Financial Reporting and Analysis 5e by Gibson

Financial Reporting and Analysis 5e by Gibson is the fifth edition of the Financial Reporting & Analysis: Using Financial Accounting Information textbook authored by Charles H. Gibson, The University of Toledo, Emeritus, and published by South-Western, Cengage Learning in 2013.

• Accelerated Cost Recovery System (ACRS). Depreciation method introduced for tax purposes in 1981 and subsequently modified. See Modified Accelerated Cost Recovery System (MACRS).
• Accelerated depreciation. Any depreciation method in which the charges in earlier periods exceed those in later periods.
• Account. A record used to classify and summarize transactions.
• Accountant. One who performs accounting services.
• Account form of balance sheet. A balance sheet that presents assets on the left-hand side and liabilities and owners' equity on the right-hand side.
• Accounting. The systematic process of measuring the economic activity of an entity to provide useful information to those who make business and economic decisions.
• Accounting changes. A term used to describe the use of a different accounting principle, estimate, or reporting entity than used in a prior year.
• Accounting controls. Procedures concerned with safeguarding the assets or the reliability of the financial statements.
• Accounting cycle. A series of steps used for analyzing, recording, classifying, and summarizing transactions.
• Accounting equation. Assets = Liabilities + Owners' Equity.
• Accounting errors. Mistakes resulting from mathematical errors, improper application of accounting principles, or omissions of material facts.
• Accounting period. The time to which an accounting report is related. The time is usually annual, quarterly, or monthly.
• Accounting policies. The accounting principles and practices adopted by a company to report its financial results.
• Accounting Principles Board (APB). A board established by the AICPA that issued opinions establishing accounting standards during the period 1959–1973.
• Accounting process. The procedures used for analyzing, recording, classifying, and summarizing the information to be presented in accounting reports.
• Accounting Research Bulletins (ARBs). Publications of the Committee on Accounting Procedure of the AICPA that established accounting standards during the years 1939–1959.
• Accounting system. The procedures and methods used to collect and report accounting data.
• Accounts payable. Amounts owed for inventory, goods, or services acquired in the normal course of business.
• Accounts receivable (trade receivables). Monies due on accounts from customers arising from sales or services rendered.
• Accounts receivable aging. A procedure that uses an aging schedule to determine the year-end balance needed in the allowance for uncollectible accounts.
• Accounts receivable factoring. The sale of receivables without recourse for cash to a third party.
• Accrual basis. The accrual basis of accounting dictates that revenue is recognized when realized (realization concept) and expenses are recognized when incurred (matching concept).
• Accrued expenses. Expenses incurred but not recognized in the accounts.
• Accrued liability. A liability resulting from the recognition of an expense before the payment of cash.
• Accrued pension cost. The difference between the amount of pension recorded as an expense and the amount of the funding payment.
• Accrued revenues. Revenues for services performed or for goods delivered that have not been recorded.
• Accumulated benefit obligation (ABO). The present value of pension benefits earned to date based on employee service and compensations to that date.
• Accumulated depreciation. Depreciation allocates the cost of buildings and machinery over the periods of benefits. The depreciation expense taken each period accumulates in the Accumulated Depreciation account.
• Accumulated other comprehensive income. This is reported in the stockholders' equity. Other comprehensive income (loss) might include four items:
  • Unrealized increases (gains) or decreases (losses) in the fair value of investments in available-for-sale securities.
  • Translation adjustments from converting the financial statements of a company's foreign operations into U.S. dollars.
  • Certain gains and losses on "derivative" financial instruments.
  • Certain pension plan gains, losses, and prior service cost adjustments.
• Accumulated postretirement benefit obligation (APBO). The present value of postretirement benefits earned to date based on employee service to that date.
• Acquisition. A business combination in which one corporation acquires control over the operations of another entity.
• Acquisition cost. The amount that includes all of the cost normally necessary to acquire an asset and prepare it for its intended use.
• Acquisitions. Companies that have been acquired.
• Actuarial assumptions. Assumptions about future events based on historic data such as employee turnover, service lives, and longevity that are used to estimate future costs such as pension benefits.
• Actuarial present value. The present value of pension obligations determined by using stated actuarial assumptions and estimates.
• Additional paid-in capital. The investment by stockholders in excess of the stocks' par or stated value as well as invested capital from other sources, such as donations of property or sale of treasury stock.
• Additions. Enlargements and extensions of existing facilities.
• Adjusting entries. Entries made at the end of each accounting period to update the accounts.
• Administrative controls. Procedures concerned with efficient operation of the business and adherence to managerial policies.
• Administrative expense. Expense that results from the general administration of the company's operation.
• Adverse opinion. An audit opinion issued whenever financial statements contain departures from GAAP that are too material to warrant only a qualification. This opinion states that the financial statements do not present fairly the financial position, results of operations, or cash flows of the entity in conformity with GAAP.
• Aging of accounts receivables. A method of reviewing for uncollectible trade receivables by which an estimate of the bad debts expense is determined. The receivable balances are classified into age categories, and then an estimate of noncollection is applied.
• Aging schedule. A form used to categorize the various individual accounts receivable according to the length of time each has been outstanding.
• AICPA. See American Institute of Certified Public Accountants.
• Allowance for funds used during construction (AFUDC). The recording of AFUDC is a utility accounting practice prescribed by the state utility commission. It represents the estimated debt and equity costs of financing construction work in progress. AFUDC does not represent a current source of cash, but under regulatory rate practices, a return on and recovery of AFUDC is permitted in determining rates charged for utility services. Some utilities report the estimated debt and equity costs of financing construction work in progress in separate accounts.
• Allowance for uncollectible accounts. A contra accounts receivable account showing an estimate of the accounts receivable that will not be collected.
• Allowance method. A method of estimating bad debts on the basis of either the net credit sales of the period or the accounts receivable at the end of the period.
• American Accounting Association (AAA). An organization of accounting professors and practicing accountants (http://aaahq.org).
• American Institute of Certified Public Accountants (AICPA). The national professional organization for certified public accountants (www.aicpa.org).
• Amortization. The periodic allocation of the cost of an intangible asset over its useful life.
• Analyze. To evaluate the condition of an accounting-related item and possible reasons for discrepancies.
• Annualize. To extend an item to an annual basis.
• Annual report. A formal presentation containing financial statements and other important information prepared by the management of a corporation once a year.
• Annuity. A series of equal payments (receipts) over a specified number of equal time periods.
• Antidilution of earnings. Assumed conversion of convertible securities or exercise of stock options that results in an increase in earnings per share or a decrease in loss per share.
• Antidilutive securities. Securities whose assumed conversion or exercise results in an increase in earnings per share or a decrease in loss per share.
• Appreciation. An increase in the value of an asset.
• Appropriated retained earnings. A restriction of retained earnings that indicates that a portion of a company's assets are to be used for purposes other than paying dividends.
• Appropriations (government accounting). Budget authorizations of expenditures.
• Arm's-length transaction. Transactions that are conducted by independent parties, each acting in its own self-interest.
• Asset impairment. Condition in which a resource's expected future cash flow is less than its reported book value. The income statement reports losses on impaired assets.
• Assets. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
• Assignment of receivables. The borrowing of money with receivables pledged as security.
• Attestation. Any service performed by a CPA resulting in a written communication that expresses a conclusion about the reliability of a written assertion.
• Audit committee. A committee of the board of directors comprised mainly of outside directors having no management ties to the organization.
• Audit report. The mechanism for communicating the results of an audit.
• Auditing. A systematic process of objectively obtaining and evaluating evidence regarding assertions and communicating the results to interested users.
• Auditor. A person who conducts an audit.
• Authorized stock. The maximum number of shares a corporation may issue without changing its charter with the state.
• Available-for-sale securities. Stocks and bonds that are not classified as either held-to-maturity or trading securities.
• Average cost method (inventory). Averaging methods that lump the costs of inventory to determine an average.
• Bad debt. An account or note receivable that proves to be entirely or partially uncollectible.
• Bad debt expense. An account on the income statement representing estimated uncollectible credit sales for the current accounting period.
• Bad debt recovery. Represents an account receivable previously written off as uncollectible and is now collected.
• Balance. Sum of debit entries minus the sum of credit entries in an account.
• Balance sheet (classified). A form that segregates the assets and liabilities between current and noncurrent.
• Balance sheet (financial position form). A form that deducts current liabilities from current assets to show working capital. The form adds remaining assets and deducts the remaining liabilities to derive the residual stockholders' equity.
• Balance sheet (statement of financial position). The financial statement that shows the financial position of an accounting entity as of a specific date. The balance sheet lists assets, the resources of the firm; liabilities, the debts of the firm; and stockholders' equity, the owners' interest in the firm.
• Balance sheet (unclassified). A form that does not segregate the assets and liabilities between current and noncurrent.
• Balancing equation. Assets = Liabilities + Stockholders' Equity.
• Bankruptcy protection. Legal arrangement in which creditor claims are suspended while a court-appointed trustee reorganizes the bankrupt firm.
• Bargain purchase option. Provision granting the lessee the right, but not the obligation, to purchase leased property at a price that, at the inception date, is sufficiently below the expected fair value of the property at exercise date to provide reasonable assurance of exercise.
• Bargain renewal option. Provision granting the lessee the right, but not the obligation, to renew the lease at a rental that, at inception, is sufficiently below the expected fair rental at exercise date to provide reasonable assurance of renewal.
• Basic earnings per share. The amount of earnings for the period available to each share of common stock outstanding during the reporting period.
• Basis. A figure or value that is the starting point in computing gain or loss.
• Bearer bonds (coupon bonds). Bonds whose ownership is determined by possession and for which interest is paid to the holder (bearer) of an interest coupon.
• Benchmark. In the content of outcomes and performance discussion, the term refers to desired program results. It may include a target or standard for the program to achieve. It is also used to denote best practices.
• BestCalls.com. This site has live broadcasts and recordings of earnings announcements and management interviews (www.bestcalls.com).
• Big bath. The concept that a company expecting to have a series of hits to earnings in future years is better off to try to recognize all of the bad news in one year, leaving future years unencumbered by continuing losses.
• Blue sky laws. State laws that regulate the issuance of securities.
• Board of directors. A body of individuals who are elected by the stockholders to be their representatives in managing the company.
• Bond. A security, usually long-term, representing money borrowed by a corporation. Normally issued with $1,000 face value.
• Bond discount. The difference between the face value and the sales price when bonds are sold below their face value.
• Bond indenture. The contract between the issuing entity and the bondholders specifying the terms, rights, and obligations of the contracting parties.
• Bond issue price. The present value of the annuity interest payments plus the present value of the principal.
• Bond premium. The difference between the face value and the sales price when bonds are sold above their face value.
• Bond refinancing. Issuing new bonds to replace outstanding bonds either at maturity or prior to maturity.
• Bond sinking fund. A fund established by the segregation of assets over the life of the bond issue to pay the bondholders at maturity.
• Bonds (serial). A bond issue that matures in installments.
• Book value. The original cost of an asset less any accumulated depreciation (depletion or amortization) taken to date.
• Book value per share. The dollar amount of the net assets of a company per share of common stock.
• Bottom line. The financial vernacular for net income.
• Budget. A quantitative plan of activities and programs expressed in terms of assets, liabilities, revenues, and expenses.
• Buildings. A structure used in a business operation.
• Business combination. One or more businesses that are merged together as one accounting entity.
• Business entity. The viewpoint that the business (or entity) for which the financial statements are prepared is separate and distinct from the owners of the entity.
• Business document (source document). Business record used as the basis for analyzing and recording transactions; examples include invoices, check stubs, receipts, and similar business papers.
• Calendar year. The accounting year that ends on December 31.
• Call loan (demand loan). Loan repayable on demand.
• Callable bonds. Bonds that a corporation has the option of buying back and retiring at a given price before maturity.
• Callable obligation. A debt instrument payable on demand of the company that issued the obligation.
• Callable preferred stock. Preferred stock that may be redeemed and retired by the corporation at its option.
• Capital. Owners' equity in an unincorporated firm.
• Capital expenditures. Costs that increase the future economic benefits of an asset above those originally expected.
• Capital lease. Long-term lease in which the risk of ownership lies with the lessee and whose terms resemble a purchase or sale; recorded as an asset with a corresponding liability at the present value of the lease payments.
• Capital stock. The portion of the contribution by stockholders assignable to the shares of stock as par or stated value.
• Capital structure. Amount, types, and proportion of an entity's liabilities and shareholders' equity.
• Capitalization. The process of assigning value to a balance sheet account (asset or liability).
• Capitalized interest. Interest added to the cost of a fixed asset instead of being expensed.
• Carrying value. The face of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.
• Cash. The most liquid asset that includes negotiable checks, unrestricted balances in checking accounts, and cash on hand.
• Cash basis accounting. A system of accounting that records revenues when received and expenses when paid.
• Cash dividend. The payment (receipt) of a dividend in cash.
• Cash equivalents. A company's highly liquid short-term investments considered to be cash equivalents and usually classified with cash on the balance sheet.
• Cash flows from financing activities. Cash flows relating to liability and owners' equity accounts.
• Cash flows from investing activities. Cash flows relating to lending money and to acquiring and selling investments and productive long-term assets.
• Cash flows from operating activities. Generally, the cash effects of transactions and other events that determine net income.
• Cash discount (sales discount). A reduction in sales price allowed if payment is received within a specified period, usually offered to customers to encourage prompt payment.
• Cash surrender value. The investment portion of a life insurance policy, payable to the policyholder if the policyholder cancels the policy.
• Certified internal auditor (CIA). Internal auditor who has satisfied the examination requirements of the Institute of Internal Auditors.
• Certified management accountant (CMA). An accountant who has met the admission criteria and demonstrated the competency of technical knowledge in management accounting required by the Institute of Management Accountants.
• Certified public accountant (CPA). An accountant who has received a certificate stating that he or she has met the requirements of state law.
• Change in an accounting estimate. A change in the estimation of the effects of future events.
• Change in an accounting principle. Adoption of a generally accepted accounting principle different from the one used previously for reporting purposes.
• Change in reporting entity. An accounting change that reflects financial statements for a different unit of accountability.
• Chart of accounts. A listing of all accounts used by a company.
• Chief accountant of the SEC. An appointed official of the Securities and Exchange Commission.
• Chief financial officer (CFO). Executive responsible for overseeing the financial operations of an organization.
• Classified balance sheet. A balance sheet that segregates the assets and liabilities as current and noncurrent.
• Closing entries. Temporary account balances that are transferred to the permanent stockholders' equity account, Retained Earnings.
• Collateral. Security for loans or other forms of indebtedness.
• Commercial paper. Short-term obligations or promissory notes, unsecured, interest bearing, with flexible maturities.
• Commitment fee. A fee for committing to holding a credit facility available over a period of time to a borrower.
• Common-size analysis (horizontal). Common-size analysis expresses comparisons in percentages. Horizontal analysis indicates proportionate change over a period of time.
• Common-size analysis (vertical). Common-size analysis expresses comparisons in percentages. Vertical analysis indicates the proportionate expression of each item in a given period to a base figure selected from that same period.
• Common stock (capital stock). The stock representing the most basic rights to ownership of a corporation.
• Common stock equivalent shares. A security that is not in the form of a common stock but that contains provisions that enable its holder to acquire common stock.
• Comparability. For accounting information, the quality that allows a user to analyze two or more companies and look for similarities and differences.
• Comparative statements. Financial statements for two or more periods.
• Compensated absences. Payments to employees for vacation, holiday, illness, or other personal activities.
• Compensating balance requirements. Provisions in loan agreements requiring the borrower to maintain minimum cash balances with the lending institution.
• Compensatory option plans. Stock option plans offered to a select group of employees.
• Compilation. A professional service in which the CPA presents information that is the representation of management without undertaking to express any assurance on the statements.
• Completed-contract method. A method that recognizes revenues on long-term construction contracts only when the contract is completed.
• Complex capital structure. Capital structure that has potentially dilutive securities such as convertible debt, preferred stock, and options.
• Composite depreciation. A depreciation method that aggregates dissimilar assets and computes depreciation for the aggregation based on a weighted average life expectancy.
• Compound interest. The process of earning interest on interest from previous periods.
• Comprehensive income. Net income plus the period's change in accumulated other comprehensive income (accumulated other comprehensive income is a category within stockholders' equity).
• Conglomerates. Complex companies that operate in multiple industries.
• Conservatism. The concept that directs that the measurement with the least favorable effect on net income and financial position in the current period be selected.
• Conservative analysis. This perspective represents a relatively strict interpretation of the value of assets and what constitutes debt.
• Consigned goods. Inventory physically located at a dealer but another company retains title until the consignee sells the inventory.
• Consignment. A transfer of property without a transfer of title and risk of ownership. The recipient of the property (consignee) acts as a selling agent on behalf of the owner (consignor).
• Consistency. The concept requiring the entity to give the same treatment to comparable transactions from period to period.
• Consolidated financial statements. The combined financial statements of a parent company and its subsidiary.
• Constant dollar accounting (price-level accounting). The method of reporting financial statement elements in dollars having similar purchasing power. Constant dollar accounting measures general changes in prices of goods and services.
• Construction-in-process. Fixed asset account in which construction costs are recorded until construction is completed.
• Contingencies. Conditions that may result in gains and losses and that will be resolved by the occurrence of future events.
• Contingent asset. An asset that may arise in the future if certain events occur.
• Contingent liabilities. Liabilities whose payment is dependent on a particular occurrence such as settlement of litigation or a ruling of a tax court.
• Continuing operations. Operations expected to remain active.
• Contra account. An account used to offset a primary account in order to show a net valuation, for example, Accounts Receivable (primary account) less Allowance for Doubtful Accounts (contra account).
• Contributed capital. The sum of the capital stock accounts and the capital in excess of par (or stated) value accounts.
• Contributory pension plan. A pension plan in which employees make contributions to the plan and thus bear part of the cost.
• Control account. The general ledger account that is supported by a subsidiary ledger.
• Controller. The chief accounting officer for a company. This individual usually reports to the chief financial officer (CFO).
• Convertible bonds. Bonds that may be exchanged for other securities of the corporation, usually common stock.
• Convertible preferred stock. Preferred stock that can be converted into common stock.
• Convertible securities. Securities whose terms permit the holder to convert the investment into common stock of the issuing companies.
• Copyright. An exclusive right granted by the federal government to publish and sell literary, musical, and other artistic materials.
• Corporate officers. Senior executive managers of the company identified by title and name.
• Corporation. A separate legal entity having its own rights, privileges, and liabilities distinct from those of its owners.
• COSO. Refers to the Committee of Sponsoring Organizations of the Treadway Commission.
• Cost accounting. Determines product costs and other relevant information used.
• Cost/benefit. The process of determining that the benefit of an act or series of acts exceeds the cost of performing the act(s).
• Cost of goods manufactured. The total cost of goods completed in the manufacturing process during an accounting period.
• Cost of goods sold. Cost of goods available for sale minus ending inventory.
• Cost of goods sold or cost of sales. The cost of goods sold during an accounting period.
• Cost principle. The accounting principle that records historical cost as the appropriate basis of initial accounting recognition of all acquisitions, liabilities, and owners' equity.
• Cost recovery. A revenue recognition method that requires recovery of the total cost prior to the recognition of revenue.
• Coupon rate. The stated interest rate in a bond contract. Also referred to as the nominal, stated, or face rate.
• Covenants. Conditions placed in a loan or credit agreement by the lender to protect its position as a creditor of the borrowing.
• Credit. An entry on the right side of an account.
• Credit agreement. A contractual arrangement between a lender and a borrower that sets the terms and conditions for borrowing.
• Credit ratings. Formal credit risk evaluations by credit rating agencies of a company's ability to repay principal and interest on its debt obligations.
• Credit risk. Uncertainty that the party on the other side of an agreement will abide by the terms of the agreement.
• Creditor. A party who lends money to a company.
• Cumulative effect of change in accounting principle. The effect that a new accounting principle would have had on net income of prior periods if it had been used instead of the old principle.
• Cumulative preferred stock. Preferred stock on which unpaid dividends accumulate over time and must be satisfied in any given year before a dividend may be paid to common stockholders.
• Currency swap. An exchange of two currencies as part of an agreement to reverse the exchange on a specific future date.
• Current assets. Current assets are assets (1) in the form of cash, (2) that will normally be realized in cash, or (3) that conserve the use of cash during the operating cycle of a firm or for one year, whichever is longer.
• Current cost. The current replacement cost of the same asset owned, adjusted for the value of any operating advantages or disadvantages.
• Current liabilities. Obligations whose liquidation is reasonably expected to require the use of existing resources properly classifiable as current assets or the creation of other current liabilities.
• Current market value. The amount of cash, or its equivalent, that could be obtained by selling an asset in an orderly liquidation.
• Current maturity of long-term debt. The portion of a longterm debt payable within the next operating cycle or one year, whichever is longer.
• Current replacement cost. The estimated cost of acquiring the best asset available to undertake the function of the asset owned.
• Current value. The amount of cash, or its equivalent, that could be received by selling an asset currently.
• Debenture bonds. Bonds issued on the general credit of a company.
• Debit. An entry on the left side of an account.
• Debt. Considered to be funds a company has borrowed from a creditor.
• Debt securities. Investments in debt instruments such as commercial paper or bonds.
• Debt service. A term used by bankers, which refers to a borrower's requirement to make payment of the current maturities on outstanding debt.
• Decentralization. The freedom for managers at lower levels of an organization to make decisions.
• Decision usefulness. The overriding quality or characteristic of accounting information.
• Declining-balance method. The declining-balance method applies double the straight-line depreciation rate times the declining book value (cost minus accumulated depreciation) to achieve a declining depreciation charge over the estimated life of the asset.
• Default. A failure of a debtor to meet principal or interest payment on a debt at the due date.
• Default risk. The probability that a company will be unable to meet its obligations.
• Defeasance. A method of early retirement of debt in which risk-free securities are purchased and then placed in a trust account to be used to retire the outstanding debt at its maturity.
• Deferral. Postponement of the recognition of an expense already paid or of a revenue already received.
• Deferred charge. A long-term expense prepayment amortized to expense.
• Deferred expense. An asset resulting from the payment of cash before the incurrence of expense.
• Deferred financing costs, net. An asset account usually classified under other assets; costs associated with the issuance of long-term bonds that have not been amortized.
• Deferred revenue. A liability resulting from the receipt of cash before the recognition of revenue.
• Deferred taxes. A balance sheet account; classified as an asset or a liability depending on the nature of the timing differences. The differences are the result of any situation that recognizes revenue or expense in a different time period for tax purposes than for the financial statements.
• Deficiency. An additional tax liability that the IRS deems to be owed by a taxpayer.
• Deficit. A negative (debit) balance in retained earnings.
• Defined benefit pension plan. A pension plan that defines the benefits that employees will receive at retirement.
• Defined contribution pension plan. A pension plan that specifies the employer's contributions and bases benefits solely on the amount contributed.
• Deflation. A general decrease in prices.
• Demand loan (call loan). Loan repayable on demand.
• Depletion. Recognition of the wearing away or using up of a natural resource.
• Depreciable cost. The cost of a fixed asset less salvage value.
• Depreciation expense. The process of allocating the cost of buildings, machinery, and equipment over the periods benefited.
• Derivative. A financial instrument derived from some other asset, event, or value.
• Derivative instruments. Financial instruments or other contracts in which rights or obligations meet the definitions of assets or liabilities.
• Devaluation. A downward adjustment of the exchange rate between two currencies.
• Diluted earnings per share. The amount of earnings for the period available to each share of common stock outstanding during the reporting period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period.
• Dilution. Refers to the effect on earnings calculations when the number of shares issued increases disproportionately to the growth in the earnings.
• Direct financing type lease. A capital lease in which the lessor receives income only from financing the "purchase" of the leased asset.
• Direct method. For preparing the operating activities section of the statement of cash flows, the approach in which cash receipts and cash payments are reported.
• Direct write-off method. A method of recognizing specific accounts receivable determined to be uncollectible.
• Disbursement. A payment by cash or check.
• Disclaimer of opinion. Inability to render an audit opinion because of lack of sufficient evidence or lack of independence.
• Discontinued operations. The disposal of a major segment of a business.
• Discount on bonds. A bond is issued below its face amount, indicating that the coupon rate is lower than the market rate for similar bonds.
• Discount on notes payable. A contra liability that represents interest deducted from a loan in advance.
• Discount rate. The interest rate used to compute the present value.
• Discounted cash flow (DCF). Measures all expected future cash inflows and outflows as if they occurred at a single point in time.
• Discounted note. A non–interest-bearing note for which the interest charge has been deducted from the principal in advance.
• Discounting. The process of selling a promissory note.
• Discussion memorandum (DM). A document issued by the FASB that identifies the principal issues involved with financial accounting and reporting topics. It includes a discussion of the various points of view as to the resolution of issues but does not reach a specific conclusion.
• Dissolution. Termination of a business.
• Divestitures. Companies that have been disposed of.
• Dividends (cash). Cash payment from current or past income to the owners of a corporation.
• Dividends in arrears. The accumulated unpaid dividends from prior years on cumulative preferred stock.
• Dividends payable. A current liability on the balance sheet resulting from the declaration of dividends by the board of directors.
• Dividends (stock). A percentage of outstanding stock issued as new shares to existing shareholders.
• Dollar-value LIFO. An adaptation of LIFO that measures inventory by total dollar amount rather than by individual units. LIFO increment layers are determined based on total dollar changes.
• Domestic corporation. A company established under U.S. or state law.
• Donated assets. Receipt of assets without being required to give goods or services in return.
• Donated capital. Assets donated to the company by stockholders, creditors, or other parties.
• Double-declining-balance depreciation. A method of calculating depreciation by which a percentage equal to twice the straight-line percentage is multiplied by the declining book value to determine the depreciation expense for the period (salvage value is ignored when calculating).
• Double-entry accounting. A system of recording transactions in a way that maintains the equality of the equationAssets = Liabilities + Stockholders' Equity.
• Dry holes. Wells drilled in which commercial quantities of oil or gas are not found.
• Early extinguishment of debt. The retirement of debt prior to the maturity date.
• Earnings. A term used interchangeably with income and profit.
• Earnings management. The ability of a company's management to select, or "manipulate," its profits.
• Earnings per share. A company's bottom line stated on a per share basis.
• Earnings smoothing. Provides an earnings stream with less variability.
• Economic substance. The "real" nature of a transaction, as opposed to its legal form.
• EDGAR system. The SEC's electronic data-gathering analysis and retrieval system.
• Effective rate of interest. The yield or true rate of interest.
• Effective tax rate. Income taxes expressed as a percentage (income taxes vs. net income before taxes).
• Efficient market hypothesis. A theory to explain the functioning of capital markets in which share prices reflect all publicly available information.
• Emerging Issues Task Force (EITF). A task force of representatives from the accounting profession created by the FASB to deal with emerging issues of financial reporting.
• Employee Retirement Income Security Act (ERISA). A legislative act passed by Congress in 1974 that made significant changes in requirements for employer pension plans. This act has been amended several times since 1974.
• Employee stock ownership plans (ESOPs). A qualified stockbonus, or combination stock-bonus and money purchase, pension plan designed to invest primarily in the employer's securities.
• Enterprise funds (governmental accounting). Funds used to report any activity for which a fee is charged to external users for goods or services.
• Entity assumption. Accounting records are kept for the business entity as distinct from the entity's owners.
• Equipment. Assets used in the production of goods or in providing services.
• Equity. The residual interest in the assets of an entity that remains after deducting its liabilities. Synonymous with the expression shareholders' equity.
• Equity in earnings of nonconsolidated subsidiaries. When a firm has investments in stocks, uses the equity method of accounting, and the investment is not consolidated, then the investor firm reports equity earnings (the proportionate share of the earnings of the investee).
• Equity method. A method to value intercorporate equity investments by adjusting the investor's cost basis for the percentage ownership in the investee's earnings (or losses) and for any dividends paid by the investee.
• Equity-oriented deferred compensation. The amount of compensation cost deferred and amortized to future periods as the services are provided.
• Equity securities. Securities issued by corporations as a form of ownership in the business.
• ERISA. The acronym for the Employee Retirement Income Security Act of 1974.
• Escrow. Money on property put into the custody of a third party for delivery to a grantee after fulfillment of specified conditions.
• Estimated economic life of leased property. The useful life of leased property estimated at inception under conditions of normal maintenance and repairs.
• Estimated liability. An obligation of the entity whose exact amount cannot be determined until a later date.
• Estimated residual value of leased property. The expected fair or market value of leased property at the end of the lease term.
• Estimated useful life. The period of time that a company establishes in order to depreciate a fixed asset.
• Ethics. A set of principles referring to ideals of character and conduct.
• Event. A happening of consequence to an entity.
• Exchange rate. The rate at which one unit of currency may be purchased by another unit of currency.
• Executory costs. Insurance, maintenance, and local and property taxes on leased property.
• Expectations gap. The disparity between users' and CPAs' perceptions of professional services, especially audit services.
• Expenses. Outflows or uses of assets or incurrences of liabilities (or a combination of both) during the process of an entity's revenue-generating operations.
• Exposure draft (ED). A proposed Statement of Financial Accounting Standards.
• External expansion. Occurs as firms take over, or merge with, other existing firms.
• Extinguishment of debt. Get rid of a liability.
• Extraordinary items. Material events and transactions distinguished by their unusual nature and infrequent occurrence.
• Face amount, maturity value. The amount that will be paid on a bond (note) at the maturity date.
• Face rate of interest. The rate of interest on the bond certificate.
• Factor. Selling accounts receivable for cash.
• Fair value. The amount at which an asset (liability) could be bought (incurred) or sold (settled) in a current transaction between willing parties.
• FASB. See Financial Accounting Standards Board.
• Feedback value. An ingredient of relevant accounting information.
• Fiduciary duty. Management's obligation to protect the interests of equity investors.
• Fiduciary funds (governmental accounting). Funds used to report assets held in a trustee or an agency capacity for others.
• FIFO method. An inventory costing method that assigns the most recent costs to ending inventory.
• Financial accounting. Recording and communication of financial information under GAAP.
• Financial Accounting Standards Board (FASB). A body that has responsibility for developing and issuing rules on accounting practice in the United States (www.fasb.org).
• Financial analysis. Describes the process of studying a company's financial report.
• Financial leverage. The amount of debt financing in relation to equity financing.
• Financial news. For a wealth of information about the economy and specific companies and industries (The Wall Street Journal, www.wsj.com; The New York Times, www.nyt.com; Financial Times, www.ft.com; Investor's Business Daily, www.investors.com).
• Financial portals. These sites have financial news, information about companies, and other financial information. There are many such sites. Some popular sites are Microsoft's Money Central (http://money.msn.com/), Yahoo! Finance (http://finance.yahoo.com), and The Street.com (www.thestreet.com).
• Financial Reporting Release (FRR). SEC statement dealing with reporting and disclosure requirements in documents filed with the SEC.
• Financial statement analysis (report analysis). The process of reviewing, analyzing, and interpreting the basic financial reports.
• Financial statements. Generally considered to be the balance sheet, income statement, and statement of cash flows.
• Financial summary. A section of the annual report that provides a 5-, 10-, or 11-year summary of selected financial data.
• Financing activities. Activities concerned with the raising and repayment of funds in the form of debt and equity.
• Finished goods. A manufacturer's inventory that is complete and ready for sale.
• First-in, first-out inventory (FIFO inventory). The flow pattern that assumes that the first unit purchased is the first sold.
• Fiscal year. Any 12-month accounting period used by an economic entity that closes at the end of a month other than December.
• Fixed assets. Tangible, long-lived assets, primarily property, plant, and equipment. They are expected to provide service benefit for more than one year.
• Fixed cost. Cost that remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume.
• Forecasted transaction. A transaction that is expected to occur for which there is no firm commitment.
• Foreclosure. Seizure of collateral by a creditor.
• Foreign Corrupt Practices Act. Legislation intended to increase the accountability of management for accurate records and reliable financial statements.
• Foreign currency. A currency other than the entity's functional currency.
• Foreign currency transactions. Transactions that are settled with a nondomestic currency.
• Foreign exchange rate. Specifies the number of U.S. dollars (from a U.S. perspective) that are needed to obtain one unit of a specific foreign currency.
• Foreign operations. Operational activities that take place in a foreign country.
• Forgery. The act of fabricating or producing something falsely.
• Form 8-K. A special SEC filing required when a material event or transaction occurs between Form 10-Q filing dates.
• Form 10-K. A form that is like an annual report but with more detail. It is provided to the SEC.
• Form 10-Q. An SEC form required to be filed at the end of a company's first, second, and third fiscal year quarters. It contains interim information on a company's operations and financial position.
• Form 20-F. The annual financial report filing with the SEC required of all foreign companies whose debt or equity capital is available for purchase/sale on a U.S. exchange.
• Form S-1. Form filed with the Securities and Exchange Commission listing securities to be traded on a national stock market.
• Form S-4. Form filed with the Securities and Exchange Commission that registers securities used to effect a business combination.
• Form versus substance. Form refers to the legal nature of a transaction or event; substance refers to the economic aspects of the transaction or event.
• Forward contract. Agreement to purchase or sell commodities, securities, or currencies on a specified future date at a specified price.
• Forward exchange rate. A rate quoted currently for the exchange of currency at some future specified date.
• Fractional share. A unit of stock that is less than one full share.
• Franchise. A contractual privilege granted by one person to another permitting the sale of a product, use of trade name, or provision of a service within a specified territory and/or in a specified manner.
• Fraud. Intent to deceive.
• Fraudulent transfer. A transfer of an interest or an obligation incurred by the debtor within one year prior to the date of filing a bankruptcy petition with the intent to defraud creditors.
• Fringe benefit. The compensation or other benefit provided by the employer to the employee at no charge that is above and beyond salary or wages.
• Full-costing method. The method of accounting that capitalizes all costs of exploring for and developing oil and gas reserves within a defined area subject only to the limitation that costs attributable to developed reserves should not exceed their estimated present value.
• Full disclosure. Accounting reports must disclose all facts that may influence the judgment of an informed reader.
• Functional currency. The currency a company uses to conduct its business.
• Fund accounting. Accounting procedures in which a selfbalancing group of accounts is provided for each accounting entity established by legal, contractual, or voluntary action.
• Funded debt. The long-term debt of a business.
• Fund financial statements (governmental accounting). Consist of a series of statements that focus on information about the government's major governmental and enterprise funds, including its blended component units.
• Funding payment. A payment made by the employer to the pension fund.
• Furniture and fixtures. A noncurrent depreciable asset consisting of office or store equipment.
• Future contract. Exchange-traded contract for future acceptance or delivery of a standardized quantity of a commodity or financial instrument on a specified future date at a specified price.
• Future value of an annuity. Amount accumulated in the future when a series of payments is invested and accrues interest.
• Gain or loss on redemption. The difference between the carrying value and the redemption price at the time bonds are redeemed.
• Gains. Profits realized from activities that are incidental to a firm's primary operating activities.
• General fund (governmental accounting). A fund that is used to account for all financial resources not accounted for in another fund.
• General journal. A journal used to record transactions not maintained in special journals.
• General ledger. A record of all accounts used by a company.
• General partnership. An association in which each partner has unlimited liability.
• Generally accepted accounting principles (GAAP). Accounting principles that have substantial authoritative support.
• Generally accepted auditing standards (GAAS). Standards governing the conduct of independent audits of nonpublic companies by CPAs.
• Going concern or continuity. Assumes that the entity being accounted for will remain in business for an indefinite period of time.
• Golden parachute agreement. A highly lucrative contract giving a senior corporate executive monetary or other benefits if his or her job is lost in a merger or an acquisition.
• Goodwill. An intangible asset representing the unrecorded assets of a firm. It appears in the accounting records only if the firm is acquired for a price in excess of the fair market value of its net assets.
• Government-wide financial statements. These financial statements consist of a statement of net assets and a statement of activities. These statements should report all of the assets, liabilities, revenues, expenses, and gains and losses of the government.
• Governmental Accounting Standards Board (GASB). The standards-setting body for governmental accounting and financial reporting.
• Governmental funds. General, special revenue, project, debt service, and special assessment funds; each designed for a specific purpose and used by a state or local government to account for its normal operations.
• Grant date. The date at which an employer and an employee reach a mutual understanding of the key terms and conditions of a share-based payment award.
• Gross profit margin. Gross profit margin equals the difference between net sales revenue and the cost of goods sold.
• Group depreciation. A depreciation method that groups like assets together and computes depreciation for the group rather than for individual assets.
• Guarantee of employee stock ownership plan (ESOPs). An employee stock bonus plan used as a financing vehicle for an employer that borrows money to purchase its own stock. The stock is security for the loan, and the ESOP repays the loan from employer contributions.
• Guaranteed residual value. A guarantee by lessee of a minimum value for the residual value of a leased asset. If the residual value is less than the guarantee, the lessee must pay the difference to the lessor.
• Harmonization of accounting principles. The attempt by various organizations (e.g., the FASB, IASB) to establish a common set of international accounting and reporting standards.
• Hedge. A process of buying or selling commodities, forward contracts, or options for the explicit purpose of reducing or eliminating foreign exchange risk.
• Hedging contract. A contract to buy or sell foreign currencies in the forward market to protect against the risks of foreign exchange rate fluctuations.
• Held-to-maturity securities. Investments in bonds of other companies in which the investor has the positive intent and the ability to hold the securities to maturity.
• Historical cost. The cash equivalent price of goods or services at the date of acquisition.
• Horizontal analysis. A comparison of financial statement items over a period of time.
• Human resource accounting. Attempts to account for the services of employees.
• Hybrid securities. A security that is neither clearly debt nor clearly equity.
• IAS. See International Accounting Standards.
• IASB. See International Accounting Standards Board.
• IFRS. See International Financial Reporting Standards.
• Impairment. A temporary or permanent reduction in asset value.
• Implicit interest rate. The interest rate that would discount the minimum lease payments to the fair market value of the leased asset at the lease signing date.
• Imputed interest rate. A rate of interest applied to a note when the effective rate was either not evident or determinable by other factors involved in the exchange.
• Income smoothing. An accounting practice that attempts to present a stable measure of income (usually an increasing amount).
• Income statement (statement of earnings). A statement that summarizes revenues and expenses.
• Income summary. A temporary account in which revenues and expenses are closed at the end of the year.
• Income taxes. Taxes levied by federal, state, and local governments on reported accounting profit. Income tax expense includes both tax paid and deferred.
• Inconsistency. A change in accounting principle from one period to the next, requiring an explanatory paragraph following the opinion paragraph of the auditor's report.
• Incorporated. A legal state of existence signifying that a corporate entity has been recognized.
• Incorporation by reference. Direction of the reader's attention to information included in a source other than the Form 10-K, rather than reporting such information in Form 10-K.
• Incremental borrowing rate. The interest rate at which the lessee could borrow the amount of money necessary to purchase the leased asset, taking into consideration the lessee's financial situation and the current conditions in the marketplace.
• Indentures. Provisions and restrictions attached to a bond that make the bond more attractive for investors.
• Indexed bond. An obligation with interest payments tied to an inflation index.
• Indirect cost. An expense that is difficult to trace directly to a specific costing object.
• Indirect method. For preparing the operating activities section of the statement of cash flows, the approach in which net income is reconciled to net cash flow from operations.
• Industry practices. Practices leading to accounting reports that do not conform to the general theory that underlies accounting.
• Industry ratios. Financial ratios for a particular industry.
• Industry segment. A component of an organization providing a product or related products (or services) to outside parties.
• Inflation. An increase in the general price level of goods and services.
• Information overload. Amount of data that unnecessarily complicates analysis.
• Initial direct costs. Costs such as commissions, legal fees, and preparation of documents that are incurred by the lessor or negotiating and completing a lease transaction.
• Initial public offering (IPO). The first or initial sale of voting stock to the general market by a previously privately held concern.
• Insolvent. A condition in which a company is unable to pay its debts.
• Installment method. The method in which revenue is recognized at the time cash is collected.
• Installment sales. A type of sale that requires periodic payments over an extended length of time.
• Institute of Management Accountants (IMA). An organization of management accountants concerned with the internal use of accounting data.
• In-substance defeasance of debt. The debtor irrevocably places cash or other assets in a trust to be used solely for satisfying the payments of both interest and principal on a specific debt obligation.
• Intangibles. Nonphysical assets, such as legal rights, recorded at historical cost, then reduced by systematic amortization.
• Intercompany profit. The profit resulting when one related company sells to another related company.
• Intercompany receivables and payables. Receivables and payables among a parent company and its subsidiary(ies).
• Interest. The cost for the use of money. It is a cost to the borrower and revenue to the lender.
• Interest-bearing note. A debt instrument (note) that pays
• Interest at a stated rate for a stated period..
• Interest rate. A rate, usually expressed as a percentage per annum, charged on money borrowed or lent.
• Interest rate risk. Uncertainty about future interest rates and their impact on future cash flows as well as on the fair value of existing assets and liabilities.
• Interest rate swaps. An agreement to exchange variable rate interest payments based on a specific index for a fixed rate or a variable rate stream of payments based on another index.
• Interim reports. Financial reports that cover fiscal periods of less than one year.
• Internal auditing. The department responsible in a company for the review and appraisal of its accounting and administrative controls.
• Internal control. The process effected by an entity to provide reasonable assurance regarding the achievement of objectives.
• It consists of three parts—operations controls, financial reporting controls, and compliance controls..
• Internal event. An event occurring entirely within an entity.
• Internal financing. Financing provided from cash generated from business operations.
• Internal reporting. Represents financial data or other information accumulated by one individual to be communicated to another within the business entity.
• Internal Revenue Service (IRS). U.S. government agency responsible for administering U.S. income tax rules.
• International Accounting Standards (IAS). The accounting standards adopted by the IASC and later by the IASB.
• International Accounting Standards Board (IASB). Established in January 2001 to replace the IASC. The new structure has characteristics similar to that of the FASB. The IASB sets global financial accounting and reporting standards (www.ifrs.org/Home.htm).
• International Accounting Standards Committee (IASC). An organization established in 1973 by the leading professional groups of the major industrial countries.
• International Federation of Accountants (IFAC). An association of professional accounting organizations founded in 1977.
• International Financial Reporting Standards. Standards issued by the International Accounting Standards Board (IASB).
• Interperiod. Of or related to more than one reporting period.
• Interperiod tax allocation. The process of allocating the taxes paid by a company over the periods in which the taxes are recognized for accounting purposes.
• Intraperiod. Of or related to one reporting period.
• Intrinsic value method. Method of accounting for stock-based compensation in which the difference between the exercise price and the market price per share at the grant date is used to measure compensation expense.
• Introductory paragraph. The first paragraph of the standard audit report, which identifies the financial statements covered by the audit report and clearly differentiates management's responsibility for preparing the financial statements from the auditor's responsibility for expressing an opinion on them.
• Inventories. The balance of goods on hand.
• Inventory-lower-of-cost-or-market rule (LCM rule). An inventory pricing method that prices the inventory at an amount below cost if the replacement (market) value is less than cost.
• Investing activities. Describes a firm's uses of cash to acquire other assets. A category shown on the cash flow statement.
• Investments. Usually stocks and bonds of other companies held for the purpose of maintaining a business relationship or exercising control. To be classified as long term, it must be the intent of management to hold these assets as such. Long-term investments are differentiated from marketable securities, where the intent is to hold the assets for short-term profits and to achieve liquidity.
• Investors. Owners and potential owners of a company.
• Invoice. Form sent by the seller to the buyer as evidence of a sale.
• Issued stock. The shares of stock sold or otherwise transferred to stockholders.
• Joint venture. An association of two or more businesses established for a special purpose; some in the form of partnerships and unincorporated joint ventures; others in the form of corporations jointly owned by two or more other firms.
• Journalizing. The act of recording journal entries.
• Journals. Initial recordings of a company's transactions.
• Junk bonds. High-risk, high-yield bonds issued by companies in a weak financial condition.
• Kiting. A type of misrepresentation fraud used to conceal bank overdrafts or cash misappropriations.
• Labor intensive. Activities, companies, and industries that are dominated by human effort.
• Land. Realty used for business purposes. It is shown at acquisition cost and not depreciated. Land containing resources that will be used up, however, such as mineral deposits and timberlands, is subject to depletion.
• Land improvements. Expenditures incurred in the process of putting land into a usable condition, for example, clearing, grading, paving.
• Lapping. A form of concealment that involves crediting current customer remittances to the accounts of customers who have remitted previously.
• Last-in, first-out inventory (LIFO inventory). The flow pattern that assumes that those units purchased last are sold first.
• Lease. An agreement conveying the right to use property, plant, or equipment (land and/or depreciable assets) for a stated period of time.
• Lease improvement. An improvement to leased property that becomes the property of the lessor at the end of the lease.
• Lease term. The noncancelable period of a lease designated in the lease contract plus the period of any bargain renewal periods over which the lease is likely to be renewed.
• Leasehold. A payment made to secure the right to a lease.
• Ledger. Summarizes the effects of transactions upon individual accounts.
• Lessee. The party to a lease who acquires the right to use the property, plant, and equipment.
• Lessor. The party to a lease giving up the right to use the property, plant, and equipment.
• Letter to the shareholders. A section of the annual report that presents a message from the company's chairman of the board or president.
• Leverage. The use of borrowed funds and amounts contributed by preferred stockholders to earn an overall return higher than the cost of these funds.
• Leveraged buyout (LBO). A purchase of a company where a substantial amount of the purchase price is debt financed.
• Liabilities. Future sacrifices of economic benefits arising from present obligations to other entities.
• License. Rights to engage in a particular activity.
• Life cycle. Progression of a product, company, or industry from inception, through growth, to maturity, and into decline.
• LIFO conformity rule. A federal tax regulation that requires the use of LIFO for financial reporting purposes if LIFO is used for income tax purposes.
• LIFO inventory pool. A group of inventory items having common characteristics and assumed to be the same when applying LIFO.
• LIFO layer. An incremental group of LIFO inventory items created in any year in which the number of units purchased or produced exceeds the number sold.
• LIFO liquidation. The reduction or elimination of old LIFO layers because total purchases or production in the current period is less than sales.
• LIFO method. An inventory method that assigns the most recent costs to the cost of goods sold.
• LIFO reserves (LIFO valuation adjustment). The amount that would need to be added back to the LIFO inventory in order for the inventory account to approximate current cost.
• Limited liability. The concept that stockholders in a corporation are not held personally liable.
• Line of credit. A prearranged loan allowing borrowing up to a certain maximum amount.
• Liquid assets. Current assets that either are in cash or can be readily converted to cash.
• Liquidating dividend. A dividend that exceeds the balance in retained earnings.
• Liquidation. The process of selling off the assets of a business, paying any outstanding debts, and distributing any remaining cash to the owners.
• Liquidity. The nearness to cash of the assets and liabilities.
• Listed company. A company whose shares or bonds have been accepted for trading on a securities exchange.
• Loan covenant. Provision of a loan contract restricting the actions of the borrower or allowing for some monitoring of the borrower's actions.
• Loan defaults. Violations of loan agreements that could result in loan principal and interest becoming immediately due.
• Loan amortization (mortgage amortization). The process by which payments on a loan are allocated between principal and interest components.
• Loan restructuring. Revision of loan terms in a manner mutually acceptable to the lender and borrower.
• Long-term liabilities. Long-term liabilities are those due in a period exceeding one year or one operating cycle, whichever is longer.
• Loss on sale of asset. The amount by which selling price is less than book value.
• Losses. Losses realized from activities that are incidental to a firm's primary activities.
• Lower of cost or market. A method to value inventories and marketable securities.
• Machinery. An asset listed at historical cost, including delivery and installation, plus any material improvements that extend its life or increase the quantity or quality of service; depreciated over its estimated useful life.
• Maintenance. Expenditures made to maintain plant assets in good operating condition.
• Management accounting. The branch of accounting concerned with providing management with information to facilitate planning and control.
• Management report. Management statements to shareholders that acknowledge management's responsibility for the preparation and integrity of financial statements.
• Management's discussion and analysis (MD&A). Part of the annual report package required by the Securities and Exchange Commission. Management comments on the results of operations, liquidity, and capital resources for the years under review in the financial statements.
• Market capitalization. Total value of an entity's outstanding shares at a point in time which reflects the value investors place on a company. It is computed by multiplying the number of common shares outstanding by the share price.
• Market value (stock). The price investors are willing to pay for a share of stock.
• Marketable securities. Ownership and debt instruments of the government and other companies that can be readily converted into cash.
• Matching. The concept that determines the revenue and then matches the appropriate cost incurred in generating this revenue.
• Materiality. The concept that exempts immaterial items from the concepts and principles that bind the accountant, and allows these items to be handled in the most economical and expedient manner possible.
• Maturity date. Date on which the principal of a note becomes due.
• Maturity value. The amount of cash the maker is to pay the payee on the maturity of the note.
• Merchandise inventory. The account wholesalers and retailers use to report inventory held for sale.
• Merger. A combination of one or more companies into a single corporate entity.
• Minimum lease payments. The lease payments required over the lease term plus any amount to be paid for the residual value through either a bargain purchase option or a guarantee of residual value.
• Minority interest (balance sheet account). The ownership of minority shareholders in the equity of consolidated subsidiaries that are less than wholly owned.
• Minority share of earnings. The portion of income that belongs to the minority owners of a firm that has been consolidated.
• Misappropriation. The fraudulent transfer of assets from the firm to one or more employees.
• Modified Accelerated Cost Recovery System (MACRS). The accelerated cost recovery system as revised by the Tax Reform Act of 1986.
• Monetary assets. Cash and other assets that represent the right to receive a specific amount of cash.
• Monetary liabilities. Accounts payable and other liabilities that represent the obligation to pay a specific amount of cash.
• Monetary unit. The unit used to measure financial transactions.
• Mortgage. A loan backed by an asset with the asset title pledged to the lender.
• Mortgage payable. A liability secured by real property.
• Moving average. The name given to an average cost method when it is used with a perpetual inventory system.
• Multinational enterprise. Entity engages in transnational business activities.
• Multiple-step income statement. Form of the income statement that arrives at net income in steps.
• Municipal debt. Debt securities issued by state, county, and local governments and their agencies.
• NASDAQ (OTC). The National Association of Securities Dealers Automated Quotations. Represents a computerized communication network that handles the securities transactions of the over-the-counter market (www.nasdaq.com).
• Natural business year. A 12-month period ending on a date that coincides with the end of an operating cycle.
• Natural resources. Assets produced by nature such as petroleum, minerals, and timber.
• Negative goodwill. Term used to describe the amount paid for another company that is less than the fair value of the company's net identifiable assets.
• Negligence. An accountant's failure to conduct an audit with "due care."
• Negotiable notes. Notes that are legally transferable by endorsement and delivery.
• Net assets. Total assets less total liabilities (equivalent to shareowners' equity).
• Net income. Amount by which total revenues exceed total expenses. The bottom line on the income statement.
• Net of tax. Indicates that expected tax effects have already been considered as part of a particular calculation or figure. Indicates that taxes have been deducted from a particular financial component.
• Net operating loss carryback. When tax-deductible expenses exceed taxable revenues, a company may carry the net operating loss back three years and receive refunds for income taxes paid in those years.
• Net operating loss carryforward. When tax-deductible expenses exceed taxable revenues, a company may carry an operating loss forward and offset future taxable income.
• Net periodic pension expense. The amount recognized in an employer's financial statements as an expense of a pension plan for a period.
• Net realizable value. The nondiscounted amount of cash, or its equivalent, into which an asset is expected to be converted less direct costs necessary to make that conversion.
• Net sales. Gross sales revenue less any allowances or discounts.
• Net worth. Synonymous with shareholders' equity.
• Neutrality. A qualitative characteristic of accounting information that involves the faithful reporting of business activity without bias to one or another view.
• New York Stock Exchange (NYSE). The world's largest securities exchange (www.nyse.com).
• Nominal accounts. The name given to revenue, expense, and dividend accounts because they are temporary and are closed at the end of the period.
• Noncancelable. A lease contract that can be canceled only under very unlikely circumstances or with extremely expensive penalties to the lessee.
• Noncash investing and financing activities. A category of investing and financing activities that does not involve cash flows.
• Noncontributory pension plans. Plans in which the employer bears the total cost of the plan.
• Noncontrolling interest (balance sheet account). Noncontrolling interest reflects the ownership of noncontrolling shareholders in the equity of consolidated subsidiaries less than wholly owned.
• Noncontrolling interest in earnings. The portion of income that belongs to the minority owners of a firm that has been consolidated.
• Noncumulative preferred stock. Preferred stock that has no claim on any prior-year dividends that may have been "passed."
• Noncurrent or long-term assets. Assets that do not qualify as current assets. In general, they take longer than a year to be converted to cash or to conserve cash in the long run.
• Nondetachable warrants. Stock warrants that cannot be traded separately from the security with which they were originally issued.
• Nonprofit accounting. Accounting policies, procedures, and techniques employed by nonprofit organizations.
• Nonpublic company. A company whose equity or debt securities are not publicly traded on a stock exchange or in the over-the-counter market.
• Nonrecurring. Earnings that do not represent the normal, recurring earnings from operations.
• Nontrade notes payable. Notes issued to nontrade creditors for purposes other than to purchase goods or services.
• Nontrade receivables. Any receivables arising from transactions that are not directly associated with the normal operating activities of a business.
• Not sufficient funds check (NSF check). A check that is not honored by a bank because of insufficient cash in the maker's account.
• Note. A written promise to pay signed by the debtor.
• Note payable. Payables in the form of a written promissory note.
• Note receivable. An asset resulting from the acceptance of a promissory note from another company.
• Notes. Present additional information on items included in the financial statements and additional financial information.
• Notes to the financial statements. Information that clarifies and extends the material presented in the financial statements with narrative and detail.
• Objective acceleration clause. A clause in a debt agreement that identifies specific conditions that will cause the debt to be callable immediately.
• Objectivity. Represents freedom from subjective valuation and bias in making an accounting decision.
• Obsolescence. This represents a major factor in depreciation, resulting from technological or market changes.
• Off-balance-sheet financing. Refers to a company taking advantage of debt-like resources without these obligations appearing as debt on the face of the balance sheet.
• On account. Purchases or sales on credit.
• Operating activities. One of three major categories included in a statement of cash flows; includes transactions and events that normally enter into the determination of net income, including interest and taxes.
• Operating cycle. The period of time elapsing between the acquisition of goods and the final cash realization resulting from sales and subsequent collections.
• Operating expenses. Consist of two typesselling and administrative. Selling expenses result from the company's effort to create sales. Administrative expenses relate to the general administration of the company's operation.
• Operating lease (lessee). Periodic payment for the right to use an asset, recorded in a manner similar to the recording of rent expense payments.
• Opportunity cost. This represents revenue forfeited by rejecting an alternative use of time or facilities.
• Option. A financial instrument that conveys to its owner the right, but not the obligation, to buy or sell a security, commodity, or currency at a specific price over a specified time period or at a specific date.
• Organization costs. The costs of forming a corporation.
• Organizational costs. The legal costs incurred when organizing a business; carried as an asset and usually written off over a period of five years or longer.
• Original entry. Represents recording a business transaction in a journal.
• Other assets. Represents a balance sheet category for minor assets not classified under the typical headings.
• Other income and expenses. Income and expenses from secondary activities of the firm not directly related to the operations.
• Outstanding shares. The number of authorized shares of capital stock sold to stockholders that are currently in the possession of stockholders (issues shares less treasury shares).
• Owners' equity (stockholders' equity, shareholders' equity). The residual ownership interest in the assets of an entity that remains after deducting its liabilities.
• Paid-in capital in excess of par value (or stated value). The proceeds from the sale of capital stock in excess of the par value (or stated value) of the capital stock.
• Par value. An amount set by the firm's board of directors and approved by the state. (The par value does not relate to the market value.)
• Parent. Tax term applied to the buyer company in a business combination.
• Parent company. A company that owns a controlling interest in another company.
• Participating preferred stock. Preferred stock that provides for additional dividends to be paid to preferred stockholders after dividends of a specified amount are paid to common stockholders.
• Partnership. An unincorporated business owned by two or more individuals.
• Patent. Exclusive legal rights granted to an inventor for a period of 20 years.
• Payables (trade). Short-term obligations created by the acquisition of goods and services, such as accounts payable, wages payable, and taxes payable.
• Payee. The party that will receive the money from a promissory note at some future date.
• Pension Benefit Guaranty Corporation. A U.S. government agency that insures the pension benefits of workers.
• Pension fund. A fund established through contributions from an employer and sometimes from employees that pays pension benefits to employees after retirement.
• Pension plan. An arrangement whereby an employer provides benefits (payments) to employees after they retire for services they provided while they were working.
• Pension plan—contributory. A pension plan in which the employees bear part of the cost of the stated benefits or voluntarily make payments to increase their benefits.
• Pension plan—funded. A pension plan in which the employer sets funds aside for future pension benefits by making payments to a funding agency that is responsible for accumulating the assets of the pension fund and for making payments to the recipients as the benefits become due.
• Pension plan—noncontributory. A pension plan in which the employer bears the entire cost.
• Pension plan—qualified. A pension plan in accord with federal income tax requirements that permits deductibility of the employer's contributions to the pension fund and tax-free status of earnings from pension fund assets.
• Percentage-of-completion method. A revenue recognition method that recognizes profit each period during the life of the contract in proportion to the amount of the contract completed during the period.
• Period cost. Cost that is recognized as an expense during the period in which it is incurred.
• Periodic inventory method. A method of accounting for inventory that determines inventory at the end of the period.
• Permanent accounts. All balance sheet accounts.
• Permanent differences. Nondeductible expenses or nontaxable revenues that are recognized for financial reporting purposes but that are never part of taxable income.
• Perpetual inventory method. A method of accounting for inventory that records continuously the sales and purchases of individual items of inventory.
• Personal financial statements. Financial statements of individuals, husband and wife, or a larger family group.
• Petty cash (fund). Small quantity of funds kept on hand for incidental expenditures requiring quick cash.
• Pledging. Using assets as collateral for a bank loan.
• Pooling of interest. A method of accounting for a business combination that combines all asset, liability, and stockholders' equity accounts.
• Post-balance sheet event. Event occurring between the balance sheet date and the date financial statements are issued and made available to external users (also called subsequent event).
• Posting. Transcribing the amounts from journal entries into the general ledger.
• Postretirement benefits other than pensions. Benefits other than pensions that accrue to employees upon retirement, such as medical insurance and life insurance contracts.
• Predictive value. Helps a decision maker predict future consequences based on information about past transactions and events.
• Preferred stock. Stock that has some preference over common stock.
• Premium. An amount paid in excess of the face value of a security (stock or bond).
• Prepaid. An expenditure made in advance of the use of the service or goods.
• Present value consideration. The characteristic that money to be received or paid out in the future is not worth as much as money available today. Accountants consider the time value of money when preparing the financial statements for such areas as long-term leases, pensions, and other long-term situations in which the future payments or receipts are not indicative of the present value of the asset or the obligation.
• Present value factor. Using multiplication, converts a future value to its present value.
• Present value of an annuity. The amount at a present time that is equivalent to a series of payments and interest in the future.
• Primary earnings per share. Net income applicable to common stock divided by the sum of the weighted-average common stock and common stock equivalents.
• Prime loan. A type of loan that is offered at a rate considered to be prime to individuals who qualify for a prime rate loan (considered to be a high-quality loan).
• Principal. The original or base amount of a loan or an investment.
• Prior-period adjustments. Reported as restatements of retained earnings. They include corrections of errors of prior periods, a change in accounting entity, certain changes in accounting principles, and adjustments that result from the realization of income tax benefits of preacquisition operating loss carryforwards of purchased subsidiaries.
• Prior service cost. When a defined pension plan is adopted or amended, credit is often given to employees for years of service provided before the date of adoption or amendment. The cost of taking on this added commitment is called the prior service cost.
• Privatization. The sale of all or part of a previously government-controlled entity to the general public.
• Pro-forma amount. Hypothetical or projected amount. Synonymous with "what-if" analyses. Pro-forma statements indicate what would have happened under specified circumstances.
• Productive-output depreciation. A depreciation method in which the depreciable cost is divided by the total estimated output to determine the depreciation rate per unit of output.
• Profitability. The relative success of a company's operations.
• Projected benefit obligation (PBO). The present value of pension benefits earned to date based on past service and an estimate of future compensation levels for pay-related plans.
• Promissory note. A formal written promise to pay a certain amount of money at a specified future date.
• Property dividend. A dividend in a form of an asset other than cash.
• Property, plant, and equipment. Tangible assets of a long-term nature used in the continuing operation of the business.
• Proportionate consolidation. A method of consolidating the financial results of a parent company and its subsidiary in which only the proportion of net assets owned by the parent are consolidated.
• Proprietary funds (governmental accounting). Funds used to report assets held in a trustee or an agency capacity for others.
• Proprietorship. A business owned by one person. The owner and business are not separate legal entities but are separate accounting entities.
• Prospectus. A document describing the nature of a business and its recent financial history.
• Proxy. A legal document granting another party the right to vote for a shareholder on matters involving a shareholder vote.
• Proxy statement. Information provided in a formal written form to shareholders prior to a company's regular annual meeting.
• Public company. A company whose voting shares are listed for trading on a recognized securities exchange or are otherwise available for purchase by public investors.
• Public Company Accounting Oversight Board (PCAOB). The PCAOB is a regulatory body created by the Sarbanes-Oxley Act of 2002. It regulates audits of SEC registrants. The PCAOB operates under the U.S. Securities and Exchange Commission. It has the authority for registration, inspection, and discipline of firms auditing SEC registrants and sets standards for public company audits (www.pcaobus.org).
• Purchase accounting. The assets and liabilities of an acquired company accounted for on the books of the acquiring company at their relative fair market values to the acquiring company at the date of acquisition.
• Put option. Contract giving the owner the right, but not the obligation, to sell an asset at a specified price.
• Qualified opinion. An audit opinion rendered under circumstances of one or more material scope restrictions or departures from GAAP.
• Qualitative characteristics. Standards for judging the information accountants provide to decision makers; the primary criteria are relevance and reliability.
• Quarterly statements. Interim financial statements on a quarterly basis.
• Quasi-reorganization. An accounting procedure equivalent to an accounting fresh start. A company with a deficit balance in retained earnings "starts over" with a zero balance rather than a deficit. A quasi-reorganization may also include a restatement of the carrying values of assets and liabilities to reflect current values.
• Ratio analysis. A comparison of relationships among account balances.
• Raw materials. Goods purchased for direct use in manufacturing that become part of the product.
• Real accounts. The name given to balance sheet accounts because they are permanent and are not closed at the end of the period.
• Realization (revenue recognition). A concept that generally recognizes revenue when (1) the earning process is virtually complete and (2) the exchange value can be objectively determined.
• Receivables. Claims arising from the selling of merchandise or services on account to customers are referred to as trade receivables. Other claims may be from sources such as loans to employees or a federal tax refund.
• Recognition. Recording a transaction on the accounting records.
• Recourse. The right of one company to collect money from another company in the event that a third party fails to pay its obligation to the first company.
• Redeemable preferred stock. Preferred stock subject to mandatory redemption requirements, or with a redemption feature that is outside the control of the issuer.
• Registrar. An independent agent that maintains a record of the number of a company's shares of capital stock that have been issued and to whom.
• Relevance. Qualitative characteristic requiring that accounting information bear directly on the economic decision for which it is to be used; one of the primary qualitative characteristics of accounting information.
• Reliability. Qualitative characteristic requiring that accounting information be faithful to the original data and that it be neutral and verifiable; one of the primary qualitative characteristics of accounting information.
• Repairs. Expenditures made to restore assets to good operating condition upon their breakdown or to restore and replace broken parts.
• Replacement cost. The cost to reproduce or replace an asset.
• Report form of balance sheet. A balance sheet presentation that presents assets, liabilities, and stockholders' equity in a vertical format.
• Reporting currency. The currency used to measure and report.
• Representational faithfulness. The agreement of information with what it is supposed to represent.
• Research and Development (R&D). Funds spent to improve existing products and develop new ones.
• Reserves. Accounts classified under liabilities resulting from an expense to the income statement and an equal increase in the reserve account on the balance sheet. These reserve accounts do not represent definite commitments to pay out funds in the future, but they do represent an estimate of funds that will be paid out in the future.
• Residual value (salvage value). The estimated net scrap or trade-in value of a tangible asset at the date of disposal.
• Restrictive covenants. Limitations imposed by a creditor on a debtor's actions. Covenants are often based on accounting measurements of assets, liabilities, and/or income.
• Restructure. The term used to describe corporate downsizing and refocus of operations.
• Retail inventory method. An inventory method that converts the retail value of inventory to an estimated cost.
• Retained earnings. The undistributed earnings of a corporation consisting of the net income for all past periods minus the dividends that have been declared.
• Retained earnings restricted. The amount of retained earnings that has been restricted for specific purposes.
• Retroactively. The method of accounting for accounting principle changes whereby past years' financial statements are restated to reflect the use of the new method.
• Revenue recognition. A basic accounting concept that is applied to determine when revenue should be recognized (recorded). Generally, under this principle, revenues are recognized when two criteria are met; the earnings process is substantially complete, and the revenues are realized, or realizable.
• Revenues. Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.
• Risk. The uncertainty surrounding estimates of future cash flows.
• Royalties. Payment for a right over some natural resource or payment to an author or composer.
• S Corporation. A corporation which is not subject to federal income taxes. (Taxable income is passed through to its stockholders.)
• Sale and leaseback. Sale of an asset with the purchaser concurrently leasing the asset to the seller.
• Sales discounts. Contra-revenue account used to record discounts given to customers for early payment of their accounts.
• Sales or revenues. Income from the sale of goods or services and lease or royalty payments.
• Sales returns and allowances. Contra-revenue account used to record both refunds to customers and reduction of their accounts.
• Sales-type lease. A capital lease that generates two income streams: one from the sale of the asset and a second from the financing of the asset.
• Salvage value (residual value). The estimated net scrap or trade-in value of a tangible asset at the date of disposal.
• Scope paragraph. That paragraph of the audit report that tells what the auditor did. Specifically, it states whether or not the audit was conducted in accordance with GAAS.
• SEC EDGAR database. Contains electronic copies of SEC filings by publicly traded companies (www.edgar-online.com and www.tenkwizard.com).
• Secured bonds. Bonds for which assets are pledged to guarantee repayment.
• Secured loan. A loan backed by certain assets as collateral.
• Securities Act of 1933. A federal statute governing the registration of new securities issues traded in interstate commerce.
• Securities Act of 1934. A federal statute establishing recurring reporting requirements for public companies once their securities have been registered with the SEC.
• Securities and Exchange Commission (SEC). An agency of the federal government that has the legal power to set and enforce accounting practices (www.sec.gov).
• Segment reporting (product segment information). When operations are diversified, the firm may report results on a segmented basis.
• Self-insurance. A coverage borne by the person or company itself against the risk of loss that may occur if property is destroyed or damaged from some cause.
• Selling expenses. Result from the company's efforts to create sales.
• Senior debt. Debt obligations that would have a prior claim over junior debt and equity holders on the assets of a company in liquidation.
• Serial bonds. Bonds that do not all have the same due date; a portion of the bonds comes due each time period.
• Service cost. A component of net periodic pension expense representing the actuarial present value of benefits accruing to employees for services rendered during that period.
• Service lives. Working years of employees prior to retirement, as used in accounting for postretirement benefit obligations.
• Short selling. A technique used by investors who try to profit from the falling price of a stock.
• Short selling (naked). The short seller sells shares without owning them. Later these shares are purchased and delivered.
• Short-term debt. Represents money payable by the debtor to the creditor within one year.
• Shrinkage. The amount of inventory that is lost, stolen, or spoiled.
• Simple capital structure. A corporate structure that includes only common and nonconvertible preferred stock and has no convertible securities, stock options, warrants, or other rights outstanding.
• Simple interest. Interest computed on the principal amount only.
• Single-employer pension plans. Pension plans established for a single employer.
• Single-step income statement. Form of the income statement that arrives at net income in a single step.
• Sinking fund. An accumulation of cash or securities in a special fund dedicated to paying, or redeeming, an issue of bonds or preferred stock.
• Social accounting. Attempts to account for the benefits to the social environment within which the firm operates.
• Sole proprietorship. A business with a single owner.
• Solvency. The ability of a company to remain in business over the long term.
• Special journal. An accounting record used to list a particular type of frequently recurring transaction.
• Specific identification (inventory). Identifies the items in inventory as coming from specific purchases.
• Spinoff. A parent company transfers a portion of a subsidiary's stock as other assets to its stockholders.
• Staff accounting bulletin (SAB). Accounting interpretations made by the staff of the SEC. SABs do not necessarily represent official positions of the SEC.
• Stakeholders. All parties interested in the performance of a company.
• Standard audit report. The form of audit report recommended by the Auditing Standards Board of the AICPA. This report is rendered at the conclusion of an audit in which the auditor encountered no material scope limitations, and the financial statements conform to GAAP in all material respects.
• Stated rate (contract rate). The rate of interest printed on a bond.
• Stated value. A value assigned by a company's board of directors to no-par stock.
• Statement of cash flows. A statement that provides detailed information on cash flows resulting from operating, investing, and financing activities.
• Statement of owners' equity (statement of shareholders' equity). An accounting statement describing transactions affecting the owners' equity.
• Statement of retained earnings. A summary of the changes to retained earnings for an accounting period.
• Statements of financial accounting concepts (SFACs). Statements issued by the Financial Accounting Standards Board that provide the Board with a common foundation and basic reasons for considering the merits of various alternative accounting principles.
• Statements of financial accounting standards (SFASs). Statements that establish generally accepted accounting principles (GAAP) for specific accounting issues.
• Statements of position (SOPs). Statements issued by the Accounting Standards Division of the AICPA to influence the development of accounting standards.
• Stock appreciation rights. Give the holder the right to receive compensation at some future date based on the market price of the stock at the date of exercise over a preestablished price.
• Stock certificate. A document issued to a stockholder indicating the number of shares of stock owned.
• Stock dividend. A dividend in the form of additional shares of a company's stock.
• Stock options. Allow the holder to purchase a company's stock at favorable terms.
• Stock rights. Rights issued to existing shareholders to buy shares of stock in order to maintain their proportionate ownership interests.
• Stock split. Increase in the number of shares of a class of capital stock, with no change in the total dollar amount of the class, but with a converse reduction in the par or stated value of the shares.
• Stockholder (shareholder). The owner of one or more shares of stock in an incorporated business.
• Stockholders' equity (shareholders' equity). Total owners' equity of a corporation.
• Straight-line amortization of bonds. Writes off an equal amount of bond premium or discount each period.
• Straight-line method. A method of depreciation that allocates the cost of a tangible asset in a constant over the life of the asset.
• Sub prime loan. A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans (considered to be a high-risk loan).
• Subordinated debt. A form of long-term debt that is "junior," or in a secondary position vis-à-vis the claim on a company's assets for the payment of its other debt obligations.
• Subscription. A contract between the purchaser of stock and the issuer in which the purchaser promises to buy shares of the issuing company's stock.
• Subsequent events. Events that occur after the balance sheet date but before the statements are issued.
• Subsidiary. An entity economically controlled by another company, despite its independent legal status.
• Subsidiary account. One of the accounts in a particular subsidiary ledger.
• Subsidiary ledger. Provides detailed information regarding a particular general ledger account.
• Successful-efforts method. The method of accounting which capitalizes only the costs that result in the discovery of oil and gas reserves.
• Sum-of-the-years'-digits method. A method of depreciation that takes a fraction each year times the cost less salvage value. The numerator of the fraction is the remaining number of years of life. The denominator remains constant and is the sum of the digits of the years of life.
• Summary annual report. A simplified annual report in which data required by the SEC is supplied in the proxy statement and the Form 10-K.
• Summary of significant accounting policies. A description of all significant accounting policies of the company. An integral part of the financial statements, this information is typically presented as the first footnote.
• Supplies. Items used indirectly in the production of goods or services.
• T-account. A form of ledger page used to record (or illustrate) the entry of debits and credits into ledger accounts.
• Take-or-pay contract. An executory contract by which one party agrees to pay for the product regardless of whether or not the product is physically received.
• Tangible assets. The physical facilities used in the operation of a business.
• Tax benefit. A reduction in taxes, or a tax credit or refund, due to a particular action or expense incurred by a taxable entity.
• Taxable income. Income determined in accordance with income tax regulation.
• Taxes payable. Represents unpaid taxes that are owed to a governmental unit.
• Technical analysis. A method of predicting stock prices based on historical price and trading patterns.
• Temporal method of translation. A method of translating foreign financial statements in which cash, receivables, and payables are translated at the exchange rate in effect at the balance sheet date. Other assets and liabilities are translated at historical rates, while revenues and expenses are translated at the weighted average rate for the period.
• Temporary accounts. Accounts closed at the end of an accounting period; includes all income statement accounts and the dividends account.
• Temporary differences. Revenue and expense recognized in one period for financial reporting but recognized in an earlier or a later period for income tax purposes.
• 10-K report. Mandatory report filed by a company on an annual basis with the Securities and Exchange Commission.
• 10-Q report. Mandatory report filed by a company on a quarterly basis with the Securities and Exchange Commission.
• Term bonds. Bonds that mature in one lump sum at a specified future date.
• Time period. Assumes that the entity can be accounted for with reasonable accuracy for a particular period of time.
• Time value of money. The concept that money earns interest over time. This implies that a dollar to be received a year from now is worth less than a dollar received today.
• Timeliness. The qualitative characteristic indicating that accounting information should reach the user in time to help in making a decision.
• Trading on equity. Financial leverage, or the use of borrowed funds, particularly long-term debt, in the capital structure of a firm.
• Trading securities. Securities held by firms for brief periods of time that are intended to generate profits from short-term differences in price.
• Transaction approach. The recording of events that affect the financial position of the entity and that can be reasonably determined in monetary terms.
• Translation adjustments (foreign currency translation adjustment). An account classified under stockholders' equity that represents foreign currency translation gains and losses that have not been charged to the income statement.
• Translation gains and losses. Gains and losses due to fluctuations in exchange rates.
• Treadway Commission. Popular name for the National Commission on Fraudulent Reporting, which has issued a number of recommendations for the prevention of fraud in financial reports, ethics, and effective internal controls.
• Treasurer. The officer in a firm who is responsible for the safeguarding and efficient use of a company's liquid assets.
• Treasury stock. Capital stock of a company, either common or preferred, that has been issued and reacquired by the issuing company but has not been reissued or retired. It reduces stockholders' equity.
• Trend analysis. Analysis over more than one accounting period to identify the trend of a company's results.
• Trial balance. A listing of all general ledger accounts and their balances for the purpose of verifying that total debits equal total credits.
• Troubled debt restructuring. A concession by creditors to allow debtors to eliminate or modify debt obligations.
• Unappropriated retained earnings. The unrestricted retained earnings.
• Unaudited. A term applied to information in the annual or quarterly reports that is outside the audit conducted by the auditors.
• Unconsolidated subsidiaries. Subsidiaries whose financial statements are not combined with those of the parent company.
• Understandability. A user-specific quality directing that accounting information be understandable to users who have a reasonable knowledge of business and economic activities and who are willing to study the information with reasonable diligence.
• Unearned income. A liability, either current or long-term, for income received prior to the delivery of goods or the rendering of services (also described as deferred income).
• Unexpended industrial revenue bond proceeds. An asset account, classified under other assets, representing funds that have not yet been used for the purpose indicated when the bonds were issued.
• Unit-of-production method. Relates depreciation to the output capacity of the asset, estimated for the life of the asset.
• Unlimited liability. Each partner is liable for all partnership debts. Limited partners in a limited partnership, which is allowed in some states, do not have unlimited liability.
• Unlisted securities. Securities that are not listed on an organized stock exchange.
• Unqualified opinion. An audit opinion not qualified for any material scope restrictions or departures from GAAP.
• Unrealized decline in market value of noncurrent equity investments. A stockholders' equity account that results from adjusting long-term equity securities to the lower of cost or market value.
• Unrealized gain (loss). A (gain) loss recognized in the financial statements but not associated with an asset sale.
• Unsecured bonds (debenture bonds). Bonds for which no specific collateral has been pledged.
• Unusual or infrequent item. Certain income statement items that are unusual or occur infrequently, but not both.
• Useful life. Length of time over which a long-term asset is forecasted to provide economic benefits.
• Valuation. A process of estimating the value of a firm or some component of a firm.
• Venture capital. Funding by investment firms that specialize in financing unproven but potentially profitable businesses.
• Verifiability. The qualitative characteristic indicating that accounting information can be confirmed or duplicated by independent parties using the same measurement technique.
• Vertical analysis. A comparison of various financial statement items within a single period with the use of common-size statements.
• Vertical integration. The combination of firms with operations in different but successive stages of production and/or distribution.
• Vested benefit obligation (VBO). The portion of the pension benefit obligation that does not depend on future employee service.
• Vesting. The accrual to an employee of pension rights arising from employer contributions that are not contingent on the employee's continuing service with the employer.
• Warrant. A security that gives the holder the right to purchase shares of common stock in accordance with the terms of the instrument, usually upon payment of a specified amount.
• Warranties. Obligations of a company to provide free service on units failing to perform satisfactorily or to replace defective goods.
• Warranty obligations. Estimated obligations arising out of product warranties.
• Weighted average cost method. An inventory costing method that assigns the same unit cost to all units available for sale during the period.
• Weighted average of outstanding common stock. Gives the proportional shares outstanding in their fraction of the fiscal year.
• Work in process. Goods started, but not ready for sale.
• Working capital. The excess of current assets over current liabilities.
• Write-off. A write-off recognizes that the asset no longer has any value to the firm.
• Yield. Dividends or interest expressed as a percentage of the cost of the security.
• Zero coupon bond. A bond that does not pay periodic interest but promises to pay a fixed amount at the maturity date.
• Z score. Statistically derived combination of weighted ratios to predict the likelihood of bankruptcy.