Glossary of Accounting

A
Accelerated Cost Recovery System(ACRS): An investment and the initial investment cost
a system for recovering the cost of capital This method does not take into account the
expenditure by which the cost of depreciable time value of money.
property is recovered over either a 3-, 5-, 10-, Accounting System: the set of methods and
or 15 year period of time, depending upon the procedures that is used o record, classily, and
nature of the asset. summarize the financial information to be
distributed to users.
Accelerated Depreciation: methods of
depreciation that allocate a greater portion of Accounts Payable: moneys owed to the
the asset's cost the early years of its useful life, enterprise's suppliers or vendors for the
and consequently less to the later years. purchase of goods and services. Accounts
Payable Trial Balance (Schedule of Accounts
Account: a record that summarizes all of the Payable) : a list of the balances in all of the
transactions that affect a particular category of subsidiary accounts payable accounts.
asset, liability, or stockholders' equity.
Accounts Receivable Trial Balance
Accounting: a system of providing (Schedule of Accounts Receivable): a list of
quantitative information about economic the balances in all of the subsidiary accounts
entities, primarily financial in nature, that is receivable accounts.
intended to be useful in making economic
decisions. Accrual Basis: the accounting system in which
revenues, expenses, and other changes in
Accounting Controls: a plan of organization, assets, liabilities, and owner's equity are
and the procedures and records concerned with accounted for in the period in which the
the safeguarding of asset and the reliability of economic event takes place, not when the cash
the financial records. inflows and outflows take place.

Accounting Cycle: a set of standardized Accruals: those expenses that are incurred and
procedures performed in monthly, quarterly, or the revenues that are earned over time, but
yearly sequence, depending on the needs of the which are recorded periodically only.
business.
Accruals Expenses: those expenses that have
Accounting Equation: an algebraic expression been incurred but have not been recorded,
of financial position: necessitating the adjustment entries and the
Asset = liability + owner's equity. inclusion of such items as interest expense,
salary expense, and tax expense.
Accounting Information System: a system
designed to provide financial information about
economic entities.

Accounting Rate of Return Method: a capital

budgeting method that is used to find the
percentage return a project offers by finding the
relationship between the expected increases in
net income directly resulting from
Accrued Revenues: the revenues received for
services completed or goods delivered that
have not been recorded, necessitating the
adjustment of entries and the inclusion of such
items as interest revenue and rental revenue.
Action Plans: plans to achieve organizational
objectives formulated after the organization has
analyzed information about itself and the
environment, and then established its
objectives.
Additional Paid-in Capital: the amount
invested in a corporation by its owners, in
addition to the par value of any capital stock.
Additions: enlargements, such as the addition
of new wing to an existing plant. Adjunct
Account: an account, the balance of which is
added to the corresponding account in the
financial statements.
Adjusted Trial Balance: a listing of the
general ledger account balances after the
adjustment have been posted.
Adjusting Entries: the entries that record
accruals and internal transactions that are
necessary to the application of the accrual basis
of accounting.
Administrative Controls: a plan of
organization and procedures, and records
regarding the decision processes leading to
management's authorization of transactions.
Aging Method : a method of estimating
uncollectible accounts expenses that attempts
to estimate/the percentage of the outstanding
receivables at year end that will ultimately
remain uncollected.
All Financial Resources: the concept used in
the preparation of the statement of changes in
financial position when exchange transactions,
such as the exchange of land for capital stock,
are considered as both a source and a use of net
working capital or cash.
Allowance For Uncollectible Accounts: a
contra accounts receivable account in which
appears the estimated total of the as-yet-
unidentified accounts receivable that will
remain uncollected.
Allowance Method: a method of matching the
uncollectible account expenses for the period
with the sales for the periods Requires an
estimate of the uncollectible account expenses
the period of sale.
American Accounting Association (AAA): a
professional association of accountants,
principally academics and practicing
accountants, who are concerned with
accounting education and research.
American Institute of Certified Public
Accountants (AICPA): the professional
association of CPAs.
Amortization: the periodic allocation of the
cost of an intangible asset over its useful life.
Annuity: a series of equal payments or receipts
at regular intervals.
Applied Overhead: the cost calculated though
the predetermined overhead rate which is
removed from the overhead account and posted
to work in process.
Appropriation of Retained Earnings: a
restriction of retained earnings that occurs
when the board of directors transfers a portion
of the retained earnings account into a separate
appropriated retained earning account in order
to indicate to stockholders, and to others, that
the balance in the appropriated earnings
account is not available for dividends.
Articulation: the relationship in which the
income statement, balance sheet, retained
earnings statement, and statement of changes in
financial position are all linked together. For
example, the amount in one statement, such as
net income on the income statement, is carried
forward to another statement, in this case the
retained earnings statement.
Assets: the economic resources owned or
controlled by the firm that are expected to have
future economic benefits.
Audit: an examination of a firm's financial
statements by a CPA firm.
Auditor's Report: a report by an independent
CPA that accompanies the financial statements
and the accountant's opinion regarding the
fairness of presentation of the financial
statements.
Average Collection Period: a ratio that
measures the average number of days it takes
before the receivable is collected.
Average Cost: an inventory costing method by
which a weighted average cost, determined by
dividing the total cost of goods available for
sale by the number of units available for sale, is
applied to both the cost of goods sold and the
ending inventory.
B Call Premium: the difference between the call
Balance Sheet: a financial statement that
shows the financial position of a firm at a
particular point in time.
Bank Reconciliation : the process of
accounting for the differences between the
balance appearing on the bank statement and
the balance of cash according to the depositor's
records.
Bank Statement : a monthly statement which
the bank prepares and mails to the depositor,
the statement lists the beginning balance in the
account, all deposits received, checks paid,
other debits (charges) and credits (receipts),
and the ending balance in the account.
Beta: a measure of risk that relates the
volatility of the price of a specific stock to the
volatility of the price of the stock market as a
whole.
Betterments: improvements to existing assets,
such as the installation of a computer-
controlled temperature monitoring system in a
department store.
Board of Directors: a group of individuals
elected by shareholders, charged with
establishing broad corporate policies and
appointing senior corporate management.
Bond: a written agreement between a borrower
and lenders in which the borrower agrees to
repay a stated sum on a future date and to
make periodic interest payments at specified
dates.
Bond Indentures: those written agreements
that bondholders often insist upon, including
restriction as to dividend, working capital, and
the issuance of additional long-term debt
Book Value: the equity that the owner of one
share of common stock has in the net assets
(assets less liabilities) or stockholders* equity
of the corporation.
Break-event Points: the point at which a
Budget: an organization's operational plan
expressed in financial terms. Business Entity
Assumption: a separate economic unit, the
transactions of which are kept separate from
that of its owners.
C
price and par value of a callable preferred
stock.
Capital Budgeting: the process of planning for
long-term investment decisions in operational
assets through analysis of alternative uses of
funds, in order to find the greatest return on
investment.
Capital Expenditures: expenditures which
result in other assets that benefit several
accounting periods.
Capital lease: a long-term lease that is, in
effect, an installment purchase of assets.
Capital Stock: a component of stockholders
equity that represents the amount invested by
the owners of the business. A general term for
common stock.
Capitalized Retained Earnings: retained
earnings transferred to permanent capital,
unavailable for future cash dividends. Usually
occurs when a stock dividend is issued.
Cash: any medium of exchange that a bank
will accept for deposits, including coins, paper
money, money order, checks, certified and
cashier's checks, and money on deposit in a
bank.
Cash Basis: the accounting system in which
revenues and expenses are not recognized until
the cash is received or paid.
Cash Budget: a budget that only includes
items affecting cash, and is made up of cash
receipts and cash expenditures.
Cash Flow Statement: a cash -based
statement of financial position that defines
financial resources as cash, and explains, what
caused the changes in the cash balance during
the year.
Cash Inflows: any items that are expected to
generate revenue or reduce costs, now or in the
future.
Cash Outflows: the initial cost of an
company's revenues equal its cost; there is
neither profit nor loss, and net income is equal
to zero.
Cash Payments Journal: the specialized
journal used to record cash disbursements
made by check.
Cash Receipts Journal: the specialized
journal used to record the receipt of cash.
Certified Public Accountant (CPA): a
professional accountant licensed by individual
states to practice accounting after having met a
number of requirements.
Change In Accounting Method; a change that
occurs when a firm switches from one
generally accepted accounting principle or
method to an other generally accepted one.
Chart of Accounts: a listing of all of the
accounts used by a particular firm. Each
account is assigned a unique number.
Check Register: a simplified cash
disbursements journal with only three debit/
credit columns: voucher payable, purchase
discounts, and cash. Generally used in
conjunction with a voucher system.
Classified Financial Statement: the financial
statement that is subdivided into categories to
allow for meaningful interfirm and interperiod
comparison.
Closing Entries: the journal entries made at
the end of the period, used to update retained
earnings to reflect the results of operations and
to eliminate the balances in the revenue and
expense accounts, so that they may be used
again in a subsequent period.
Common Dollar Statements: the financial
statements in which the appropriate total figure
is set to 100%, and in which other items are
expressed as a percentage of that figure.
Common Stock Equivalent: a dilutive
security that, because of the terms or
circumstances at the time of its issue, is
essentially equivalent to common stock,
allowing the holder to become a common
stockholder at some future date.
Comparability: the qualitative characteristic
of accounting information mat presents
information in such a way that the users can
identify similarities and differences between
investment as well, as any other future cash
outlays undertaken due to that investment.
evaluate the financial position and performance
of one firm over time or to compare such
factors with other firms.
Comparative Balance Sheet: a balance sheet
in which data for two or more periods are
shown in adjacent columnar form.
Compensated Absences: a liability that arises
as employees accrue certain fringe benefits that
allow them time off with full or partial pay,
including such benefits as vacation and sick
pay.
Compensation Record: a record serving to
accumulate all of the payroll data relating to an
individual employee.
Complex Capital Structure: a capital
structure in which there are certain types of
bonds, preferred stock, or other securities that
are convertible into common shares.
Compound Interest: interest computed on the
principal, plus any previously accrued interest.
Conceptual Framework Project: a theoretical
framework for accounting used to develop
objectives and concepts that the Financial
Accounting Standards Board (FASB) uses to
decide upon the standards of external financial
reporting.
Conservatism: the prudence exercised in
financial reporting as a result of the
uncertainties surrounding business and
economic activities. When faced with
accounting alternatives, accountants tend to
choose those that are least likely to overstate
assets or income.
Consistency: an accounting convention
requiring that a firm use the same accounting
procedures and policies from one period to the
next.
Consolidated Financial Statements: the
combined financial statements, less certain
eliminations, of a parent company and its
subsidiaries.
Consolidated Statements: the combined
financial statements of a parent company and
its subsidiaries.
two sets of economic events. Can be used to
Contra Account: an account, the balance of
which is subtracted from the associated account
on the financial statements.
Contributed Capital: the legal capital plus
any additional capital contributed by the
stockholders or others. Contribution Margin:
the margin based on cost behavior patterns,
represents the amount left from the sales
revenue after all variable casts have been
deducted.
Contribution Margin Income Statement: an
income statement, used only for the internal
purpose of a firm, that emphasizes cost
behavior rather than the usual functional
expense categories.
Contribution Margin Ratio: the percentage of
sales dollars left after the variable costs have
been covered. It is the contribution margin
expressed as a percentage of sales price.
Controlling Account: the main or primary
account that is maintained in the general ledger.
Conversion Costs: the adding together of
labor and overhead costs when calculating the
cost per unit of a product.
Convertible Bonds: those bonds that can be
converted at some future specified date into the
firm's common stock.
Convertible Preferred Stock: the preferred
stock that enables preferred stockholders to
convert their preferred stock, at a stated rate
and time, to common stock.
Copyrights: the exclusive right of the creator
or his/ her heirs to reproduce and/ or sell an
artistic or published work.
Corporation: a business entity legally viewed
as separate and distinct from its owners- the
"stockholders."
Cost Accounting Systems: systems set up as
part of the overall accounting systems to
identity the costs of making a product
Cost Behavior: the way a cost responds to the
changes in level of business activity or
volume.
Constant Dollar Statements: those financial
statements that are adjusted for general price
level changes.
Contingent liability: a possible liability that
may or may not occur, depending on some
future event.
Serves as an acceptable rate of return on an
investment when doing capital budgeting.
Cost of goods sold: the cost allocated to the
merchandise sold by a retail or merchandise
firm.
Cost of Goods Sold Budget: a budget that
shows the cost of the raw materials, direct
labor, and factory overhead to be used in
production, the projected cost of goods
manufactured, and the projected cost of goods
sold.
Cost production Report: summarizes the work
done by a processing center during a specified
period. Account for number of units worked on
during the period and the costs associated with
those units.
Cost-Volume-Profit Analysis: an analysis that
examines changes in volume to see how such
changes affect costs and profitability.
Cost-volume-profit Formula (C-V-P
Formula): a variation of the income statement
format. Sales = Variable costs + Fixed costs +
Net income. S = VC+FC + NI.
Costs: resources sacrificed of given up to attain
goods and services.
Coupon Bonds: those bonds that are not
registered in the name of individual holders,
but that are negotiable by whoever holds them.
Credit: an entry on the right side of any ledger
account representing a decrease in an asset
account and an increase in an equity account.
Current Assets: cash-or other assets
reasonably expected to be realized in cash or
sold within the normal operating cycle of a
business, or within one year (if the operating
cycle is longer than one year).
Current Cost/ Constant Purchasing Power
Dollar Statement: those financial statements
that are adjusted for both specific and general
price level changes.
Current Cost Statements: those financial
statements that are adjusted for specific price
changes.
Cost Objective: the Hem one is attempting to Current Liabilities: those liabilities that will
either be paid or require the use of current

calculate the cost of. assets within a year (or within the operating
Cost of Capital: the interest rate that a firm cycle, if longer), or that result in the creation of
has to pay for its debt and equity, generally new current liabilities.
computed on a weighted average basis.

Current Maturities of long-Term Debt: those Deposit Slip: a list of the cash and checks to be
portions of long-term liabilities that are payable
deposited.
within one year of the balance sheet date, and Deposits in Transit: deposits made by the
as a result are classified as current. depositor but not yet recorded by the bank.
Current Maturity of Long-Term Debt: the Depreciable Base: an asset's acquisition cost,
portion of long-term liabilities that is payable less its estimated residual value.
within 12 months from the balance sheet date. Depreciable Cost: the asset's estimated
Current Method: a method of foreign residual value, less its acquisition cost.
currency translation under which all balance Depreciation: the systematic allocation of the
sheet items can be translated at the current cost of noncurrent, nonmonetary tangible assets
exchange rate at the date of the financial (except for land) over their estimated useful
statements, income statement items are life.
translated at the average exchange rate for the Differential Costs and Revenues: the costs
period. and revenues that are relevant to a management
Current ratio: the total of current assets decision in that they will change depending on
divided by the total of current liabilities. which alternative is chosen.
Currently Attainable Standards: standards Direct Costs: costs that are easily traced to a
that require that costs be incurred under very particular cost objective.
efficient but reachable operating conditions. Direct Labor: labor that can be conveniently
and economically traced to the creation of a
D finished product.
Date of Record: the date the stockholders are Direct labor Budget: an estimate of the
entitled to receive the dividend as per issue. number of labor hours required to meet
Debenture: an unsecured bond. Debit: an production needs. This budget is dependent on
entry on the left side of any ledger account the production budget
representing an increase in an asset account Direct Labor Efficiency Variance: the
and a decrease in an equity account. amount of labor time used to produce the units
Debt-Equity Ratio: the total liabilities divided of product as compared to the amount of labor
by total stockholders' equity. time that should have been used according to
Debt Securities: long-term notes, bonds, and the standard.
other liabilities. Direct Labor Rate Variance: the difference
Debt-to-Total Assets Ratio: the total between the actual labor rates paid during
liabilities divided by total assets. production and the standard labor rates.
Declaration Date: the date the board of Direct Materials: all materials that become an
directors declares the dividend. " integral part of finished product and that can be
Declining Balance Method: an accelerated conveniently and economically traced to that
method of depreciation in which the asset's product
book value at the beginning of each ledger is Direct Materials Budget: the amount of
multiplied by a constant percentage. direct materials that will be used and
Default: a happening which ocurs when the purchased.
borrower or maker of the note fails to make the Direct materials Price Variance: the
required payment at the note's maturity. difference between the standard price of the
Denomination: the amount on which the
required interest payment is always calculated
(also called face value, maturity value, or par
to be assigned to ending inventories of direct
materials and finished goods.
Equities: a collective reference of the
liabilities and the owner's equity.
Federal Unemployment Tax Act (FUTA):
unemployment taxes that employers must pay
in the addition to their share of social security
taxes.
FICA (Federal Insurance Contribution Act)
Taxes: a combination of Old Age Survivors
and Disability Insurance; (O.A.S.D.I) and
Medicare Insurance ; also called social security
taxes.
FIFO (First In, First Out): an inventory
costing method that assumes that the costs
attached to the first goods sold.
Financial Accounting Standards Board
(FASB): a private-sector body that has
responsibility for developing and issuing
accounting standard.
Financial Changes: changes in net working
capital from other than operating transaction,
such as the sale or purchase of noncurrent
assets.
Financial Resources: either net working
capital or cash, in the context of statement of
changes in financial position.
Financial Statement Analysis: the set off
techniques designed to provide relevant data to
Decision makers.
Financial statement; the reports with which
financial information about a particular
enterprise is communicated to users.
Fiscal Year; a year that ends on the last day of
any month other than December.
Fixed costs: the costs that remain unchanged,
regardless of changes in the level of business
activity.
Flexible Budget: the adjustment of the master
budget to changes in volume. Allows a firm to
construct budgets at any level of activity in the
relevant range.
Fob Destination; the terms of the sale in
which legal title of the goods does not pass
direct material and the actual price paid.
Direct Materials Quantity Variance: the
difference between the pounds of material
materials and direct labor. Gives information
for planning the work of the production
departments, as well as for determining how
much factory overhead should become part of
the cost of each unit of product.
Important aspects of various items in the
statement
Foreign Currency Transactions: transactions
that are denominated in the foreign currency.
For example, a-U.S. firm makes a sale to an
overseas firm and agrees to accept payment in
the foreign currency, or a purchase is made
from an overseas firm and payment must be
made in the foreign currency.
Foreign Currency translation: an accounting
term meaning that one currency is restated in
terms of another currency.
From 8-K: a published report that all firms are
required to file with the SEC. within 10 days of
certain major events affecting the firm.
Form 10-K: the annual report filed with the
SEC.
From 10-Q: the quarterly reports filed with the
SEC.
Franchise: a right to use a formula, design, or
technique, or the right to conduct business in a
certain territory.
Full Cost Method: a method in which all
exploration cost are capitalized into the cost of
the natural resource asset account.
Full Disclosure Principle: an accounting
convention requiring that a firm's financial
statements provide users with all relevant
information about the various transactions in
which a firm has been involved.
Fully Diluted EPS: the net income available to
common shareholders as calculated by the
weighted average number of common shares
outstanding, plus all dilutive securities, whether
or not they considered common stock
equivalents.
Future Value of an Annuity: the amount of
series of payments or receipts taken to a future
date at a specified interest rate.
Future Value of a Single Amount: the
until they reach the buyer's receiving point,
and as a result ,the seller pays the freight
charges.
Fob Shipping point: the terms of the sale in
which legal title to the goods transfers from the
seller to the buyer when those goods leave the
seller's were house, and as result, the buyers
pays the freight charges
footnotes to Financial Statements: the
footnotes accompanying the financial
statement; narrative explanations of the
General partnership: a form of partnership in
which the general partners have unlimited
liability.
General Price Level Changes: price changes
that measure fluctuations in the ability of the
dollar to purchase a variety of goods and
services.
Generally Accepted Accounting Principles
(GAAP): the concepts and standards
underlying accounting for financial reporting
purpose.
Going-Concern Assumption: the assumption
that unless there is evidence to the contrary, a
firm will be in existence long enough to use
these assets and derive their benefits.
Goods in Transit: goods that have been
purchased (and title has passed to the
purchaser) but that have not yet been received
by the purchaser.
Goods on Consignment: those goods held by
a firm for resale, but which title remains with
the manufacturer or owner of the product.
Goodwill: the future benefits that accrue to a
firm as a result of its ability to earn an excess
rate of return on its recorded net assets.
Governmental Accounting: the practice of
accounting as it relates to governmental
organization.
Governmental Accounting Standards Board
(GASB): created by the Financial Accounting
Foundation in 1984 with the purpose of
establishing and improving financial
accounting standards for state and local
government
Gross Margin Method: a method used to
estimate the value of inventory, by which firms
estimate their ending inventory without taking
amount of a current single amount taken to a
future date at a specified interest rate.
G
Gains: a firm's increase in equity (net assets)
during a set period from all activities (except
for revenues and investments by owners).
Gross Sales: the total of cash sales plus those
sales made on credit during the period.
H
Historical Cost Convention: the convention
under which assets and liabilities are initially
recorded in the accounting system at their
original or historical cost and are not
adjustment for subsequent increase in value.
Horizontal Analysis: a technique of financial
analysis that focuses upon the dollar and
percentage changes that have occurred in
certain accounts from year to year.
I
Ideal Standards: standards that require
complete efficiency and performance all of the
time.
Income from Continuing Operations: the
excess of gross margin from sales over
operating expenses.
Income Statement: a financial statement that
shows the amount of income earned by a firm
over an accounting period. Income Summary
Account: a temporary account used to provide
structure and to control the accuracy of the
closing process.
Indirect Costs: costs incurred for more than
one part of an organization and that must be
allocated to cost objectives. Also called
common costs.
Indirect Labor: labor costs incurred in the
manufacturing process that are difficult to trace
directly to the units of product, and that are
considered part of factory overhead.
Indirect Materials: materials used in
manufacturing products that may be difficult
an actual count Based on the firm's gross
margin percentage.
Gross Margin on Sales: the sales minus the
cost of goods sold.
Gross Margin Percentage: the gross margin
divided by the sales.
Gross Method of Recording Purchase
Discounts: a method of recording purchase
discounts in which the purchase and the
payable are recorded at the gross amount,
before any discount
Gross Method of Recording Sales Discounts:
a method of recording discount in which the
sale and the receivable are recorded
Internal Control: the organizational plan that
includes specific methods and procedures
developed by management to ensure the
accuracy and reliability of the accounting
records and to safeguard the firm's assets.
Internal Rate of Return Method: a
discounted cash flow method that looks for the
true return promised by an investment project
over its useful life. Also called time-adjusted
rate of return.
Internal Transactions: the events which affect
the firm only, and are usually recorded by
adjusting entries.
International Accounting Standards
Committee (IASQ): the committee, the charge
of which is to develop basic accounting
standards and to promote the worldwide
acceptance and observance of these standards.
International Federation of Accountants
(D7AC): the international accounting body that
is essentially a coordinating body of
professional accounting organizations, and
does not have the responsibility for setting
international accounting standards; instead, the
broad objective is the development and
enhancement of a coordinated worldwide
accounting profession with harmonized
standards.
Interperiod Income Tax Allocation: the
allocation of income taxes among different
accounting periods.
Interpolation: a process by which it is
possible to find the exact rate of interest
and costly to trace. The cost of these items is
considered part of factory overhead.
Intangible Assets: those assets which have no
at the gross amount, before any discount.
physical substance but have future economic
benefits based on rights or benefits accruing to
the assets' owner.
Interest: the cost associated with the use of
money over a specified period of time.
Interest Rate; the percentage rate of interest,
which is usually stated in annual terms and
must be prorated for periods shorter than a
year.
Interim Statement: the financial statements
issued monthly or quarterly.
J
Job Cost Sheet: a part of the job order cost
system that keeps track of the cost associated
with each individual job.
Job Order Costing; a product cost accounting
system that accumulates the cost of
manufacturing specific products, jobs, or
batches of production, where each job or batch
of products is different from the order. Joint
Product Cost: the manufacturing cost incurred
before the joint product become individually
identifiable.
Joint Product: two or more separately
identifiable products made from a common set
of inputs. No one of the products may be
produced without the simultaneous production
of one or more other products.
Journal: the record or book where each
transaction is recorded originally. Provides a
chronological record of each transaction.
L
Lease: a contractual agreement between the
lessor (the owner of the property) and the
lessee (the user of the property) that gives the
lessee the right to use the lessor's property for a
specific period of time in exchange for
stipulated cash payments.
Leasehold Improvements: improvements
made by the lessee, that a the end of the lessee
term revert to the ownership of the lessor.
Ledger: a book or file which contains a
specific account for each item in the chart of
 promised by an investment
Intraperiod Income tax Allocation: the
allocation of income taxes in such a way that
the total income tax expense for the period is
related to the proper component that caused
Inventories: those goods that are owned and
held for sale in the regular course of business,
including goods in transit, if shipped FOB
shipping point.
Inventory Profits: the amount by which the
cost of replacing merchandise sold on the sale
date exceeds the reported cost. Inventory
Turnover: the rate at which a company sells
its inventory.
Liabilities: the economic obligations of the
enterprise. The amount owed to creditors,
employees, the government, of other.
LIFO (last In, First Out); an inventory
costing method that assumes that the costs
attached to the latest purchases are the costs of
the first items sold.
LIFO Liquidation: a financial event that
occurs when a firm sells more units in any year
than it purchases, and LIFO layers that have
been built up in the past are liquidated.
Limited Liability: a term meaning that the
owners of the corporation are not, as
individuals, legally responsible for the debts
incurred by the corporation, in excess of the
amount that they have invested in the
corporation.
Limited Partnership: a form of partnership
usually made up of one or two general partners
and several limited partners. In this type of
partnership only the general partners have
unlimited liability; the liability of the other
partners is limited to their investment in the
partnership.
Liquidation of a Partnership: the result of a
cessation of the firm's business, the selling of
assets, the payment of liabilities, and the
distribution of the remaining assets, if any, to
the partners.
Long-term Investment; those assets that
include holdings in securities (stock and bonds)
not classified as current, and in some
circumstances, investment in certain
subsidiaries that have not been consolidated
accounts.
Legal (Stated) Capital: the minimum amount
that can be reported as contributed capital.
Usually equal to the par or stated value of all
capital stock.
Lessee: the user of the property in the lease
contract.
Lessor: the owner of the property in the lease
contract. .
Level of Aspiration: the level of performance
on a task that an individual seeks to achieve.
Leverage: the use of debt financing, such as
bonds and mortgages.
Management: the process of using resources
to achieve objectives.
Management Accounting: the part of
accounting that provides information to
managers inside the organization, and helps in
planning, decision making, and control. This
type of accounting is the opposite of financial
accounting, which provides accounting
information to users outside of the
organization.
Management Control; the channeling of the
efforts of the people in the organization to
attain organizational goals through various
procedures and processes.
Manufacturing Costs; the costs a company
incurs to produce its product. The three basic
manufacturing costs are direct materials, direct
labor, and processes.
Market: the current replacement cost of
inventory.
Market Interest Rate: the interest rate that the
money market establishes through hundreds of
individual transaction; and that depends on
such factors as prevailing interest rates in the
economy and the perceived risk of the
individual company.
Master Budget: the comprehensive budget for
the entire firm for a given period.
Matching Convention: the basic rule
underlying accrual accounting. Revenues are
recognized as earned. All expenses incurred in
earning those revenues are reported also in the
period in which those revenues are recognized.
Materiality: an accounting convention that
with the parent firm. refers the relative importance or significance of
Losses: the decreases in equity (net assets) an item to an informed decision maker.
affecting the firm during a set period from allMaterials Ledger Card: a record of each
material used in the production of products, as
activities (except for expenses and distribution
to owners). well as in the total purchase of raw materials.
Lower of Cost or Market: a method of Maturity Date: the date a promissory not is
inventory pricing by which the inventory is due.
priced at cost or market, whichever is lower. Maturity Value: the total proceeds of a
An application of conservatism in accounting. promissory note; includes principal and interest
due at the maturity date. Merchandising Firm: a
M firm that purchase a finished product for future
Make or Buy Decision: the decision made by sale. Mixed Cost: a cost that has both fixed
a manufacture as to whether to make a given and variable component, so that a portion of it
component or buy it from a supplier. Maker: varies with volume or activity.
the individual or business who signs the note.

Monetary Assets: cash and those items that
represent a specific claim to cash.
Mortgage: a promissory note secured by an
asset, the title of which is pledged to the leader.
Multistep Income Statement: a form of the
income statement that has various categories
and arrives at net income in steps.
Mutual Agency: refers to the fact that each
partner can make binding agreement for the
partnership as long as the individual partner
acts within the normal scope of partnership
business.
N Usually a written instrument that includes
Natural Resources: physical substance that
when extracted from the ground are converted
into inventory, and when sold, produce
revenues for the firm.
Net Assets: the term referring to owners'
equity—assets minus liabilities.
Net Book Value: the different between the
cost of depreciable asset and the associated
accumulated depreciation.
Net Income: the different between the total of
revenues and gains and total-of expenses and
losses.
Net Method of Recording Purchase
Discounts: a method of recording purchase
discount in which the purchase and the
accounts payable are recorded at net of low
allowable discount.
Net Method of Recording sales discounts: a
method of recording sales discount in which
Noncurrent Long-term Liabilities: those
liabilities that will not be satisfied within one
year or within the operating cycle, if longer.
Non Manufacturing Costs: all the costs of
company incurs, other than direct labor and
factory overhead. Consists of two categories :
selling and administrative.
Nonmonetary Assets: those assets other than
cash or rights to receive cash, that can
generate future revenues, such as property,
plant, and equipment .
Note Payable: a liability that results from
purchase of goods and services or loans.
interest.
Note Receivable: an unconditional promise in
writing by an individual or business to pay a
definite amount at a definite date or on
demand.
O
Objectives of Financial Reporting: the basic
and fundamental purpose behind financial
statements.
Objectivity: a term used to indicate asset and
liability valuations that are factual and can be
verified by others.
Obsolescence: the process of becoming out-
of-date, outmoded, or inadequate.
Off Balance Sheet Financing: the fact the
certain liabilities are not recorded on the
balance, for example, leases that are in
substance installment purchases, but are not
the receivable and sale are recorded at net of
the allowable discount
These accounts are closed to retained earnings
at the end of each period.
Net Present Value Method: a discounted cash
flow technique for capital budgeting decisions
that compares cash inflows and cash outflows.
No Par Stock: capital stock that has no par or
stated value placed on it by the board of
directors.
Nominal Interest Rate: a stated interest rate
that is specified on the-note of bond at the time
is it issued, and that does not change over the
life of the note or bond.
Nominal (Temporary) Accounts: the
separate revenue and expense accounts used
only during the period, which have a zero
balance at the beginning of each period.
Opinion: a report issued by the auditor after
examination of findings regarding the financial
statements of a firm. Often called the
accountant's or auditor's report.
Oppurtinity Cost: benefits sacrificed when
management choose one course of action over
another.
Organization Cost: those costs that
corporation incurs during the organization
process, including such costs as filing and
incorporation less to the state, attorney's fees,
promotion fees, printing and engraving fees,
and similar items.
Organizational Control System: a set of
processes and techniques designed to increase
the likelihood that people will behave in ways
that lead to the attainment of an organization's
objectives. There are both formal and informal
or organizational control systems.
Outstanding Checks: checks written by the
depositor but yet to be paid by the bank.
Overhead Efficiency Variance: the difference
between a budget for overhead at the actual
activity level and a budget for overhead at the
standard activity level.
Overhead Spending Variance: the difference
between actual overhead cost and a flexible
budget for overhead at the actual activity level.
Overhead Volume Variance: the difference
between the overhead applied to Work in
recorded as liabilities.
Operating Changes: transactions that result
from the production, purchase, and sale of the
firm's goods and service, and that affect net
working capital, and ultimately retained
earnings (also called income statement
transactions).
Operating Cycle: the average time a business
takes to purchase merchandise, sell the
merchandise, and receive cash.
Operating Lease: a short-term lease under
which regular monthly payments are made by
the lessee, but the lessor retains control and
ownership of the property.
Payback Method: a capital budgeting method
that is used to determine how long it will take
for an investment to repay its original cost from
the cash inflows it generates. This method does
not take into account the time value of money.
Payee: the person to whom the payment for the
note is to be made.
Payroll Register: a listing of the firm's payroll
that is prepared each payday.
Percentage of Net Sales Method: a method of
estimating uncollectible accounts expenses
under which the amount of Uncollectible
accounts expenses is determined by the
analysis of the relationship between net credit
sales and the prior year's uncollectible accounts
expenses.
Period Costs: costs associated with the
accounting period rather than the units of
product.
Period Expenses: the expenses of a business
that cannot be directly related to a product or
service and matched against revenues in the
period the revenues are earned.
Periodic Inventory System: an inventory
system which does not keep continuous track
of ending inventories and cost of goods sold;
instead, these items are determined
periodically, at the end of each quarter, each
year, or other accounting period.
Perpetual Inventory System: an inventory
system which keeps a running balance of both
Process and an overhead budget based on the
standard hours allowed for the actual units of
product produced.
Overlapped Overhead: when applied
overhead exceeds actual overhead costs for the
period.
Owners' Equity: a general term used to
specify the owners' residual interest for sole
proprietorship, partnership, and corporations.
P Physical Measure Method: a method that uses
Par Value: an amount designated in the
articles of incorporation or by the board of
directors, and printed on the stock certificate.
Parent Company: the corporation that owns
the majority of the common stock of another
company.
Partnership: an unincorporated business
entity owned by two or more individuals.
Patent: an exclusive right to use, manufacture,
process, or sell of product that is granted by the
U.S. patent office.
Posting: the process of transferring
information from journal entries to the ledger
accounts.
Post-Closing Trial Balance: a trial balance
prepared from the ledger accounts after the
closing entries have been posted. Used to help
ensure that these entries have been posted
correctly.
Predetermined Overhead Rate: a rate used
throughout the year to assign overhead cost to
individual jobs and Work in Process. Preferred
Stock: a type of stock that has certain
preferences over common stock. Present
Value: the amount that must be invested now,
at a given rate of interest, to produce a given
future value.
Present Value of a Single Amount: the value
of a future promise to pay or receive a single
amount at a specified interest rate.
Present Value of an Annuity: the present
value of a series of future promises to pay or
receive an annuity at a specified interest rate.
Price-Earning Ratio: a ratio that is the current
market price of a stock divided by the
Process Centers: the locations or departments
in a factory where work is performed directly
on the goods that are being produced.
inventory on hand and the cost of goods sold
(in dollars and units).
Petty Cash Fund: a small fund established by
a company for miscellaneous expenditures.
Physical Flow of Units: a description of the
number of units of product in process at the
start of the period, the number of units started
during the period, and the number of units
remaining in Work in Process at the end of the
period.
physical measures (such as gallons, liters,
pounds, and grams) as a basis for allocating
joint product costs.
PooIing- of -Interest-Method: a method of
accounting for a business combination in which
the combining companies are treated as if their
net assets were pooled instead of one company
having purchased outright the other. Assets and
liabilities are combined at their net book
values.
Process Costing: a product costing system
used when one product is manufactured and all
units of the product are identical.
Product Cost: costs identified with goods
manufactured for resale or with goods purchase
for resale.
Production Budget: the number of units
needed to be produced for the coming period.
Profit Margin Percentage: the net income
divided by the sales.
Profitability Index: an index that makes it
possible to compare and rank two alternate
projects by dividing the present value of the net
cash inflows by the funds required for the
investment
Promissory Note: also called Note (see also
Note Receivable).
Proxy: a legal document signed by the
shareholders that gives another individuals,
usually existing management, the right to vote
the shares in the manner they deem best.
Public Accounting: the field of accounting
that, for a fee, provides a variety of accounting
services to individuals and firms.
Public Held Corporation: a corporation, the
stock of which is owned by outside investors,
and which stock and or bonds are listed on
 earnings per share.
Primary Earnings per Share: the net income
available to common stock, divide by the sum
of the weighted average common shares and
common stock equivalents.
Principal: the original amount of a promissory
note on which interest is calculated.
Prior Period Adjustments: the transactions
that relate to an earlier accounting period but
that were not determinable by management in
the earlier period. Specifically limited by an
FASB statement.
Private Accounting: the practice of accounting
in a single firm. Process: a series of steps (i.e,
plans, decisions, actions) designed to operate
an organization.
national and regional exchanges.
Publicly Owned: a term indicating that a
corporation's stock is trade on an organized
exchange (such as the New York or American
Stock Exchange), easily enabling individuals to
buy or sell shares of stock in these
corporations.
Purchase discounts: the allowances given for
prompt payment for merchandise purchased for
resale.
Purchase method: a method of preparing
consolidated financial statements in which the
net assets of the purchased company are
revalued to their fair market value.
Purchase Order: a document prepared by the
purchaser that indicates to the seller the
quantity, type and estimated price of the items
the buyer wishes to purchase.

Purchase Requisition: a document sent to the Receivable for the period.

purchasing department requesting that is Redeemable Preferred Stock: preferred stock
purchase a certain quantity and type of item. that can be callable, and that can be returned to
Purchase Returns and Allowances: the the issuing corporation by the owner of the
refunds and other allowances given by suppliesstock under certain conditions for a stated
on merchandise originally purchased for resale.
price.
Purchase Journal: the specialized journal Reinforcement: a concept used in motivation
used to record merchandise purchase on research which indicates that when an
account. individuals behavior is followed by a positive
Purchasing Power Gains or Losses: those response (or " reward) the behavior tends to be
gains losses that result from holding monetaryrepeated: whereas if behavior is followed by a
assets (cash and rights to receive cash) and negative response, or not response, it tends to
monetary liabilities (all liabilities other than
be avoided.
those requiring the performance of a service) Relative Sales Value Method: the method
during periods of inflation or deflation. used to allocate joint production costs by
calculating each products, proportionate share
Q of total sales value off all products and then
Quality of Earnings: a concept that judges allocating the same proportion of joint product
whether accounting principles and methods costs to each product
selected by management lead to conservative Relevance: a qualitative characteristic
estimates of earnings or inflated earnings. requiring that accounting information be
Quantifiability: a characteristic of the impactful in a user's decision.
accounting system which admits as inputs only Relevant Range: that narrow range of
those transactions and events which can be business activity that has linear properties, and
represented in numerical (primarily monetary) that is used as the expected range of cost
term. behavior during a given time period, usually a
Quantity Discounts: the reductions from list year.
price, as a result of quantity purchases.
R Remittance Advice: a document attached to
Ranking Decision: a decision that determines
which investment alternative is best when
there are several acceptable proposals.
Ratio Analysis: a shortcut method of
expressing relationships among various items
on the financial statements.
Real Accounts: the balance sheet accounts
( including retained earnings), the balances of
which extend beyond the accounting period.
Realization Principle: the principle
accountants follow to determine when revenue
should be recognized.
Realized Gains and losses: the difference
between expense on a current cost basis and on
a historical cost basis, which represent the
holding gains or losses the firm has realized
through sales or use in the current period.
Receipts: the inflows of cash or of other
assets.
Receivable Turnover: a ratio determined by
dividing credit sales by the average account
Retail Method: a method of estimating
inventory by which the inventory is taken at
retail prices and then converted result.
Retained Earnings Statement; a financial
statement which details the changes in the
retained earnings account for a certain period.
Return on Owner's Equity: the ratio
calculated by dividing the net income by the
average owner's equity.
Return on Total Asset's: the ratio determined
by dividing the net income by the average total
assets.
Revenue Expenditure: expenditures, the
benefits of which are used up or consumed in
the current period.
Revenues: the price of goods sold or service
rendered by a firm to others in exchange for
cash or other assets.
Reversing Entries: entries made on the first
day of a new accounting period that reverse
certain adjusting entries to allow the routine
recording of certain entries.
Review and Compilation: accounting service
Reliability: the tearm meaning that the
accounting information is unbiased, accurate,
and verifiable
the sales invoice that is mailed to the costumer.
It is used to identify the source of the check
received.
Research and Development Costs: those
expenditures incurred is discovering, planning,
designing, and implementing a new product or
process.
Residual (Salvage) Value: an estimate of an
asset's worth at the end of its life.
Resources: things that have expected service
potential and that are used in order to archive
objectives.
Responsibility Accounting: an accounting
procedure that classifies cost and revenues of
an organization according to the various levels
of management that have control over them,
and that hold managers responsible for
differences between planned goals ad actual
results.
Sales Returns: a reduction in the actual sales
which occurs when a costumer, for whatever
reason, return the item for a cash refund or a
credit to his/ her account.
Schedule of Cost of Goods Manufactured:
the supporting schedule on the income
statement from which the cost of goods
manufactured is derived.
Screening Decision: a decision that
determines whether an investment meets the
minimum standards of acceptibility for a
particular firm.
Securities and Exchange Commission (SEC):
a federal agency that has the legal power to set
and enforce accounting standards for publicly
trade firms.
Segment: a component of entity, the activities
of which represent a separate line of business
or class of major costumer. Sell of Process
Further Decision: a decision made by
manufacturers who product joint products, as to
whether a product should be sold at the spilt-off
point or processed further.
provided by the CPA firms.
S complex mixture of cost relating to everything
Sales: the essential activity of the
merchandising firm. At the point of sale the
firm's earning process is completed, and
objective evidence as to the sales price is
available. Revenues is recognized under-
generally accepted accounting principles.
Sales allowance: a reduction in the actual sales
price that occurs when the particular item does
not perform to expectations, or when there are
other defects in the product
Sales Budget: the budget that projects
expected sales for operation for one period. The
first step in the budgeting process.
Sales Discount: a cash reduction offered
costumers in an attempt to ensure that they
make prompt payment on their trade accounts.
Sales Forecast: the means used by firm to
predict demons for their products.
Sales Journal: the specialized journal used to
record sales on account
Sales Mix: the proportion in which the various
product of the firm are sold.
Selling And Administrative Expense Budget:
a budget that appears on the income statement
as one or two broad categories, and that is
other than the manufacturing process.
Serial Bonds: those bonds, the principal of
which is payable on various dates.
Short-Term Investment: cash invested in
marketable securities such as stocks,
government securities, and corporation intend
bonds. Management generally does not intend
to hold them longer than one year.
Short-term Monetary Assets: the current
assets, such as cash and those items that
represent a specific claim to cash.
Single-step Income Statement: a form of
income statement that has only four major
categories (revenues, expenses, income before
taxes, and net income in a single step..
Sinking Fund: a collection of cash or such
other assets as marketable securities, that are
set apart from the remaining assets of the firm,
and are only used for a specified purpose.
Sole proprietorship: an unincorporated
business entity in which one person is the
owner.

Special Orders: when a firm sells products Stock Dividend: a distribution to current
below the normal price in order to earn revenue shareholders on proportional basis of the
that might otherwise be lose. corporation's own stock.
Specialized Journal: a journal that is designed Stock Registrar: an individual employed by a
to handle certain transactions such as receipts corporation in order to maintain an
or sales. independent record of the number of shares
Specific Identification Method: an inventory outstanding.
costing method which determines the actual Stock Split: an increase, in the number of
acquisition cost of each item in the ending outstanding shares with a proportionally
inventory. decreasing par or stated value.
Specific Price Level Changes: those price Stock Transfer Agent: an individual employed
changes that reflect the fluctuation in the value by a firm, usually a large bank, to handle all the
of specific goods or service vis-a visa other transfer by canceling the old certificates,
goods or service. issuing new ones, and updating the
Specifically Identifiable Intangible assets: stockholders' ledger.
those intangible assets, the costs of which can Stockholders' Equity: the owners' equity of a
easily be identified as part of the cost of the corporation representing the residual claims of
assets, and the benefits of which generally the owners.
have a determinable life. Straight-Line Depreciation: a depreciation
Spit-off Product: the point at which the joint method mat assumes that depreciation is a
products become individually identifiable.
Spreadsheet: a computer software program
containing an empty matrix of rows and
columns that can be labeled individually by the
user. Examples include Lotus 1-2-3 and
Visicalc.
Standard: a criterion used to regulate the costs
and quantities of things used to produce goods
or to provide services.
Standard Cost: the amount that should be
required to produce a unit of product as
opposed to the actual price and quantity.
Standard Cost And Card: a record that
details what the manufacturing cost should be
for one unit of product.
Stated Interest Rate: see Nominal Interest
Rate.
Statement Of changes in Financial Position:
the financial statement that describes the
changes (inflows and outflows) in the
enterprise's resources. Prepared either on a
working capital or cash basis.
Statement of Changes in Owner's Equity: A
financial statement that summarizes the
transactions and events which affect a variety
of owner's equity accounts.
Temporal Method: a method of foreign
currency translation by which momentary
assets and liabilities are translated at current
rates, while nonmonetary assets and liabilities
are translated at rates in effect when the
particular item was acquired. Income statement
items are translated at the average exchange
rate for the period.
Term Bonds: those bonds for which the entire
principal is due in one payment. Time Period
Assumption: the division of the enterprise's life
span into time periods that can be as short as a
month or a quarter, but rarely longer than a
year.
Time Value of Money: the concept that money
on hand now is worth more than money
received in the future, because money on hand
now can be invested and can earn interest
Trade Accounts Payable: see Accounts
constant function of time and results in an
equal allocation of the asset's cost to each
accounting period of its estimated service life.
Subsidiary: a corporation that is wholly or
partially owned by another company.
Subsidiary Accounts: the backup accounts for
several particular ledger accounts.
Subsidiary Ledger: a ledger which contains
backup or more detailed accounts than does the
general ledger.
Successful Efforts Method: a method by
which only the exploration cost of successful
finds are capitalized into the natural resource
asset account.
Sum-of-the-Years-Digits: one variation of
accelerated depreciation by which the asset's
depreciable base is multiplied by a declining
rate.
Sunk Costs: the costs that have already been
incurred and will not change.
T
T Account: an account that has a T-shaped
from and is used to analyze transaction.
Tangible Assets: those assets that have
physical substance and capabilities, such as
property, plant, equipment, and other similar
productive assets acquired by the company.
Underwriter: brokerage firms, such as Merrill
Lynch, or groups of firms that for a stated
price, purchase the entire stock issue, and
assume the risks involved in marketing the
stock to their clients.
Uniform Partnership Act: this act defines a
partnership as "an association of two or more
person to carry as coowners of a business for a
profit
Units-of-production Method: a method of
depreciation that assumes that the primary
depreciation factor is use rather than the
passage of time, and is appropriate for such
assets as delivery trucks and equipment when
substantial variations in use occur.
Unsecured Bonds: those bonds that are not
secured by collateral or specified assets of the
borrower.
Payable.
Trade Discounts: those discounts offered to a
certain class of buyers. Transactions: the
business events, measured in money, and
recorded in the financial records of a particular
enterprise.
Transferred-in Costs: manufacturing costs
that are incurred when the product is
transferred from one department of the
company to another department in the same
company.
Treasure Stock: the corporation's own stock
that it repurchased.
Trend Analysis: a type of horizontal analysis
that includes more than a single change from
one year to the next, and looks at changes over
a period of time, in order to evaluate emerging
performance.
Trial Balance: a list of the accounts in the
general ledger with their respective debit and
credit balance.
U statements, wherein the appropriate total
Unadjusted Trial Balance: a listing of the
balance of all ledger accounts prior to the
recording of adjusting entries.
Uncollectible Accounts: those receivable that
the firm is unable to collect the full amount due
from the costumer.
Under applied overhead: less overhead is
applied to Work in Process than the actual
overhead cost for the period.
W Working Capital: the current assets minus
Weighted Average Contribution Margin: a
contribution margin based on the relative
proportion of sales for each product line.
Weighted Average Cost Flow Assumption: a
method used in process costing system in
which the units in beginning Work in Process
are treated as if they were started and finished
in the current period.
V
Variable Costs: costs that change in total in
direct proportion to changes in volume or level
of business activity.
Variance: the difference between actual cost
and standard cost
Variance Investigation: an investigation into
why a variance does not fall within an
acceptable range according to management
guidelines. Some criteria for this investigation
include materiality, frequency, controllability,
importance, and statistical techniques.
Verifiability: a qualitative characteristic of an
accounting system: meaning that the data
pertaining to the transaction or event must be
available, and that if two or more qualified
persons examined the same data, they would
reach essentially the same conclusion about
the data's accounting treatment
Vertical Analysis: a technique financial
analysis that is used to evaluate the
relationship within single financial
figure in the financial statement is set to
100%, and other items are expressed as a
percentage of that figure.
Voucher: a written authorization for each
expenditure.
Voucher System: an elaborate, structured
system developed to provide maximum internal
control over all disbursement. The primary
feature of the voucher system in the high
degree of separation of duties.
the current liabilities. Often referred to as net
working capital.
Worksheet: a type of working paper that is
used to aid in the preparation of adjusting
entries and financial statements.
Y
Yield Rate: the actual rate at which the bond is
issued (also called effective rate)