into
a pu"lic event that received a 'reat deal of pu"licity and notoriety* it indicates the
official 'overnment position on a particular pu"lic issue.
WHOLLY OWNED SUBSIDIARY is an entity %hose parent o%ns virtually 455K
of its common stoc).
195
WINDFALL PROFIT/GAIN is profit that occurs suddenly as a result of an event
not controlled "y the company or person reali&in' the 'ain from the event. .or
example, a hurricane may "rin' extraordinary revenue to a roofin' contractor as
a result of the natural disaster.
WINDOW DRESSING is the act or an instance of ma)in' somethin' appear
deceptively attractive or favora"le. sually usin' somethin', e.'. inflated sales
pro-ections, to create a deceptively favora"le or attractive impression.
WINDOW OF ENTERPRISE depicts the overall structure of accountin'.
WIDGET is a device that is very useful for a particular -o". 2ften used %ithin a
name of a fictitious company.
WIP is an acronym for Gor) in Process?Pro'ress. sually refers to inventory that
has value added from la"or or additional processin'. Ghen considered for
inventory value, the value of the ra% material plus the value added component is
accounted for in determinin' the value of that inventory at that point in the
process.
WITHHOLDING TAX usually refers to those taxes that are %ithheld from an
employeeAs compensation to account for that individuals tax lia"ility on his?her
compensation.
WITNESS is an individual %ho testifies at a trial on %hat he has seen, heard, or
other%ise o"served.
WORK CENTER, normally, is an individual production area or su"9process of an
overall manufacturin' process.
WORKER$S COMPENSATION is, usually, a state or privately mana'ed
insurance fund in the nited !tates that reim"urses employees for in-uries
suffered on the -o".
WORKING CAPITAL STATEMENT (WCS) is part of the financial statements+
;!tatements of #ash .lo%s or #han'es in .inancial Position.; $he G#! normally
includes sections coverin'7 !ources of Gor)in' #apital, ses of Gor)in' #apital,
and Gor)in' #apital #han'es.
WORKING CAPITAL TURNOVER (WCT) sho%s ho% efficiently Gor)in' #apital
(G#) is employed, i.e., it measures ho% efficiently the "usiness is usin' its
availa"le assets. G#$ measures the amount of 3et 8evenue 'enerated per
monetary unit of Gor)in' #apital. (t varies %idely "y industry* therefore it is "est
to compare G#$ to industry avera'es.
196
WORKING CAPITAL (WC) (the difference "et%een current assets and current
lia"ilities) measures the mar'in of protection for current creditors. (t reflects the
a"ility to finance current operations.
WORK IN PROCESS is parts and su"assem"lies in the process of "ecomin'
completed finished 'oods.
WORK IN PROGRESS a piece of %or) that is not yet finished.
WORK SHEET is a document or schedule in %hich an accountant or auditor
'athers information to su"stantiate an opinion concernin' an account "alance or
+test of transaction.+
WORLD TRADE ORGANIZATION (WTO) is the international trade "ody formed
"y the a'reement of mem"er nations. $he G$2 is an evolution of the GA$$
process desi'ned to resolve trade disputes and %or) for the lo%erin' of tariff and
non9tariff trade "arriers.
WRAP ACCOUNT at its most "asic is an alternative form of commission
arran'ement "et%een a securities firm and its client. Grap accounts 'enerally
char'e the client an annual fee "ased on assets in the account in lieu of a per
transaction commission structure. (n other %ords, the firm ;%raps; to'ether all the
costs and char'es them off as a ;mana'ement feeS. .irms often add further
features to %rap accounts such as investment mana'ement, custodial services,
and enhanced reportin'.
WRITEOFF is to decrease the value of an item, e.'., a tax %rite9off decreases
tax lia"ility, a vehicle involved in an accident can "e declared a %rite9off if the
cost to repair is in excess of the value of the vehicle.
WRITEUP is the increase in value of an asset, "ut it is seldom used and is not
allo%ed in GAAP (Generally Accepted Accountin' Principles).
WRITEUP SERVICE is the provisionin' of all reportin' re,uirements of
"oo))eepin' and accountin' services. $he follo%in' is a non9exhaustive list of
reportin' services provided7
45<<s report preparation for su"contractors.
Ban) account reconciliation.
#hec) codin'.
.ixed asset schedules.
Maintenance of 'eneral led'er.
Payroll deposit calculations.
Payroll tax filin's.
Personal property tax returns.
Preparation of internal financial statements.
197
XINEFFICIENCY is the failure to minimi&e costs or maximi&e returns.
(!ometimes referred to as O9efficiency, "ut carryin' the same meanin'.)
198
YANKEE BOND is a dollar "ond issued "y a non9.!. "orro%er in the nited
!tates.
YEN is the currency of Capan. (ts su"divisions are 455 sen and 4555 rin.
YIELD is the annual return on an investment, expressed as a percenta'e. $he
yield to redemption or maturity (the same thin') com"ines the runnin' yield %ith
the ;pull to redemption;* thus a "ond %hich has a 45K coupon and exactly one
year of remainin' life %ill sell at M<I.DK %hen interest rates are at 4D.5K, that
4D.5K "ein' composed of 45.DK runnin' yield and 4.IK pull to redemption
(M455.5 9 <I.DK).
199
ZERO BASED BUDGET is %here the expenses or costs of the prior year are not
ta)en into consideration %hen esta"lishin' expense or "ud'etary levels loo)in'
for%ard. Each expense cate'ory starts from &ero. All expenses or cost levels
%ithin the "ud'et must "e -ustified or re9-ustified as "ein' necessary* thus R&ero9
"aseS.
ZERO COUPON BONDS are "onds priced at a lar'e discount from face value.
$he "onds mature at full face value so the difference "et%een the ori'inal issue
price and the face value represents interest income. $he issuer of the &ero
coupon "ond saves on cash flo% since the interest isn+t paid out until the end of
the "ond holdin' period.
ZERO COUPON CONVERTIBLE DEBENTURE/SECURITY is a &ero coupon
"ond that is converti"le into the common stoc) of the issuin' company after the
common stoc) reaches a certain price.
ZSCORE see AB$MA3+! ;H9!#28E;
2
CE RULE see $@8EE PE8#E3$ 8BE.
22= CALENDAR, in "ud'etin' and accountin', is the "rea)do%n of each
month into %ee)s "y countin' the num"er of times .riday occurs %ithin each
month, e.'., Can N 6 %ee)s, .e" N 6 %ee)s, Mar N J %ee)s, Apr N 6 %ee)s, May
N 6 %ee)s, Cun N J %ee)s] etc. to total JD %ee)s in a 4D month period. Every
third month, .riday %ill occur J times. All other months, .riday %ill occur 6 times.
(n the months %here .riday occurs J times, it is considered a J %ee) month.
Ghereas, the 6 .riday months %ill "e considered as 6 %ee) months.
;9K is the audited annual report that most reportin' companies file %ith the
!ecurities Exchan'e #ommission (!E#). (t provides a comprehensive overvie%
of the re'istrant+s "usiness. $he report must "e filed %ithin <5 days after the end
of the company+s fiscal year.
;9Q is a report filed ,uarterly to the !ecurities Exchan'e #ommission (!E#) "y
most reportin' companies. (t includes unaudited financial statements and
provides a continuin' vie% of the company+s financial position durin' the year.
$he report must "e filed for each of the first three fiscal ,uarters of the company+s
fiscal year and is due %ithin 6J days of the close of the ,uarter.
;CTH PERIOD in the fiscal year is the period used for fiscal year9end ad-ustin'
entries (periods 494D "ein' the months in the fiscal year).
F9 >9 RULE (P)4/*& P4(+'(B1//L)G) is a 'eneral rule of thum" in "usiness that
says that D5K of the items produce I5K of the activity, %hile D5K of the product
line produces I5K of the sales, D5 K of the customers 'enerate I5K of the
complaints, and so on. (n evaluatin' any "usiness situation, loo) for the small
'roup %hich produces the ma-or portion of the transactions you are concerned
%ith. $his rule is not exactly accurate, "ut it reflects a 'eneral truth, nothin' is
evenly distri"uted.
29; (K) PLAN is a retirement plan in the nited !tates that allo%s ,ualified
employees to contri"ute money from their paychec)s into a tax9sheltered
account.
?29 F&4: is the .!. (8! Employer+s Annual Payroll $ax form.
?2; F&4: is the .!. (8! Employer+s .ederal Uuarterly Payroll $ax form.
21