- Accelerated Depreciation
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. (See straight-line depreciation.)
Formal record that represents, in words, money or other unit of measurement, certain resources, claims to such resources, transactions or other events that result in changes to those resources and claims.
- 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's 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 (Review Report); (2) results of procedures performed (Agreed-Upon Procedures Report); (3) non-expression of opinion or any form of assurance on a presentation in the form of financial statements information that is the representation of management (Compilation Report); or (4) an opinion on an assertion made by management in accordance with the Statements on Standards for Attestation Engagements (Attestation Report). An accountant's report does not result from the performance of an audit. (See auditor's report.)
- Accounting Change
Change in (1) an accounting principle; (2) an accounting estimate; or (3) the reporting entity that necessitates disclosure and explanation in published financial reports.
- Accounting Principles Board (APB)
Senior technical committee of the American Institute of Certified Public Accountants (AICPA) which issued pronouncements on accounting principles from 1959-1973. The APB was replaced by the Financial Accounting Standards Board (FASB).
- Accrual Basis
Method of accounting that recognizes revenue when earned, rather than when collected. Expenses are recognized when incurred rather than when paid.
- 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. This total is the contra account to the related asset account.
- Additional Paid in Capital
Amounts paid for stock in excess of its par value or stated value. Also, other amounts paid by stockholders and charged to equity accounts other than capital stock.
- Adverse Opinion
Expression of an opinion in an auditor's report which states that financial statements do not fairly present the financial position, results of operations and cash flows in conformity with generally accepted accounting principles (GAAP).
- Affiliated Company
Company, or other organization related through common ownership, common control of management or owners, or through some other control mechanism, such as a long-term lease.
Person who evaluates and interprets public company financial statements.
- Analytical Procedures
Substantive tests of financial information which examine relationships among data as a means of obtaining evidence. Such procedures include: (1) comparison of financial information with information of comparable prior periods; (2) comparison of financial information with anticipated results (e.g., forecasts); (3) study of relationships between elements of financial information that should conform to predictable patterns based on the entity's experience; (4) comparison of financial information with industry norms.
- 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.
Series of payments, usually payable at specified time intervals.
The inspection of a business or other organization’s accounting records and procedures. Done by a trained accountant from within the organization (internal audit) or by an outsider (independent audit) for the purpose of verifying the accuracy and completeness of the records.
- Audit Engagement
Agreement between a CPA firm and its client to perform an audit.
- Auditor's Report
Written communication issued by an independent certified public accountant (CPA) describing the character of his or her work and the degree of responsibility taken. An auditor's report includes a statement that the audit was conducted in accordance with generally accepted auditing standards (GAAS), which require that the auditor plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, as well as a statement that the auditor believes the audit provides a reasonable basis for his or her opinion. (See accountant's report.)
Assets intended to further production. The amount invested in a proprietorship, partnership, or corporation by its owners.
- Capital Gain
Portion of the total gain recognized on the sale or exchange of a noninventory asset which is not taxed as ordinary income. Capital gains have historically been taxed at a lower rate than ordinary income.
- Capital Stock
Ownership shares of a corporation authorized by its articles of incorporation. The money value assigned to a corporation's issued shares. The balance sheet account with the aggregate amount of the par value or stated value of all stock issued by a corporation.
- Capitalized Cost
Expenditure identified with goods or services acquired and measured by the amount of cash paid or the market value of other property, capital stock, or services surrendered. Expenditures that are written off during two or more accounting periods.
- Capitalized Interest
Interest cost incurred during the time necessary to bring an asset to the condition and location for its intended use and included as part of the historical cost of acquiring the asset.
- Cash Basis
Method of bookkeeping by which revenues and expenditures are recorded when they are received and paid. (See other comprehensive basis of accounting.)
- Cash Flows
Net of cash receipts and cash disbursements relating to a particular activity during a specified accounting period.
- Casualty Loss
Sudden property loss caused by theft, accident, or natural causes.
- Certified Financial Planner (CFP)
Individual who is trained to develop and implement financial plans for individuals, businesses, and organizations, utilizing knowledge of income and estate tax, investments, risk-management analysis and retirement planning. CFPs are certified after completing a series of requirements that include education, experience, ethics and an exam. CFPs are not regulated by a governmental authority.
- Certified Fraud Examiner (CFE)
A specialist who is educated and trained in the detection and deterrence of a wide variety of white-collar crimes such as identity theft, fraud and embezzlement. CFEs gather evidence, take statements, write reports and assist in investigating fraud in its varied forms. CFEs are employed by most major corporations and government agencies, and others provide consulting and investigative services. Certified Fraud Examiners come from various professions, including auditors, CPAs, fraud investigators, loss prevention specialists, attorneys, educators and criminologists. A CPA with the CFE (Certified Fraud Examiner) designation is a certified public accountant who specializes in fraud examination. Having dual certification increases one's credibility, earning potential and career possibilities due to, in part, increased demand in the marketplace and the rise in financial crimes. By earning the CFE credential as a CPA, you'll show prospective employers that you exemplify the highest moral and ethical standards of the profession and you have the ability to conduct complete, efficient, thorough and ethical fraud investigations.
- Certified Internal Auditor (CIA)
An international certification awarded by the Institute of Internal Auditors (IIA) that reflects competence in the principles and practices of internal auditing.
- Certified Management Accountant (CMA)
An accreditation conferred by the Institute of Management Accountants that indicates the designee has passed an examination and attained certain levels of education and experience in the practice of accounting in the private sector.
- 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. (See preferred stock.)
- Comparative Financial Statement
Financial statement presentation in which the current amounts and the corresponding amounts for previous periods or dates also are shown.
- Compensatory Balance
Funds that a borrower must keep on deposit as required by a bank.
Presentation of financial statement data without the accountant's assurance as to conformity with generally accepted accounting principles (GAAP).
An investment strategy aimed at long-term capital appreciation with low risk; moderate; cautious; opposite of aggressive behavior; show possible losses but wait for actual profits. Concept which directs the least favorable effect on net income.
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 organization 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.
Business combination of two or more entities that occurs when the entities transfer all of their net assets to a new entity created for that purpose. (See merger.)
- Contra Account
Account considered to be an offset to another account. Generally established to reduce the other account to amounts that can be realized or collected.
- Control Risk
Measure of risk that errors exceeding a tolerable amount will not be prevented or detected by an entity's internal controls.
Experienced accountant who directs internal accounting processes and procedures, including cost accounting.
Form of doing business pursuant to a charter granted by a state or federal government. Corporations typically are characterized by the issuance of freely transferable capital stock, perpetual life, centralized management, and limitation of owners' liability to the amount they invest in the business.
- Cost Accounting
Procedures used for rationally classifying, recording, and allocating current or predicted costs that relate to a certain product or production process.
- 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. (See balance.)
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.
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. (See credit.)
- Debit Balance
Balance remaining after one or a series of bookkeeping
entries. This amount represents an asset or an expense of the entity.
Failure to meet any financial obligation.
Default triggers a creditor's rights and remedies identified in the
agreement and under the law.
- Deferred Income
Income received but
not earned until all events have occurred. Deferred income is reflected
as a liability.
Financial shortage that occurs when
liabilities exceed assets.
Method of computing a
deduction to account for a reduction in value of extractable natural
Expense allowance made for wear and tear
on an asset over its estimated useful life. (See accelerated
depreciation and straight-line depreciation.)
instruments whose value varies with the value of an underlying asset
(such as a stock, bond, commodity or currency) or index such as interest
rates. Financial instruments whose characteristics and value depend on
the characterization of an underlying instrument or asset.
with overall responsibility for a business, who act in accordance with
the best interests of the corporation and its shareholders. The
Directors elect the Officers (for example, President, Vice President,
Secretary, Chief Financial Officer) to handle the corporation’s
Payment by cash or check.
of divulging accounting information so that the content of financial
statements is understood.
Reduction from the full amount
of a price or debt.
Payment by a business entity to
its owners of items such as cash assets, stocks, or earnings.
- 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.
- Due Diligence
(1) Procedures performed by underwriters in connection with
the issuance of a securities exchange commission (SEC) registration
statement. These procedures involve questions concerning the company and
its business, products, competitive position, recent financial and
other developments, and prospects. Also performed by others in
connection with acquisitions and other transactions. (2) Requirement
found in ethical codes that the person governed by the ethical rules
exercise professional care in conducting his or her activities.
- Earned Income
Wages, salaries, professional fees, and other amounts received as compensation for services rendered.
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.
property put into the custody of a third party for delivery to a
grantee, only after fulfillment of specified conditions.
- Estate Tax
on the value of a decedent's taxable estate, typically defined as the
decedent's assets less liabilities and certain expenses which may
include funeral and administrative expenses.
Process of determining how one should hold the interests of various stakeholders, taking into account moral values/principles.
item which is excluded from a taxpayer's gross income by the internal
revenue code or an administrative action. Common exclusions include
gifts, inheritances, and death proceeds paid under a life insurance
contract. Also known as excluded income.
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.
either in cash, by assuming a liability, or by surrendering asset.
- External Reporting
Reporting to stockholders and the public, as opposed to
internal reporting for management's benefit.
- Fair Market Value
Price at which property would change hands between a buyer and a seller without any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts.
Person who is responsible for the administration of
property owned by others. Corporate management is a fiduciary with
respect to corporate assets which are beneficially owned by the
stockholders and creditors. Similarly, a trustee is the fiduciary of a
trust and partners owe fiduciary responsibility to each other and to
- Financial Accounting Standards Board (FASB)
private, non-government group which is authorized by the accounting
profession to establish generally accepted accounting principles in the
- Financial Statements
Presentation of financial data including
balance sheets, income statements and statements of cash flow, or any
supporting statement that is intended to communicate an entity's
financial position at a point in time and its results of operations for a
period then ended.
- Fiscal Year
Period of 12 consecutive months
chosen by an entity as its accounting period which may or may not be a
- Fixed Asset
Any tangible asset with a life of more
than one year used in an entity's operations.
financial statements that are an entity's expected financial position,
results of operations, and cash flows.
collateral by a creditor when default under a loan agreement occurs.
- Forensic Accounting
Provides for an accounting analysis that is suitable to a
court of law which will form the basis for discussion, debate, and
ultimately dispute resolution. Forensic accounting encompasses
investigative accounting and litigation support. Forensic accountants
utilize accounting, auditing, and investigative skills when conducting
an investigation. Equally critical is the ability to respond immediately
and to communicate financial information clearly and concisely in a
Legal arrangement whereby the owner
of a trade name, the franchiser, contracts with a party that wants to
use the name on a non-exclusive basis to sell goods or services, the
franchisee. Frequently, the franchise agreement grants strict
supervisory powers to the franchiser over the franchisee which,
nevertheless, is an independent business.
The use of one's
occupation for personal enrichment through the deliberate misuse or
misapplication of employing an organization's resources or assets. This
can include the fraudulent conversion and obtaining of money or property
by false pretenses.
- Fund Accounting
Method of accounting and
presentation whereby assets and liabilities are grouped according to the
purpose for which they are to be used. Generally used by government
entities and not-for-profits. (See restricted fund and unrestricted
Relationship between two or more persons based on a written, oral, or implied agreement whereby they agree to carry on a trade or business for profit and share the resulting profits. Unlike a corporation's shareholders, the partnership's general partners are liable for the debts of the partnership. (See general partnership, limited liability partnership, limited partnership.)
- Perpetual Inventory
System that requires a continuous record of all receipts and withdrawals of each item of inventory.
(1) Excess amount paid for a bond over its face amount. (2) In insurance, the cost of specified coverage for a designated period of time.
- Present Value
Current value of a given future cash flow stream, discounted at a given rate.
- Pro Forma
Presentation of financial information that gives effect to an assumed event (e.g., merger).
- Pro Rata
Distribution of an expense, fund, or dividend proportionate with ownership.
Prospective financial statements that include one or more hypothetical assumptions.
- Promissory Note
Evidence of a debt with specific amount due and interest rate. The note may specify a maturity date or it may be payable on demand. The promissory note may or may not accompany other instruments such as a mortgage providing security for the payment thereof. (See demand loan.)
- Prospective Financial Information (Forecast and Projection)
Forecast: Prospective financial statements that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations, and changes in financial position. A financial forecast is based on the responsible party's assumptions reflecting conditions it expects to exist and the course of action it expects to take. Projection: Prospective financial statements that present, to the best of the responsible party's knowledge and belief, given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and changes in financial position.
Major part of the registration statement filed with the Securities and Exchange Commission (SEC) for public offerings. A prospectus generally describes securities or partnership interests to be issued and sold.
Document authorizing someone other than the shareholder to exercise the right to vote the stock owned by the shareholder.
- Public Company Accounting Oversight Board (PCAOB)
Five-member board created by Sarbanes Oxley Act which has the authority to set and enforce auditing, attestation, quality control, and ethics (including independence) standards for public companies. It is also empowered to inspect the auditing operations of public accounting firms that audit public companies as well as impose disciplinary and remedial sanctions for violations of the board's rules, securities laws, and professional auditing standards.
- Safe Harbor Rule
Concept in statutes and regulations whereby a person who meets listed requirements will be preserved from adverse legal action. Frequently, safe harbors are used where a legal requirement is somewhat ambiguous and carries a risk of punishment for an unintended violation.
- Sarbanes Oxley Act
An act designed to improve quality and transparency in financial reporting and independent audits and accounting services for public companies, to create a Public Company Accounting Oversight Board, to enhance the standard-setting process for accounting practices, to strengthen the independence of firms that audit public companies, to increase corporate responsibility and the usefulness of corporate financial disclosure, to protect the objectivity and independence of securities analysts, to improve Securities and Exchange Commission resources and oversight and for other purposes.
- SEC Filings
Financial and informational disclosures required by the SEC in order to comply with certain sections of the Securities Act of 1933 and the Securities and Exchange Act of 1934. Some of the more common filings that publicly owned companies must submit are the form 10-K, form 10-Q and form 8-K.
Any kind of transferable certificate of ownership including equity securities and debt securities.
- Short Sale
Sale of an item before it is purchased. A person entering into a short sale believes the price of the item will decline between the date of the short sale and the date he or she must purchase the item to deliver the item under the terms of the short sale.
- Special Report
Special report is a term applied to auditors' reports issued in connection with various types of financial presentations, including financial statements that are prepared in conformity with a comprehensive basis of accounting other than generally accepted accounting principles; specified elements, accounts or items of a financial statement. Compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements. Financial presentations to comply with contractual agreements or regulatory provisions. Financial information presented in prescribed forms or schedules that require a prescribed form of auditors' reports.
Difference between two prices, usually a buying and selling price.
- Start-up Costs
(1) Costs, excluding acquisition costs, incurred to bring a new unit into production. (2) Costs incurred to begin a business.
- Statement of Cash Flows
A statement of cash flows is one of the basic financial statements that is required as part of a complete set of financial statements prepared in conformity with generally accepted accounting principles. It categorizes net cash provided or used during a period as operating, investing and financing activities, and reconciles beginning and ending cash and cash equivalents.
- Stock Option
Right to purchase or sell a specified number of shares of stock at specified prices and times.