A – E
Accelerated Depreciation - Method that records greater DEPRECIATION than STRAIGHT-LINE DEPRECIATION in the early years and less depreciation than straight-line in the later years of an ASSET’S holding period.
Account - Formal record that represents, in words, money or other units of measurement, certain resources, claims to such resources, transactions, or other events that result in changes to those resources and claims.
Account Payable - Amount owed to a CREDITOR for delivered goods or completed services.
Account Receivable - Claim against a DEBTOR for an uncollected amount, generally from a completed transaction of sales or services rendered.
Accountant - Person skilled in the recording and reporting of financial transactions.
Accountants’ Report - Formal document that communicates an independent ACCOUNTANT’S: (1) expression of limited assurance on FINANCIAL STATEMENTS as a result of performing inquiry and analytic procedures ; (2) results of procedures performed ; (3) non-expression of opinion or any form of assurance on a presentation in the form of FINANCIAL STATEMENTS information that is the representation of management ; or (4) an opinion on an assertion made by management. An accountants’ report does not result from the performance of an AUDIT.
Accounting - Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarisation in the FINANCIAL STATEMENTS.
Accrual Basis - Method of ACCOUNTING that recognises REVENUE when earned, rather than when collected. EXPENSES are recognised when incurred rather than when paid.
Accrued Assets - ASSETS from REVENUES earned but not yet received.
Accrued Expenses – A liability incurred during the ACCOUNTING period for which payment has not been made.
Accrued Income – Income earned during an ACCOUNTING period but not received or recorded by the end of the period.
Accumulated Depreciation - Total DEPRECIATION pertaining to an ASSET or group of ASSETS from the time the ASSETS were placed in services until the date of the FINANCIAL STATEMENT or tax return.
Affiliated Company - Company, or other organisation related through common ownership, common control of management or owners, or through some other control mechanism, such as a long-term LEASE.
Annual Report - Report to the stockholders of a company which includes the company’s annual audited BALANCE SHEET and related statements of earnings, stockholders’ or owners’ equity and cash flows, as well as other financial and business information.
Annuity - Series of payments, usually payable at specified time intervals.
Assertion - Explicit or implicit representations by an entity’s management that are embodied in financial statement components and for which the AUDITOR obtains and evaluates evidential matter when forming his or her opinion on the entity’s FINANCIAL STATEMENTS.
Assets – The entries on a balance sheet showing all properties, both tangible and intangible, and claims against others that may be applied to cover the LIABILITIES of a person or business. Assets can include cash, STOCK, property rights, and GOODWILL.
Audit – The scrutinising of ACCOUNTING records and supporting documents for accuracy and completeness.
Auditor - Person who AUDITS financial ACCOUNTS and records kept by others.
Auditors’ Report - Written communication issued by an independent AUDITOR describing the character of his or her work and the degree of responsibility taken.
Bad Debt - All or portion of an ACCOUNT, loan, or note receivable, considered uncollectible.
Balance - Sum of DEBIT entries minus the sum of CREDIT entries in an ACCOUNT. If positive, the difference is called a DEBIT BALANCE; if negative, a CREDIT BALANCE.
Balance Sheet - Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis of ACCOUNTING used in its preparation and presentation of a specified date the entity’s ASSETS, LIABILITIES, and the EQUITY of its owners. Also known as a STATEMENT OF FINANCIAL CONDITION.
Bankruptcy - Legal process whereby the DEBTS of an insolvent person are liquidated after being satisfied to the greatest extent possible by the debtor’s ASSETS. During bankruptcy, the debtor’s ASSETS are held and managed by a court appointedTRUSTEE.
Bequest - A gift by will of personal property. If the bequest is money to the extent that it is paid out of income from property then it is taxable to the recipient. Generally bequest value is fair market at the date of the decedent’s death.
Board of Directors - Individuals responsible for overseeing the affairs of an entity, including the election of its officers. The board of a company that issues STOCK is elected by stockholders.
Bookkeeping – The practice or profession of recording the ACCOUNTS and transactions of a business.
Book Value - Amount that an ASSET or LIABILITY shows on the BALANCE SHEET of a company. Also known as carrying value.
Boot - The non-technical term used by some to describe any cash or other property that is received in exchange of property that would be otherwise non-taxable.
Budget - Financial plan that serves as an estimate of future cost, REVENUES or both.
Business Combinations - Combining of two entities. Under the PURCHASE METHOD OF ACCOUNTING, one entity is deemed to acquire another and there is a new basis of ACCOUNTING for the ASSETS and LIABILITIES of the acquired company. In a pooling of interests, two entities merge through an exchange of COMMON STOCK and there is no change in the carrying value of the ASSETS or LIABILITIES.
Business Segment - Any division of an organisation authorised to operate, within prescribed or otherwise established limitations, under substantial control by its own management.
Capital Gain - Portion of the total GAIN recognised on the sale or exchange of a non-stock asset which is not taxed as ordinary income. Capital gains have historically been taxed at a lower rate than ordinary income.
Capital Projects Funds - Funds used by a not-for-profit organisation to account for all resources used for the development of a land improvement or building addition or renovation.
Cash Equivalents - Short-term (generally less than three months), highly liquid INVESTMENTS that are convertible to known amounts of cash.
Cash Flows - Net of cash receipts and cash disbursements relating to a particular activity during a specified ACCOUNTING period.
Casualty Loss - Any loss of an asset due to an act of nature causing ASSET damage from unexpected or accidental force. Generally it is deductible regardless of whether it is business or personal.
Closing Entries – Journal entries made at the end of a reporting period to return the balance in all ACCOUNTS to zero and ready the account for the next reporting period.
Collateral - ASSET provided to a CREDITOR as security for a loan.
Combined Financial Statement - FINANCIAL STATEMENT comprising the ACCOUNTS of two or more entities.
Common Stock - Capital STOCK having no preferences generally in terms of DIVIDENDS, voting rights, or DISTRIBUTIONS.
Compliance Audit - Review of financial records to determine whether the entity is complying with specific procedures or rules.
Confirmation - AUDITOR’S receipt of a written or oral response from an independent third party verifying the accuracy of information requested.
Consistency - ACCOUNTING postulate which stipulates that, except as otherwise noted in the FINANCIAL STATEMENT, the same ACCOUNTING policies and procedures have been followed from period to period by an organisation in the preparation and presentation of its FINANCIAL STATEMENTS.
Consolidated Financial Statements - Combined FINANCIAL STATEMENTS of a parent company and one or more of its subsidiaries as one economic unit.
Contingent Liability - Potential LIABILITY arising from a past transaction or a subsequent event.
Continuing Operations - Portion of a business entity expected to remain active.
Convertible Stock - STOCK that may be exchanged for other SECURITIES of the issuer.
Cost Accounting - Procedures used for rationally classifying, recording, and allocating current or predicted costs that relate to a certain product or production process.
Credit - Entry on the right side of a DOUBLE-ENTRY BOOKKEEPING system that represents the reduction of an ASSET or EXPENSE or the addition to a LIABILITY or REVENUE.
Credit Agreement - Arrangement in which one party borrows or takes possession in the present by promising to pay in the future.
Credit Balance - BALANCE remaining after one of a series of BOOKKEEPING entries. This amount represents a LIABILITY or INCOME to the entity.
Creditor - Party that loans money or other ASSETS to another party.
Current Asset - ASSET that one can reasonably expect to convert into cash, sell, or consume in operations within a single operating cycle, or within a year if more than one cycle is completed each year.
Current Liability - Obligation whose LIQUIDATION is expected to require the use of existing resources classified as CURRENT ASSETS, or the creation of other CURRENT LIABILITIES.
Current Value - (1) Value of an ASSET at the present time as compared with the asset’s HISTORICAL COST. (2) In finance, the amount determined by discounting the future revenue stream of an ASSET using compound interest principles.
Debit - Entry on the left side of a DOUBLE-ENTRY BOOKKEEPING system that represents the addition of an ASSET or EXPENSE or the reduction to a LIABILITY or REVENUE.
Debit Balance - BALANCE remaining after one or a series of BOOKKEEPING entries. This amount represents an ASSET or an EXPENSE to the entity.
Debt - General name for money, notes, bonds, goods or services which represent amounts owed.
Debt Security - Document which is evidence of an obligation or LIABILITY.
Debt Service Fund - Fund whose PRINCIPAL or INTEREST is set aside and accumulated to retire DEBT.
Debtor - Party owing money or other ASSETS to a CREDITOR.
Defalcation - To misuse or embezzle funds.
Default - Failure to meet any financial obligation. Default triggers a CREDITOR’S rights and remedies identified in the agreement and under accounting law.
Deferred Charge - Cost incurred for subsequent periods which are reflected as ASSETS.
Deferred Income - Income received but not earned until all events have occurred. Deferred income is reflected as a LIABILITY.
Deficit - Financial shortage that occurs when LIABILITIES exceed ASSETS.
Depreciation - EXPENSE allowance made for wear and tear on an ASSET over its estimated useful life. (See ACCELERATED DEPRECIATION and STRAIGHT-LINE DEPRECIATION.)
Derivatives - Financial instruments whose value varies with the value of an underlying ASSET (such as a STOCK, bond, commodity or currency) or index such as INTEREST rates.
Disclosure - Process of divulging ACCOUNTING information so that the content of FINANCIAL STATEMENTS is understood.
Discontinued Operations - Portion of a business that is planned to be or is discontinued.
Discount - Reduction from the full amount of a price or DEBT.
Discount Rate - Rate at which INTEREST is deducted in advance of the issuance, purchasing, selling, or lending of a financial instrument. Also, the rate used to determine the CURRENT VALUE, or present value, of an ASSET or income stream.
Discounted Cash Flow - Present value of future cash estimated to be generated.
Dissolution - Termination of a company.
Distribution Expense - EXPENSE of selling, advertising, and delivery of goods and services.
Distributions - Payment by a business entity to its owners of items such as cash ASSETS, STOCKS, or earnings.
Dividends - Distribution of earnings to owners of a company in cash, other ASSETS of the company, or the company’s CAPITAL STOCK.
Double-Entry Bookkeeping - Method of recording financial transactions in which each transaction is entered in two or more ACCOUNTS and involves two-way, self-balancing posting. Total DEBITS must equal total CREDITS.
Earned Income – Wages, salaries, professional fees, and other amounts received as compensation for services rendered.
Earnings Per Share (EPS) - Measure of performance calculated by dividing the net earnings of a company by the average number of shares outstanding during a period.
Effective Tax Rate - Total income taxes expressed as a percentage of NET INCOME before taxes.
Equity - Residual INTEREST in the ASSETS of an entity that remains after deducting its LIABILITIES. Also, the amount of a business’ total ASSETS less total LIABILITIES. Also, the third section of a BALANCE SHEET, the other two being ASSETS and LIABILITIES.
Equity Account - ACCOUNT in the EQUITY section of the BALANCE SHEET. Includes CAPITAL STOCK, additional paid in capital and RETAINED EARNINGS.
Equity Securities - CAPITAL STOCK and other SECURITIES that represent ownership shares, or the legal rights to purchase or acquire CAPITAL STOCK.
Error - Act that departs from what should be done; an imprudent deviation, unintentional mistake or omission.
Estimated Tax - Amount of tax LIABILITY a taxpayer may expect to pay for the current tax period. Usually paid through quarterly instalments.
Estimation Transactions – Activities that involve management judgments or assumptions in formulating ACCOUNT balances in the absence of a precise means of measurement.
Exchanges - Transfer of money, property, or services in exchange for any combination of these items.
Excise Tax - Tax or duty on the manufacture, sale, or consumption of commodities.
Exemption - Amount of a taxpayer’s income that is not subject to tax. All individuals, TRUSTS, and estates qualify for an exemption unless they are claimed as a dependent on another individual’s tax return. Exemptions also are granted to taxpayers for their dependents.
Expenditure - Payment, either in cash, by assuming a LIABILITY, or by surrendering an ASSET.
Expenses – The daily costs incurred in running a business.
External Reporting - Reporting to stockholders and the public, as opposed to internal reporting for management’s benefit.
Extinguishment of Debt - To get rid of the LIABILITY by payment; to bring to an end.
Extraordinary Items - Events and transactions distinguished by their unusual nature and by the infrequency of their occurrence. Extraordinary items are reported separately, less applicable income taxes, in the entity’s statement of income or operations
