Bookkeeping and accountancy deal with maintaining record of all the transactions that a business/individual makes. The WealthHow article below provides a glossary of accounting terms and definitions that are most commonly-used.
Accounting helps keep a track of the financial position of the business and forms the basis for good financial planning. While studying accountancy, you may come across several terms that you may not be familiar with. Most glossaries may help you with it, but some definitions may be too elaborately worded for most people to understand, resulting in a confusion. The paragraphs below conjure up a list of basic and advanced accounting terms in a simple language.
Glossary of Accounting Terms and Definitions
Above the Line
Above the line items are those revenue and expense items that directly affect the calculation of periodic net income.
Absolute change is the numeric change in the value of a commodity, expense etc.
Absorb indicates that one account or group of accounts combines the amounts from similar or related accounts or groups of accounts. Thus, the combined account is a new entity, while the old ones are removed. For instance, if you have 3 creditors, John, George, and Paul, you can combine them into one creditors’ account. Hence, they are called absorption.
Absorbed Costs are a combination of both variable and fixed costs.
Absorption costing absorbs all costs under two head product costs (manufacturing costs) and period costs (non-manufacturing costs).
Absorption pricing is setting a price, which is the sum of the absorbed cost plus a marked-up percentage of profit.
Absorption variance is the difference between the predicted and actual absorption costs.
Accelerated depreciation is a form of depreciation where larger amounts of depreciation are calculated in the first few years.
An account is the physical record of the transactions incurred related to an asset, liability, revenue, expense, etc.
Accounts analysis can be looked as a method of cost behavior analysis by classifying records under two heads: fixed or variable.
Accounts group is a combination of similar accounts, like fixed assets group, long-term liability group, etc.
Accounting is the process of recording all the economic events that affect the business/individual over an accounting period. Accounting is done based on the various accounting principles, concepts, and the Golden Rules.
There are certain assumptions that are taken for granted while recording the accounts. These assumptions are called accounting concepts. The 4 accounting concepts are Going Concern Concept, Accrual Basis Concept, Consistency Concept, and Prudence Concept. Read on for more about Basic Accounting Concepts and Principles.
An accounting cycle is the series of steps to be followed while preparing financial statements. The steps in the accounting cycle are budgeting, journal entries, adjusting entries, ledger posting, preparing financial reports, and closing of accounts.
Accounting Entity Assumption
For legal and tax purposes, a business can be treated as a different entity from the owners. Thus, only the transactions related to the business are recorded and not the ones related to owners.
The accounting equation lays down the relationship between total assets, liabilities and owner’s equity. The accounting equation is Total Assets = Total Liabilities + Owner’s Equity
An accounting event is any event where there is a change (increase/decrease) in value of the assets, liabilities or owner equity.
Accounting income is the income earned by the business over the accounting year on an accrual basis.
Accounting Measurement and Disclosure
Accounting measurement and disclosure is the accounting concept that says that adequate dates should be used and disclosed for the purpose of decision-making.
An accounting period is the frame of time during which the accounts are prepared. An accounting period is usually for a year.
Accounting principles are commonly accepted principles assumed while accounting for the business. For details, refer to GAAP (Generally Accepted Accounting Principles).
Accounting ratios are mathematical tools, which help in performing the comparative financial analysis for two financial variables.
An accounting system is a holistic approach to accounting. It may be manual as well as computerized. An accounting system helps identify economic events, record them, and generate reports at the end of the accounting period or even during the period.
An accounting theory develops a framework for the accounting procedure. There are four types of theories of accounting: Classical Inductive, Income, Decision Usefulness, and Information economics.
Accounting Timing Difference
Accounting time difference is the effect that considering a deferred financial event would have on the financial statements.
Accounting treatment is the set of rules that lays down how to treat an account and how to handle a particular transaction.
Accounts payable are those accounts wherein the business has an obligation to pay for receiving goods or services. They are classified as a liability.
Accounts Payable to Sales
Accounts payable to sales represents the time taken between the sales and payment to creditors.
Accounts receivable are those accounts where the business can owe money for providing goods or services. They are assets.
Accounts Receivable Reserve
An accounts receivable reserve is a pool of money kept aside by the business to protect itself from default on the accounts receivables.
Accounts Receivable Turnover
Accounts receivable turnover lets the business measure how quickly the customers are paying out the money receivable. It is calculated by Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable.
Accrual concept is one of the core accounting concepts. Accrual concept states that a economic event should be recorded in the period in which it is incurred rather than when it is paid for or when cash is received in return.
Accrued assets are those assets from which the revenues are earned but not received.
Accrued expenses are those expenses which have been incurred but not paid.
Accrued income is income that is earned but not yet received.
Accrued interest is interest that an asset has earned, but not received.
Accrued inventory is that which has arrived in the warehouse of the business but hasn’t yet been paid for.
Accrued liabilities are those liabilities that have been incurred by the business and haven’t been paid off.
Accrued payroll is employee salaries that remain unpaid at the end of the year.
Accrued revenue is revenue that has been earned, but not yet received.
Accumulated amortization is the accumulated charge against the intangible assets owned by the business.
Accumulated depreciation is the charge incurred for the wear and tear of a fixed asset that is calculated periodically.
Acquisition is a situation where one company takes over the controlling stake of another company.
Activity based costing is a form of costing that analyzes the cost of a product based on the cost of the various activities performed for it.
Activity ratio is the ability of a business to convert their balance sheet assets into cash or sales.
Actual Cash Value
Actual cash value is a method for determining the actual loss incurred by the business expressed in monetary terms. It is normally used in context of depreciation.
Actual cost is the exact amount you pay to buy a fixed asset as opposed to the market value or production cost.
Additional Paid-in Capital
Additional paid-in capital is the amount paid by the shareholders over and above the par value of the asset.
Adequate disclosure is giving the required amount of information in the form of footnotes to indicate the financial status of the business
Adjusted Book Value
Adjusted Book Value may be tangible book value or an economic book value. In a tangible book value, the value of intangible assets are deducted from the total assets. In the economic book value, the assets are adjusted to their market value as opposed to the cost of purchase.
Adjusting entries are the entries done at the end of the accounting period to update certain items that are not recorded as daily transactions. The process of recording adjusting entries are known as adjustment.
Administrative costs are those which are not directly required for the process of production, but are included in the final price of the product as they are incurred. For example, the sales office rent is an administrative cost, as it is not required in the process of production.
Advance is an amount of money paid before the business earns it.
An Agency is the contractual relationship between the principal and his agent where the agent is empowered by the principal to take certain decisions on his behalf.
Aggregate means total.
Allocations are amounts distributed to each department for their working expenses.
Allowance is a discount given to customers in the event of provision of unsatisfactory goods or services.
Allowance for Bad/Doubtful Debts
Allowance for bad debts are amounts of money set aside by the business as a cover for possible defaults on payments.
Alternate Payee Endorsement
Alternate payee endorsement is when the original payee endorses the draft to another entity, and this other entity endorses it again.
Amalgamation is the merger of two or more business entities.
Amortization can mean three things.
- It is a series of payments that result in gradual reduction of a large debt.
- It is writing off the value of an intangible asset over the useful life of the asset.
- It can also mean periodic deduction in the value of a fixed asset by means of depreciation.
Amount due is the amount payable by a debtor to a creditor. Read on to know What is Amortization.
Ancillary refers to something that has lesser importance.
Annualizing is a method by which all the amounts pertaining to less than a year are calculated to their one-year equivalents.
An annual report is a detailed report of all the financial statements of a business. It is a mandatory requirement for public companies
Appreciation is the increase in the value of the asset due to economic conditions or improvements to the asset.
Appropriation is the allocation of amounts, that are part of the total net profit under various heads, such as the general reserve fund.
Arrears are debt that have not been paid yet.
Assessed value is the estimated value that is taken for calculation of tax.
Assessment is the total amount of tax or levy payable.
Asset is something that is owned by a business that has commercial value or exchange value.
Asset Earning Power
Asset earning power is one of the profitability ratios that determine the earning power of assets. It is calculated by Asset Earning Power = Earnings before Taxes / Total Assets.
Asset Turnover Ratio
Asset turnover ratio helps establish the relationship between the sales and the total assets. It is calculated by Asset Turnover Ratio = Total Revenue / Average Assets.
Asset valuation is the process by which the value of an asset or an asset portfolio is determined.
Audit is the process of checking and validating the business records.
Audit committee is a special committee appointed in an organization to carry out the audit oversight responsibility of the board of directors.
Audit report is an official, signed document that provides the details regarding the purpose, scope, and findings of the audit.
Authorized capital is the total money that the company has made by selling the issue of authorized shares. It is calculated by Authorized Capital = Number of Shares which are Issued * Par Value of Shares
Average cost = Total Cost / Number of Units.
Average inventory is the average amount of inventory held over the accounting period. It is calculated by Average Inventory = (Opening Inventory + Closing Inventory) / 2
Average Net Receivables
Average net receivables are the average of the accounts receivable over the accounting period. It is calculated by Average Net Receivables = (Opening Net Receivables + Closing Net Receivables) / 2
Average Settlement Period
Average Settlement Period is calculated
for debtors Average Settlement Period = (Trade Debtors * 365) / Credit Sales
for creditors Average Settlement Period = (Trade Debtors * 365) / Credit Purchases
Average Tax Rate
Average tax rate = Total Taxes Paid / Tax Base.
Avoidable cost is the cost that can be avoided by taking a particular decision.
Balance is the difference between the credit and the debit sides of an account.
A balance sheet is the list of all the assets and liabilities of the business.
Balloon payment is the final payment on a loan. It is called so as it is considerably higher than the regular payments.
Bank balance is the amount of money present in the bank account of the business.
Bank overdraft represents negative balance in the bank account of the company.
Bank reconciliation is the verification of all the entries in the bank statement with the bank book of the business. Read on for the Purpose of Bank Reconciliation Process and Steps to Accounts Reconciliation.
A bank statement is the financial statement showing the details of all the transactions that the business had made through the particular bank account.
Bankruptcy is a situation where a business/individual does not have enough assets to pay off his liabilities. A person who is bankrupt is called an insolvent.
Barter system is a non-monetary system of exchange where commodities are traded for commodities rather than for money.
Base capital = Issued and Paid-up Share Capital + Contributed Surplus + Retained Earnings.
Basic Earning Power
Basic earning power measures the profitability of the assets. It is calculated by the formula Basic Earning Power = EBIT / Total Assets.
Basis means the starting point for calculating a variety of variables, such as profit, loss, depreciation, amortization, etc. It can also mean the book value of investments.
Batch is a collection of items that needs to be handled together for production.
Below the Line
Below the line items are those that directly affect the balance sheet and not the income statements.
A benchmark is a high standard that is set for performance.
Big 4 refers to the 4 biggest accounting firms: PriceWaterhouseCoopers, KPMG, Delloite and Touche, and Ernst and Young.
A billing is a request sent to the debtor asking for payment for a debt.
Bill of Exchange
Bills payable is a promise made by the receiver of a benefit to the giver of a benefit, to pay an amount of money in the future.
Bills receivable is a record of all the bills that are receivable by a firm.
A bond is a certificate of debt issued either by a corporation or the government to raise money.
A bond discount is the difference between the face value of the bond and the issued price. The face value in this case is higher than the issued price.
Bond Premium is the difference between the issued price and the face value of the bond. In this case, the issued price is higher.
Bond Sinking Fund
Bond sinking fund is a provision made by the bond issuing body to pay off the face value of the bond at maturity.
A bonus can be looked upon as the remuneration given to an employee in excess of the stipulated salary.
Books refers to the journals, ledgers and other subsidiary books such as sales books and purchase books, as maintained by the business.
Book building is a type of share issue where the price of the shares are not fixed, but is determined by investor bidding.
The book cost is the cost of an asset when it was purchased. It may be a historical cost.
Book income is the revenue earned by a business as reported in the financial statement.
Book Inventory = Cost of Acquiring the Inventory – All the Liabilities associated with the Inventory.
Book keeping is the process of recording all the economic events and transactions of the business.
Books of Accounts
Book to Market Ratio
Book to market ratio is a ratio that calculates the book value of the equity of a firm to the market value of the equity.
Branch Accounting is keeping the books of accounts for geographically separated departments or units of the same business.
Break Even Analysis
Break even analysis can be basically ascertaining how many units of a product sold will cover the costs. The point of the sales volume where the costs are equal to the volume is called break even point. Read on for Break Even Analysis Formulas
A budget gives the list of expense heads and the amounts allotted to expense heads. For example, a sales budget lays down the amount to be spent on sales, etc.
When there is an excess of expenditure over revenue in a budget, it is known as a budgetary deficit.
Budgetary control is a process where the actual amount incurred and the budgeted amount for each expense head is compared.
Budgeting is estimating the expenditure needs of the department or each expense head based on historical data and trend analysis.
Budget Performance Report
Budget performance report represents the comparison between the actual expenditure and the budgeted expenditure.
A buffer is a safety measure over the budgeted amount, in case of contingency.
A business entity may be a proprietorship, partnership, corporation, or LLC. Every entity has to follow a separate set of rules.
Business valuation is the amount that would be realized if the business was sold to a hypothetical buyer.
Bylaws are the different provisions that govern the corporate policies.
CA may be short for either Chief Accountant or Chartered Accountant.
A call may be
- The process for redeeming a bond or preferred stock before its maturity date.
- Right to buy 100 shares/asset within a specified period at a specified price.
A callable bond is a type of bond which gives the issuer the right to pay off at his discretion.
Capita is the money or the property available for the purpose of production.
Capital account is the account where all the details regarding the transactions related to the paid-up capital are given.
Capital asset is usually used in the context of fixed assets. Assets that are not used in the day-to-day course of business are called capital assets.
Capital budget is the amount allocated for the purchase of fixed assets during the accounting period.
Capital charge is calculated by the formula Capital Charge = Capital * Weighted Average Cost of Capital.
Capital commitment is a commitment to buy capital assets at a fixed time in the future.
Capital contribution is the cash and assets a corporation acquires through shareholder money.
Capital Employed is the actual value of the assets that is contributing to the ability of the business to generate revenue. It is calculated by Capital Employed = Fixed Assets + Current Assets – Current Liabilities.
Capital Expenditure Ratio
Capital Expenditure Ratio is calculate by the formula Capital Expenditure Ratio = Capital Expenditure / Total assets.
Capital funds are calculated by the formula Capital Fund = Total Capital Stock + Capital Debentures + Surpluses + Undivided Profits + Reserves + Guarantee Fund + Guarantee Fund Surplus
Capital gain is the positive difference between sale value and the purchase value for an asset.
Capital improvement is any value adding activity to an asset that increases its value.
Capital intensive is a type of industry that relies more on capital to purchase high-end machinery for its production as opposed to labor intensive that relies more on human resources.
Refer Capital Expenditure.
Capitalization refers to the statement of the total capital available with the firm.
It is the rate of interest that is required to convert the series of future receivable payments into their present value equivalent.
Capitalized costs are those that are deducted over several accounting periods on account of depreciation or amortization.
A situation where there is a negative difference between the purchased price of an asset and selling price of an asset. It is the exact opposite of capital gain.
Capital market is the market where shares and securities of the listed companies are traded.
Capital profit is the distribution of cash due to tax savings on account of depreciation, sale of a fixed asset, or any other sources that are not related to retained earnings.
Capital rationing is to put a restriction or a cap on capital expenditures.
Capital receipt is the amount received on account of the sale of a capital asset.
Capital Redemption Reserve
A capital redemption reserve is an undistributed reserve created out of the profits of a company.
Capital reduction means to reduce the total capital available with the company.
A capital reserve is one of the reserves that a business creates, out of the yearly profits, for any specific purpose.
Capitation is a fixed charge, tax or payment that is levied as a fixed amount per person.
Carried down is the year’s closing balance for an account that is carried to the next accounting period.
Cash refers to the liquid money available with the business in the form of notes and coins for the purpose of payment.
The opposite of accrual basis is known as cash basis. It is a type of accounting where the transactions are recorded only when there is an exchange of cash, irrespective of when the transactions occurred. Cash basis accounting is different from the GAAP.
Cash book is the record of all the cash transactions – receipts and payments, that are made by the business. It may also be expanded to include the bank transactions if the business does not wish to keep a separate bank book.
Cash budget is the allocation towards the cash receipts and payments that the business might incur over an accounting period.
Cash deficit means the excess of cash payment obligations over the total cash available.
Cash discount is the discount allowed to the debtor to induce him to pay earlier.
Cash dividend is the share of the company profits that is given to the shareholders as dividend.
Cash earnings are defined as the excess of cash revenue over cash expenses in an accounting period.
Cash flow is the difference between the cash inflow and the cash outflow in the business. It does not deal with accrued payments and only deals with the inflow and outflow of cash.
Cash Flow Analysis
A financial management and analysis technique that is used to compare the amount and timing of the inflow and outflow of cash into the business.
Cash Flow Statement
Cash flow statement is a financial statement that provides details of the inflow and outflow of cash for the business. It is divided into three parts: cash flows from financing, cash flows from investing, and cash flows from operations.
Cash Inflow is the measure of the total cash coming into the business as a result of various financing, investment and operational activities.
Cash outflow is the measure of the total cash going out of the business as a result of the various financing, investment, and operational activities.
Cash management is a financial management technique that aims to maximize the availability of cash in the business without changing the levels of fixed assets. It aims to secure faster debtor payments to improve the liquidity position of the business.
Cash profit is calculated as Cash Profit = Profit after tax + Depreciation.
Cash ratio is calculated by Cash Ratio = (Cash + Marketable Securities) / Current Liabilities.
Certified Financial Planner
A certified financial planner is a financial planner qualified as per the requirements of the Institute of Certified Financial Planners.
Certified Public Accountant
Certified Public Accountant is a certification that gives an individual the license to practice public accounting.
Refer Bad Debt
A special form of incorporated business entity in the United States and is governed by a certain set of rules and is allowed to avoid payment of corporate taxes.
A charter is a document of a corporation.
Chart of Accounts
A chart of accounts is a serial listing of all the ledger accounts of a business.
A check is a form of payment, through the bank and can be made payable to a specific person or an unspecified bearer at large.
A checking account is a form of bank account where the amount can be withdrawn by a check, an ATM card or a debit card.
A claim is a legally backed demand for money from a debtor, which if not paid, results in a law suit.
Claims outstanding can be calculated by Claims Outstanding = Claims Against Assets – Claims Settled.
To close an account is to carry forward the balance to the next year at the end of the accounting period.
Closing an account is passing the closing entry on the last day of the accounting period.
Closing date is the date where one gets possession of or title to an asset.
The closing entry is an accounting entry that is passed to carry forward the balance of an unbalanced account to the next accounting period.
Closing stock is the stock of inventory available with the business at the end of the accounting period.
Coding means assigning the proper code to the accounts.
Collateral/Security/Mortgage are assets that are given as security for obtaining a loan. In case of a default on the loan, the lender has the right to take up the ownership of the collateral.
Collateral Note is a type of note that is secured using a collateral.
Collection period defines the amount of time it takes to convert your average sales into cash. In other words, it is the time allowed to sales debtors for payment.
Combined Financial Statement
A combined financial statement is a financial report that combines the financial statements of two or more merged business entities.
Commercial loan is a short term financing given by a lender for a period of around 6 months.
Commercial paper is another form of short term financing issued by businesses to investors for a 2 to 270 day period.
Committed costs are a long term fixed costs that the business has an obligation to pay.
Commodities/goods are the main item that the business deals in and is used for commerce. It may be a product or a service based on the nature of the business. Read on for more about Commodity Price Index.
Common Size Analysis
Common Size analysis is a type of financial analysis where one item/account is taken as the base value and all the others are compared to it.
Common Size Statement
A common size statement is the financial statement that shows detailed common size analysis.
A company is an association of persons who bring in capital and undertake a legal business activity. A company may be limited by guarantee or shares.
Refer Corporation Tax
A comparative statement is a financial statement that compares the results of two or more previous years with the current results.
Compensating errors are those errors that cancel a previous error.
Compliance audit is a watchdog procedure to ensure that the business is complying with the set of rules and procedures that are set for it. It can be compared to the accounts audit which ensures that the true accounting details are disclosed.
A compliance panel is a committee of people in charge of a compliance audit. This can be compared to the financial audit committee.
Composite depreciation is to combine similar assets in a same class and apply depreciation to all of them at flat rate.
Composite Financial Statement
A composite financial statement is an average of financial statements of either two or more companies or two or more periods.
Compound Annual Growth Rate
Compound annual growth rate is the yearly rate applied to an investment over multiple years.
Compound interest is the interest calculated on the principal over which the interest continues to accrue over time.
Compound Journal Entry
Compound general entry is an entry of an economic event that simultaneously affects either two or more debits or two or more credits or both.
Comprehensive Annual Financial Report
A comprehensive annual financial report is the complete annual financial report of the business.
A compulsory liquidation is the liquidation of the assets of the company by a court order when the company is unable to pay off its outstanding debts.
Concessionary loans are sanctioned by the government to the companies to fund a particular activity as prescribed by the issuing authority.
A conglomerate is a group of different companies run under the same umbrella ownership and run as a single entity.
Conservatism principle of accounting says that the estimates of the company should be conservative and not understated or overstated.
Consistency principle of accounting says that the same accounting policies and procedures should be followed in every accounting period.
Consolidated capital includes all the assets and money that is used in day-to-day business operations.
Consolidated Financial Statement
A consolidated financial statement is a comprehensive statement that gives details regarding all the assets, liabilities and operating accounts of the parent company and subsidiary companies under it, if any.
A constraint is something that limits or restricts a business activity.
Contingency budget is the money set aside for a contingency plan.
A contingency plan is implemented if some unfortunate event takes place. It is a ‘plan B’.
A contingent is something that occurs due to a condition that is not yet established.
The continuity assumption in accounting states that the accounting for the business should be done, assuming that the business will have an unlimited life span.
A contra entry is a type of ledger entry that gets offset by an exactly opposite entry.
Contributed assets are those assets that are owned by a contributing entity to the business.
Refer Paid-Up Capital
A contributed surplus is the money earned through selling the shares of the company over the par value.
Contributed margin is the excess of proceeds from sales over the variable costs. It gives the total revenue available for servicing the fixed costs.
Contribution to sales ratio
Contribution to sales ratio is calculated by Contribution to Sales Ratio = (Contribution * 100) / Sales Revenue
Controllable expenses are those that can be controlled, restrained, or avoided completely by the business.
Conversion costs are calculated as Conversion Costs = Direct Labor + Manufacturing Overhead.
The word ‘Convertible’ is generally used to refer to one type of security that can be converted into another type of security.
Corporate Governance is a system, which governs the direction and control of business corporations.
A corporation is a business that has been incorporated and enjoys separate legal rights from its owners.
A correcting entry is an entry made to nullify the effect of a previously made wrong entry.
Cost is the monetary amount that needs to be paid to acquire something.
Cost Accounting/Costing is a procedure to find out, analyze, and control costs.
Cost allocation is the budget allotted to the various cost centers in the business.
Cost Assignment is the assigning of costs of an account to the various accounts that are responsible for incurring the cost.
Cost Benefit Analysis
Cost benefit analysis is the analysis of the costs and benefits associated with any business decision by first estimating the costs and then the expected return.
Cost ceiling is the maximum budget that will be allotted for a project. It is calculated as Cost Ceiling = Target Cost + Contingency Cost
A cost center of an organization is one that does not directly add value to the product, but are indirect costs. For instance, sales and marketing costs are cost centers.
Cost control is an exercise to control the costs incurred under any head in a business.
Cost driver is an event o a series of events and activities that results in costs being incurred
Cost income ratio is a reasonably simple ratio to understand and is calculated as Cost/Income Ratio = Total Expense / Total Income.
Cost of Capital
Cost of Capital is the rate of return that a business can earn with different investments. It is calculated so that the best investment decision can be taken by the business.
Cost of Debt
Cost of debt is the amount of money it takes for financing a debt in the form of interest, etc.
Cost of Equity
Cost of Equity is the compensation that the investors demand for their investment and risk, that the business has an obligation to pay.
Cost of Goods Sold
Cost of Goods sold is the cost of procuring and processing goods. It includes direct material, labor, and factory overheads.
Cost plus is a method of pricing that involves finding out the total cost required to produce a finished good, and then adding a reasonable rate of profit.
Cost principle of accounting says that the fixed assets purchase should be recorded at the cost at which they were purchased, as opposed to their economic costs.
Cost reduction is an exercise taken to reduce the total costs incurred by the company by not incurring the avoidable costs.
Cost Rollup is the determination of all the cost elements in the total costs incurred during the course of the business.
Cost split is one of the most fundamental elements of costing and involves systematic breaking down of all the costs that can be associated with production.
Cost Profit Volume Analysis
Cost profit volume analysis is a study of the response of the total costs, revenues, and profit due to the changes in the output level, selling price, variable costs per unit, and the fixed costs.
Coupon bond is a financing measure for a business. A coupon bond gives its holder a fixed interest payment on a yearly basis and the proceeds from redemption, at the maturity of the bond
Coupon rate is the fixed interest rate that is provided on a coupon bond.
Coverage ratio refers to the ability of a business to meet any certain type of expense.
Credit is an arrangement between a buyer and a seller for deferred payment on goods and services. A credit entry is an entry, which eventually will reduce assets or increase liabilities.
Credit Control is a situation, where obtaining credit is discouraged by increasing the cost of credit.
Credit line is the maximum credit allowed by the business to one customer, a group of customers, or all the customers.
Credit memo is the document, which is used while issuing credit to vendors.
When a customer returns the merchandise to the business, then the business issues a credit note to his name, saying that his account has been credited for the value of the goods returned.
Creditor account is a cumulative record of all the creditors to the business. It is a record of the money payable to them.
Creditor Turnover ratio is calculated as Creditor Turnover = (Average Creditors * 365) / Cost of Sales
Credit risk is the chance of loss that a business faces from nonpayment by the borrowers.
Credit sales are sales for which cash is not paid immediately, but the customer promises to pay it on a future date.
Cumulative Earnings is the sum total of all the earnings over a period of time.
Cumulative Preferred Stock
Cumulative preferred stock is a type of preferred stock on which if the dividend is not paid in one year, then the dividend will accumulate to the future years.
Current Assets are those assets in the hands of the company that are usually sold or converted into cash within a year.
Current cost is the cost that would be incurred if the business decided to replace an asset.
Current Cost Accounting
Current cost accounting is a type of accounting that records the updated amounts according to the current cost as opposed to the historical cost.
Current Debt to Total Debt Ratio
Current debt to total debt ratio shows the current liabilities of the company as a percentage of the total liabilities of the business. It is calculated by Current Debt to Total Debt Ratio = Current Debt * 100 / Total Debt
Current liabilities are the liability obligations of the business, which it is expected to pay off within a year.
Current ratio is the ratio that compares the current assets to the current liabilities in the company. It is calculated by the formula: Current Ratio = Current Assets / Current Liabilities.
A custodian is the business entity that is in charge of maintaining records or is the caretaker for a property.
Customs is the authority who is in charge of collecting duty on the merchandise that comes into the country. The duty that is paid for importing goods into the country is called custom duty.
A day book is a daily written record of transactions.
Day’s Cash on hand
Days cash on hand is the average cash available with the business.
Day’s inventory shows the average amount of time that the items are in the inventory.
Days Payable Outstanding
Days payable outstanding shows the amount of time it takes for the business to pay off its creditors on receipt of inventory from them.
Days Sales Outstanding
Days sales outstanding is the amount of time it takes for converting debtors/receivables to cash.
Dead assets are those assets whose life is restricted to their immediate use.
Debentures are instruments used by the business to raise money. A debenture may be backed by security or unsecured.
A debit note is a document that informs/reminds a debtor of his outstanding debt.
A debt is money or goods or services, which one business owes another business. A business that owes money to another is said to have a debt over the other.
Debt Coverage ratio
Debt coverage ratio is the comparison between the net income of an investment and the amount required to service the debt.
Debt financing means to finance the activities of the business by issuing debt instruments, like bonds, debentures, or getting loans.
A debt instrument is a written document that acknowledges debt.
A person or persons who owe money to the business are collectively known as debtors.
Debtor days is the average number of days required to convert receivables to sales.
Debt ratio measures how much of the total funds of the business are provided by outsiders. It is calculated by: Debt Ratio = Total Liabilities / (Total Liabilities + Shareholder Equity)
Debt security is the security for debt capital, i.e., debentures, bonds.
Debt Service Ratio
Debt service ratio is the amount of total revenue that is spent on paying for debts. It is calculated by Debt Service Ratio = (Debt Payment * 100) / Total Income
Debt to Equity Ratio
Debt to equity ratio measures the part of the total capital that is financed by debt and the part financed by equity. It is calculated by Debt to Equity Ratio = Total Liabilities / Stockholder Equity
Debt to Total Assets Ratio
Debt to total assets ratio measures the percentage of assets financed by debt.
Declining Balance Depreciation Method
Declining balance depreciation method is a method of calculation of depreciation at a fixed rate. Under this method, an asset will continuously be depreciated a fixed rate of percentage, and the subsequent depreciation will be on the reduced balance.
Deduction means to subtract.
Deductive Accounting Theory
Deductive accounting theory works on the assumption that accounting standards and reporting rules can be based on logical and mathematical deduction.
Default is when a debtor to the business does not pay the amount due to the business, due to inability or unwillingness on his part. It is used more commonly in the context of banking where a default is a situation when a person who has taken a loan does not pay it back.
Defeasance is to release a debtor from his debt obligation to the business.
Deferred is an asset or a liability that will be realized at a future date.
Deferred annuity is a series of payments that will start on a future date.
Deferred Development Costs
Deferred Development Costs are those, which will be recognized after a certain condition/obligation is satisfied.
Deferred expenditure is expenditure ,which is carried forward and written off over subsequent periods.
Refer Prepaid Expenses
Deferred income is income earned in advance by the business.
Deferred Maintenance is the expense that should have been paid for maintenance but has been delayed.
Deferred Payment Credit
Deferred payment credit is a letter of credit that states that a payment will be made at the end of the period specified in the letter of credit.
Deferred Tax Assets
Deferred tax assets are those assets that reduce the tax liability of the business for some years over the validity of those assets.
Deferred Tax Liability
Deferred tax liabilities are the opposite of deferred tax assets and have the effect of increasing the tax payment of the business in the following years.
A deficit is the excess of expenditure over revenue.
A deficit budget is a budget where the budgeted expenses are more than the budgeted income.
Deficit spending is the external financing required to finance the expenses that are not covered by income.
Deflation is a situation characterized by a decline in prices.
Delinquency Ratio is the ratio that compares the past-due loans to the loans that have been serviced completely.
A demand deposit is a deposit kept with a bank from which money may be withdrawn at any time without any notice.
Demand draft is an instrument of payment that one person gives to the other and the other person can demand money against it.
Demand note is a note that is payable on demand from a person who owes the money.
Departmental accounting is maintaining the account of the expenses and revenue of the various departments of the company that have varying autonomy, but are not geographically separated.
Depreciable cost is the cost of the fixed asset, which is subject to depreciation.
Depreciated Historical Costs
Depreciated historical cost is the method of valuing certain assets. Depreciated Historical Costs = Cost of their Acquisition + Enhancement – Reduced Depreciation till that date.
Depreciation is writing off the book value of a fixed asset every year, due to the reduction in its value caused by wear and tear, obsolescence, etc.
Depreciation allocation means that instead of simply writing off depreciation each year, the business could instead make an amortization or a reserve for improving the fixed asset or for buying a new one.
Depreciation convention is determining the method of depreciation to be used for an asset that is purchased at some time during the accounting period.
Depreciation reserve is used to create a systematic account by allocating the depreciated price of a fixed asset over its entire life.
A depreciation schedule is a statement showing the details of the amounts and timing of depreciation over its effective life.
A derivative is a transaction or a contract whose value is derived from the value of the underlying assets.
Designated receipts are revenues that are designated for a specific purpose.
Devaluation is reducing the value of something. It is most commonly used in the context of currency value reduction.
Diluted Earnings Per Share
Diluted Earnings per share are calculated not only on equity stock but also on preferred stock and convertible debt.
Dilution is weakening or decrease in the value of a balance sheet item.
Diminishing Value Method
Direct Cost is a total of the costs that are associated with the actual production of a product. Direct Costs = Direct Material + Direct Labor.
Direct Expenses are those expenses, which are directly associated with providing a product for sale.
Direct Labor is the remuneration paid to the employees who produce the product.
Direct Labor Budget
Direct Labor Budget is the planned monetary allocation for paying for the direct labor.
Direct Labor Rate Variance
Direct Labor Rate Variance is the difference between the standard hours to be worked by an employee and the actual hours worked by the employee.
Direct Materials includes the cost of purchasing the raw materials for the process of production.
The director’s report is written by the director of the company in the annual report as to his analysis and comments on the performance of the company in the past year and the director’s vision for the next year.
Direct Write off Method
Direct write off method is to write off all the bad debts at the time that they are adjudged non-collectable.
Disbursement voucher is the document used to request disbursement for expenses.
Refer Disclosure Principle
Disclosure principle in accounting says that any detail regarding the information related to the better understanding of the financial statement should be disclosed by the management.
Discount is the decrease in the price of a product.
A discount is said to be allowed when the seller reduces the price to induce the customer to make a purchase.
Discounted Cash Flow
Discounted cash flow is to discount the cash flow from an investment at the required rate of interest each year.
Discounted earnings is to reduce the value of future inflows into the company by a specific rate of interest.
Discounted payback period is the period of time it will take to cover your initial cash outflow at the discounted rate of interest.
Discounting rate is the rate of interest at which a series of cash inflows/outflows are discounted.
Discrepancy is the difference between two claims or facts.
Discretionary costs are those costs that can be increased or decreased at the choice of the business.
Discretionary income is the income left with the company after all the primary costs are incurred.
Dishonored note is a note that the debtor defaulted on, creating a bad debt.
Disintermediation is the transfer of funds from the low return investment options to the higher return options.
Disposable income is the income left with the company after all the primary obligations are met.
Dissolution is legally winding up the business.
Distribution cost is the cost incurred on distributing the product to its users.
Distribution to Owners
Distribution to owners is the payment to owners in the form of dividend.
DIT is short for Depreciation, Interest and Taxes.
Divestiture is when a company sells its product line, division, or a subsidiary.
Dividend is a portion of the earnings of the business that is paid to the shareholders of the company.
Dividend capitalization is the method for estimating the cost of the firm’s common equity.
Dividend Payout Ratio
Dividend payout ratio gives the percentage of earnings that are given as dividends.
Dividend Per Share
Dividends per share are calculated by Dividend per share = Total Dividend / Number of Shares.
Dividend Yield Ratio
Dividend yield ratio = Latest Annual Dividends / Current Share Price
A division is a unit or a part of the company that is runs its operations independently.
Document control is the department in the company that looks after the documentation in the company and take care of all the documents.
Document Reconciliation is the synchronization and verification of all the documents.
Document Review is a technique of data collection by examining existing records.
Doomsday ratio is calculated by Doomsday Ratio = Cash in Hand / Total Liability
Double accounting is a fraudulent or unintentional double counting of assets or liabilities.
Double Entry Accounting
Double entry accounting is recording the debit as well as the credit effect of the entry.
Double Leverage refers to a situation where the holding company raises the debt and dowstreams it to the subsidiary company.
Doubtful debt is a debt owed to the business the recovery of which, is not certain.
Down payment is a lump sum payment made at the time of purchase.
Refer Proprietor’s Draw
Drawdown shows the quantity of value lost, either as a percentage or in currency terms
Drawee is the person in whose favor a check/bill etc. is drawn.
Duality concept is an accounting concept, which says that every accounting entry will have two effects, debit and credit.
Due diligence is the level of diligence that the internal audit committee is expected to maintain.
Duty is the tax which is imposed on imported goods.
E & OE
E & OE is an abbreviation for Errors and Omissions Excepted.
E & P
E & P is an abbreviation for Earnings and Profits.
Earned income is the income earned by selling goods and services.
Earning asset is simply an asset, which has a capacity to earn.
Earning Capacity is the net average earnings of an asset at any given point of time.
Earning Power = EBIT / Total Assets
Earnings is the financial ability of the business to make distributions to its shareholders.
Earnings before Taxes
Refer Profit Before Taxes
Earnings from Operations
Earnings from operations = Sales – Operating Costs
Earnings per Share
Earnings per share = Profit After Tax / Number of Shares
EBIT is the acronym for Earnings Before Interest and Taxes.
EBITDA is the acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization.
EBITDARM is the acronym for Earnings Before Interest, Taxes, Depreciation, Amortization, Rent and Management fees.
Refer Opportunity Cost
Economic entity is the accounting concept that provides a context for economic events for recording the transactions.
Economic Order Quantity
Economic order quantity is that level of inventory to be ordered which minimizes the cost of holding and transporting inventory along with having the required stock all the time so that the production activity does not get hindered.
Economic value is the value of the asset derived from its earning capacity.
Economies of Scale
Economies of scale is a theory that the more quantity you buy, the lesser is the average cost of each individual item.
Effective Interest Rate
Effective interest rate is the cost of credit computed on a yearly basis and expressed as a percentage.
Effective Tax Rate
Effective tax rate is the net rate of all the taxes that a person/business pays on income. Effective Tax Rate = total taxes paid / total income
Efficiency is the comparative ratio of output to input.
Embezzlement is fraud or misappropriation by an entrusted person, e.g., by employees.
EMI is the acronym for Equated Monthly Installments.
Employee compensation is the wages/salaries and all the other benefits provided to the employee by the employer.
Endorsement is to forward a note/bill/check by the original payee.
Engagement is to pledge, bind, or come together of two or more entities.
Engineered costs are those costs which are directly linked to output.
Entity concept of accounting says that the business and its proprietors are different entities, and the personal transactions of the proprietor should not be included in the books of accounts.
EOM is the acronym for End of the Month.
EOY is the acronym for End of the Year.
Equity means the ownership or the percentage of ownership that a person has in a company.
Equity Accounting is the practice of showing the undistributed profits of another company in which one company holds an ownership of below 50%.
Equity capital is a way of financing where the company’s equity is sold to investors.
Equity financing is a way of financing by issuing common stock or preferred stock.
Equity holding is holding a share of capital in a company which gives the shareholder the rights to vote, receive dividend etc.
An equity share is defined as the share of the total equity held by the investor.
Equity to Asset Ratio
Equity to asset ratio gives the amount of assets that are financed by the shareholders’ equity capital.
Errors of Commission
Errors of commission are those that occur because some incorrect action is taken.
Errors of Omission
Errors of omission are those that occur because some action is not taken.
Errors of Original Entry
Errors of original entry are those where a wrong amount is entered on both debit and credit sides in the journal.
Errors of Principle
Errors of principle are those where the entry is made to a wrong category of account.
Estate is all the assets owned by the company at the time of death of the holder of the assets
Estate taxes are the taxes levied on the transfer of property from the deceased to the legal heirs.
Ethical standards are written documents that contain the basic principles and essential procedures along with the related guidance in the form of explanations and other material.
Excise tax is the tax that is levied by the federal government or the state government on activities such as manufacture, occupation, privilege, sale, and non-deductible consumption.
An executor is a legal entity, specified in the will of the deceased that is vested with the power to execute the will.
Exempt is to be free from a tax liability.
Expected Annual Capacity
Expected annual capacity is the production capacity planned for the year.
Expendable item is one that can be used and discarded and will not affect the end product.
Expenditure is the cost incurred in trying to generate revenue.
Expenses are daily costs incurred to run and maintain a business.
External audit is the audit performed by an entity, which is external to the business.
Extraordinary items are those which occur infrequently and are unusual.
Face value is the value that is printed on the face of a commodity.
Factoring is to buy a debt at a discount.
Factory overheads are those costs incurred within the factory that cannot be directly assigned to direct costs.
Fair Market Value
Fair market value of a commodity is the value at which the seller is willing to sell the commodity and the buyer is ready to buy it.
Fair value is the value at which a seller is willing to sell and the buyer is willing to buy an asset.
F & A
F & A is the commonly used acronym for either Facilities and Administrative costs or Finance and Accounts or Finance and Administration.
A variance is said to be favorable when the actual spending/use of resources by the business is less than the standard spending/use.
FBWT is the acronym for Fund Balance with Treasury.
FDI is the acronym for Foreign Direct Investment.
Fees earned is an income statement account, which shows the service revenues earned during the period.
Fees simple implies absolute ownership over a real property.
FF & E
FF & E is the acronym for Furniture, Fixtures, and Equipment.
Fictitious asset is the debit balance on the asset side of the balance sheet. Intentional creation of fictitious assets may amount to fraud.
Fiduciary is a business or an individual that is empowered to act for another in good faith and trust.
FIFO is the acronym for First In First Out. It assumes that the inventory that is purchased first is used or sold before the inventory that is purchased later.
Finance may be used to mean either money, or the subject that deals with effective management of funds or a department in the company which is in charge of managing funds.
Finance charge is the total amount expressed in dollar terms, which you will be charged as interest for loan.
Financial Accounting is the process of recording all the transactions of the business for reporting and analysis.
Financial analysis is the process to analyze the financial statement of a company.
Financial Cash Flow
Financial cash flow is the cash flow, which is generated by the assets of the firm and how those funds are distributed to the shareholders.
Financial budget can be broken up into two types. Capital budget is the forecast for large expenditures, and cash budget is the forecast for cash receipts and disbursements.
Financial engineering is the process that deals with creation and combination of a variety of financial instruments in order achieve a defined financial objective
Financial gearing is any borrowing which the business undertakes.
Financial interest is any relationship with a commercial entity.
Financial leverage is using debt to increase the return on equity
Financial management is a subject that deals with financial management and control, through analysis of financial statements.
Financing cost is the difference between the cost of purchasing the asset and the return that the asset provides.
Finished Goods Inventory
Finished goods inventory is the stock of finished goods lying unsold in the warehouse.
FIT is the acronym for Federal Income Tax.
Fixed assets are those assets that are required for normal conduct of business.
Fixed bond is a type of bond that pays interest at a fixed rate till maturity
Fixed Charge Ratio
Fixed Charge Ratio = Fixed Costs / Total Expenses.
Fixed costs are those costs, which do not vary depending on the level of production and sales.
Fixed deposits are amounts, which you keep with the bank for a specified period of time and earn a specific rate of interest, which is higher than the rate for savings accounts.
Fixed income is the type of income, which you get from an investment. Interest on bank savings is an example of fixed income.
Fixed overhead costs are those costs that are not directly linked to production and remain fixed irrespective of the level of production and sales.
Flat interest rate is the rate charged on the starting amount rather than the current balance.
Flat rate means that the price of a commodity will remain the same, irrespective of the volume sold.
Forecast is an estimate or prediction regarding the business results.
Forensic Audit is examining the evidence regarding an assertion made in the court of law.
FP & A
FP & A is the acronym for Financial Planning and Analysis.
Freight is the cost incurred in transporting assets or goods to or from a warehouse or place of production.
Fringe benefits are the non-monetary benefits provided to employees.
FRS is the acronym for Financial Reporting Standard.
Full Charge Bookkeeper
A full charge bookkeeper is one who can do all the accounts work right from journal preparation to making the final financial statements.
Full Cost Recovery
Full cost recovery is adjusting the prices of goods/services so that all the fixed and variable costs of the product are met.
An asset is said to be fully depreciated when it has already been charged with the maximum total depreciation as is allowed by the tax authorities for that asset.
A fund is an amount of money that is set aside for a certain purpose.
Funds employed is the average of the Net Working Capital and the Fixed Assets
Funds flow is the total funds generated from operations over the course of business activity.
Future value is the value of a commodity or an asset at a future period of time.
FYE is the acronym for Fiscal Year Ended.
GAAP is the acronym for Generally Accepted Accounting Principles, which is an accepted set of accounting procedures, policies, and rules. Read on for more about the U.S. GAAP – Generally Accepted Accounting Principles
G & A
G & A is the acronym for General and Administrative Overheads.
Gain is the excess of total revenue over total expenses. Gain may also be used to refer to a rise in value, rate or prices.
Garnish is to claim the debtor’s wages/salary under a court order for previously defaulted debts.
Gearing ratio is the ratio that measures the percentage of the total capital employed financed by long term debt.
Generally Accepted Auditing Standards
Generally Accepted Auditing Standards are the standards, rules, and guidelines set by the Auditing Standards Board of the American Institute of Certified Public Accountants.
Gilt, in general use, is a bond issued by the government.
Global bond is a bond, which can be traded outside the country of its issue.
Global Fund is a type of mutual fund where the fund company can invest in companies located anywhere in the world
GMROI is the acronym for Gross Margin Return on Investment.
Going Concern Concept
Going Concern Concept of Accounting assumes that the business will remain in existence for all the foreseeable future.
Going public is used to indicate that a certain business is going to issue publicly traded share capital.
Going rate is the average cost of the products or services.
Golden Rules of Accounting
The Golden Rules of Accounting govern the treatment of various types of accounts in case of an economic event.
- For personal accounts, the rule is ‘Debit the receiver; credit the giver’.
- For real accounts, the rule is ‘Debit what comes in; credit what goes out’.
- For Nominal Accounts, the rule is ‘Debit all expenses or losses; credit all incomes and gains’.
The commodity in which a business trades, is collectively known as goods.
Goodwill is an intangible benefit one business enjoys over its competitor, as the market is ready to absorb the goods of the former company even at a higher price.
Governance is the act of exercising authority or simply governing, which is performed by the Board of Directors.
Gross is an amount before any deductions or additions are made to it.
Gross debt is the total of all the debt obligations of the business.
Gross Margin is used synonymously with Gross Profit or Gross Profit Ratio.
Gross profit is the excess of sales over production costs.
Gross Profit Margin on Sales
Refer GP Ratio
Gross Profit Method
Gross Profit Method is the inventory estimated that is based on gross margin.
Gross revenue is the money earned from sales of goods.
Gross sales is the total value of sales prior to any discounts, deductions, or returns.
Hard Assets include physical assets and financial assets, and do not include intangible assets.
Hard costs are the total costs incurred on the purchase of assets.
Hidden assets are any value generating assets in the business that are not included in the balance sheet of the company.
High Credit is the highest that a debtor has ever taken from any one creditor.
High Low Method
High-Low method is a method of approximating cost method is one, which considers only the highest and lowest points of the given data and the activity in the given range.
High Yield Debt
High Yield Debt is a debt instrument that gives a higher yield/return as it is a higher risk instrument.
Hire and Purchase Agreement
Hire and Purchase agreement is an agreement where the buyer hires an asset/goods at a rate of rent and at the end of the renting period and after paying all the installments, receives ownership of the asset or goods.
A holding company is one that holds more than 50% stake in another company (known as subsidiary company).
Horizontal Financial Analysis
Horizontal Financial Analysis is the analysis of the ratios of one company with those of the competitors and with those of the industry.
A hostile takeover is when one company buys out the other company whether the board approves of it or not. It is usually done by buying the majority stake of the company from the publicly traded share, thus becoming the majority stakeholder, bypassing the board of directors.
Human capital is the intellectual capital of the employees which the company enjoys.
Hybrid instrument is a bundled instrument containing two or more different types of risk management instruments.
Identifiable Assets and Liabilities
Identifiable assets and liabilities include both tangible and intangible items in the balance sheet.
Idle time is the time for which production activity gets suspended.
Immovable is generally used in the context of assets which are permanent and stationary, like land and buildings.
Impairment of Value
Impairment of value is the permanent loss of value of an asset.
Implicit Rate of Interest
The rate of interest is said to be implicit when the stated interest rate is different from the market rate.
Implied costs are the hidden costs incurred on the assets that have already been paid for.
Imprest basis means that the cash balance for expenditure in the cash account is replaced at the end of every period.
Income is the amount of money received during a period of time on account of anything.
Income Gearing Ratio
Income Gearing Ratio = Interest Expense / Operating Profit.
Income tax is the tax paid as a percentage of business or personal income.
Income Taxes Payable
Income taxes payable is the amount of money payable as income tax, but is not paid yet.
Incorporated is a type of business entity that has been allowed to operate as a corporation by the approval of the state government.
Incremental means additional.
Incremental budget is the budget for the fixed overhead costs.
Incremental Cost of Capital
Incremental cost of capital is the weighted cost of the additional capital raised.
Indirect costs are those costs, which are not directly related to the process of production.
Indirect shareholding is when a company A holds a direct shareholding in company B and company B holds a direct shareholding in company C, company A is said to have an indirect shareholding in company C.
Industry analysis is the analysis of the financial performance of an industry as a whole.
Inflation accounting is a form of accounting where the amounts are adjusted to the changing prices.
Inflation adjustment is to adjust the figure on an amount for increase or decrease in inflation.
Inherent risk is the risk that is intrinsic to any activity, investment etc.
Insolvency is a situation where an entity’s liabilities exceed its assets and cannot be paid off.
Installation is the cost incurred to put an asset into use.
Installment sale is selling a commodity and receiving the payments for it over successive periods instead of a lump sum.
Insurance claim is the written notification which the insured gives to the insurer to ask for the amount due under the policy.
An Intangible asset is an asset that cannot be physically seen or felt, but its presence benefits the company, e.g goodwill.
Intellectual capital is the resource of specialized knowledge that a company has and is recognized as an asset to the company.
Interest is a fixed charge that is given as compensation for parting with immediate liquidity.
Interest bearing is used to describe something that gives interest.
Interest Coverage Ratio = Net Interest Expense / EBIT
Interest earning is the total interest received by the company on various investments.
Interest expense is the total interest paid by the company for various debts.
Interest rate is a percentage of the total investment/debt at which the interest amount is given/paid.
Interim audit is an audit that is conducted at some time during the year.
Interim Dividend is the dividend that is paid at some time during the year
Internal audit is the audit carried out by the audit committee in the company itself.
Internal Rate of Return
Internal rate of return is the rate of return, expressed as a percentage, the net present value for which is zero.
Intrinsic value is the value of something by itself, irrespective of its use and whether it is used.
Inventory is the stock of raw materials, work in progress or finished goods
Inventory accumulation is the extra inventory that was stored on account of unplanned events.
Inventory and Purchases Budget
Inventory and purchases budget is the budget set by the company for purchasing and storing inventory.
Inventory Control is to maintain the optimum amount of inventory in the stores of the company.
Inventory is said to be obsolete when it is no longer usable or salable.
Inventory profit is the profit that the company earns due to the rise in the prices of inventory.
Inventory transfer is a process that physically tracks the transfer of inventory from one place to another.
Inventory Turnover Ratio
Inventory turnover ratio gives the number of times the inventory is purchased and used up for production or sold in a given period.
Inventory valuation is the process of assigning monetary value to inventory.
Investment is purchasing something with an intention to gain a profit from its sale or getting income for it at regular intervals. Read on for Types of Investments
Investment capital is the capital raised by the issue of shares or long-term debt instruments like debentures.
Investment expense is the expenses incurred on the inventory other than those expenses which are incurred for purchasing the inventory, like installation costs, brokerage, etc.
Investment Tax Credit
Investment tax credit is a tax credit that is given to the businesses to write off a portion of the cost of purchasing equipment.
Investment turnover is the ratio used to measure the number of times an asset or investment revolves.
An invoice is an itemized bill, which gives the details of the items purchased or sold.
IPO is the acronym for Initial Public Offering. It is the first time that a business goes public with the issue of shares.
JIT is the acronym for Just-in-Time.
Job Costing is the allocation of time, material, and expenses to an individual job or project.
Joint Account is the financial account that is used and run by two or more account holders.
Joint Payee Endorsement
Joint Payee endorsement is when a bank draft is made out to two parties, and both parties are required to endorse the back of the bank draft before it is honored by the bank.
Joint Stock Company
Joint Stock Company is a type of company that enjoys some features of a partnership and some features of a corporation.
Joint Venture is a business activity started by two or more people, who invest capital for that business activity. Read on for more about Venture Capital
Joint Ventures and Investments
Joint Ventures and Investments is the total investments and equity in a joint venture.
Journal is the first record of transactions of the business as they occur.
Journal entry is a record of the transactions made by the business.
Kaizen Budgeting is the budgeting approach, which takes into consideration projected future costs rather than current practices.
Kaizen costing is reducing the cost of production in small steps.
Lag time is the time between two closely related phenomena, such as stimulus and response.
Land is the asset account in which the details and the costs of land holding for the business are given.
Leasehold improvements are repairs and improvements made to leasehold land by the lessee.
Ledger group is a group of ledgers that consist of a primary ledger and a number of secondary ledgers.
Legal Entity Assumption
Refer Entity Concept
Leverage is the property rising or falling at a greater proportion than the comparable investments.
Leverage ratios measure the impact of equity and debt capital on profitability.
Levied is a charge that is imposed or collected.
Liability is a loan or a debt for the business that needs to be discharged.
LIFO is the acronym for Last In First Out. It means that the inventory, which is purchased last, is used or sold first.
LIFO Liquidation is the process of reducing the reported value of the inventory.
LIFO reserve is the difference between the LIFO level of inventory and the FIFO level of inventory.
Lifting and Operating expenses
Lifting and Operating expenses are generally incurred in the oil and energy industry, in the running and maintenance of oil wells.
Limited Company is a legal entity that is owned by shareholders. Read more on Corporation Types.
Limited liability is when the owner’s liability for the business is restricted to his share in the business. Read on for An Explanation of LLC (Limited Liability Company).
Line of Credit
Line of Credit is an agreement between a financial institution and a business where the financial institution agrees an upper limit on the amount sanctioned without having to take another loan.
Liquid assets are cash and those assets that are easily convertible to cash.
Liquidating dividends are those dividends that are paid by the company at the time of liquidation/bankruptcy
Liquidation is selling off all the assets of the business to pay off the debts of the business.
Liquidity is the ability of the business to meet all current debt obligations.
Liquidity Ratio = (Cash + Marketable Securities) / Current Liabilities
Loaded Labor Rate
Loaded labor rate is the total of the employee remuneration, benefits, capital expenses, and other overheads on labor.
Loan is when a lender allows the borrower to take some of the assets owned by the lender for a specified amount of time, that will be returned at the end of the specified period along with interest. Read on to know about Mortgage Loan Underwriting
LOC is the acronym for Letter of Credit.
Long-lived assets are those, which are not consumed in the normal course of business.
Long Term Debt
Long term debt is a type of financing that is taken by a business and the maturity of which is several years hence.
Long Term Debt-to-Equity
Long term Debt-to-Equity Ratio = Long Term Liabilities / Shareholder Equity
Long Term Liabilities
Long term liabilities are those, which are due for over a year.
Long Term Receivables
Long term receivables are those receivables, which will be received after a year.
Loss is the excess of expenses over incomes in any context.
Maintenance is the cost incurred for keeping an asset in working condition.
Managed receivables are those receivables on which the company performs billing and collection.
Management accounting deals with the entire spectrum of collection, recording, examining, and managing the financial activities of the company by the management.
Manufacturing account gives the total of the prime and overhead costs of manufacturing finished goods.
Manufacturing overheads include all the indirect labor costs, indirect material costs, and indirect expenses used for manufacturing.
Marginal benefit is the extra amount of benefit derived by an increase or decrease in a unit of an activity.
Refer Incremental Costs
Marginal profit is the incremental profit derived by an increase in production by one unit of the goods.
Margin of Safety
Margin of Safety shows how far the sales level can fall, till the business starts incurring a loss.
Marketable capacity is the difference between the total capacity absorbed by the market and the predicted capacity.
Marketable security is an equity or debt security that can be easily traded.
Market capitalization is the total value of the issued shares in the market. Market Capitalization = Number of Shares * Current Market Price
Marketing expense is the money that the company spends on marketing their goods during the accounting period.
Market to Book Value
Market to Book Value = Market Capitalization / Tangible Assets
Master Budget is the main budget prepared by the business, which includes several budgets that relate to each head for which the budget is prepared.
MAT is the acronym for Management, Administrative, and Technological.
Matching concept is the concept in accounting that says that the costs and revenues should be matched in the income statement.
Material control is proactively controlling the materials that are used in the manufacturing activity.
Materiality principle says that accountants should use the Generally Accepted Accounting Principles, except when their use is difficult or financially unavailable.
Materials Requisition Planning
Materials Requisition planning is the process of planning for materials that are required regularly in the process of production.
Materials is generally used to refer to the raw materials that are used in the process of production.
Maturity value is the value that an investment will realize at the end of the maturity period.
Merger is the union of two or more businesses where one is not absorbed by the other, but instead, they both maintain their separate identities.
Minimum wage is the legally fixed lowest per hour wage that can be paid to an employee.
Miscellaneous income is the income, which is derived from sources other than the usual sale of goods.
Mixed costs are those costs which have both, a fixed and variable component.
Modified Accrual Basis
Modified accrual basis is a combination of both the cash and accrual bases of accounting.
Modified Internal Rate of Return
Modified internal rate of return is the rate of return, which is modified to match up with the required rate of return.
Monetary assets are the assets that are measured in their present collectible amounts, as opposed to their historical costs.
Money Measurement Concept
Money measurement concept is one of the most fundamental concepts in accounting, which says that all the transactions should be measured in money terms.
Natural accounts are user-defined accounts for the various activities, which are associated with the accounting entity that capture data at the transaction level.
Natural classification of costs classifies the cost based on the nature of the cost item.
NEBT is the acronym for Net Earnings Before Taxes.
Negative Amortization is when the outstanding principal balance of the loan increases rather than decreasing, as is the case with normal amortization.
Negative Cash Flow
Negative Cash flow is when the cash outflow exceeds the cash inflow.
Negative goodwill is said to arise when the net assets exceed the cost of acquisition.
Negative Working Capital
Working Capital is said to be negative when the current assets exceed the current liabilities.
Negligence is defined as an omission to do something that a reasonable man would have not forgotten to do.
Negotiable instrument is a document, which represents a debt or money payable by one person to another.
Net is the final amount calculated after all the necessary deductions are made to the gross amount.
Net assets is the difference between total assets and non-capital liabilities.
Net Book Value
Net book value is the current book value of an asset or a liability.
Net Cash Flow
Net cash flow is the difference between the cash inflows and the cash outflows for a business.
Net contribution is the remaining amount after all the deductions are made to the gross amount.
Net Debt = (Debt + Short Term Loans) – Current Assets.
Refer Net Income
Net Interest Margin
Net interest margin is the excess of interest received on investment over interest paid for debt.
Net of Taxes
Net of taxes usually indicates the effect of applicable taxes, which has been considered in determining the overall effect of an item on the financial statements.
Net Operating Income
Net operating income is the excess of sales revenue over operating costs.
Net Operating Loss
Net operating loss is the excess of operating costs over sales revenue.
Net Operating Profit after Taxes (NOPAT)
NOPAT = Operating Income x (1 – Tax Rate).
Net Present Value
Net Present Value (NPV) is the difference between the present value of the full stream of future inflows of cash from an investment and the present value of cash outflow for purchasing the investment.
Net profit is the excess of income from all sources over the expenses.
Net purchases is the amount of purchases after deducting the purchase returns, allowances, and discounts.
Refer Net Accounts Receivables
Net revenue = Gross revenue – (Discounts + Allowances + Sales Returns + Freight)
Net sales is the amount of sales attained after deducting the sales returns, allowances, discounts etc.
Net Worth of a Business = Total Assets – Total Liabilities
Nominal accounts are account items for incomes and expenses of the business.
Nominal capital is the total face value of the authorized share capital.
Nominal Interest Rate
Nominal interest rate is the rate of interest that is specified in the contract document for a bond, loan, etc.
Non cash expenses are those which appear on the debit side of an income statement, but there is no actual outflow of cash for the same, for e.g., depreciation
Non Current Assets
Non current assets are those assets in the balance sheet that are not current assets.
Non Equity Share
Non equity share is a type of share which shows the indebtedness of company to the shareholder, but isn’t part of the equity interest in the entity.
Non Fixed Asset
Non fixed assets are those assets in the balance sheet that are not fixed.
Non Performing Asset
Non performing asset is the asset that does not provide a return or is not effectual in generating income.
Non Profit Organization
Non-profit organizations are those organizations running for social benefit and not for making profit.
NOPLAT is the acronym for Net Operating Profit Less Adjusted Taxes.
Not for Profit Accounting
Not for profit accounting is the practice of accounting for non profit organizations.
NPPE is the acronym for Net Property, Plant, and Equipment.
NPV is the acronym for Net Present Value
NWC is the acronym for Net Working Capital.
O & M
O & M is the acronym for Operations and Management.
Objectivity principle of accounting states that transactions will be recorded on the basis of objective evidence available.
Off Balance Sheet Asset
An off balance sheet asset is one that represents a resource of the entity or something that is projected to have a future economic value.
Off Balance Sheet Financing
Off the balance sheet financing is borrowing, the details of which are not given in the balance sheet
Off the Books
Off the books is something, which is not recorded in the books of accounts.
On account is a payment made to discharge the debt in full or in part.
Open account is an arrangement where the payment may not be guaranteed.
Open Book Credit
Open book credit is a form of credit where the payment may not be assured.
Opening balance is the balance carried forward of the account to the next accounting period.
Opening stock is the opening balance of raw or processed inventory.
Operating Allowance is an advance/reimbursement, which is made against certain costs/expenses and/or a reduction in amount payable to cover those certain costs/expenses.
Operating assets are those long term assets that the business intends to use rather than sell.
Operating budget is a combination of the various budgets that are set for operations. The various budgets included in operating budget are sales and collection budget, cost of goods sold budget, inventory and purchases budget and operating expenses budget.
Operating Cash Flow
Operating cash flow is the inflow and outflow of cash from the business for operational activities.
Operating Cash Flow Ratio
Operating cash flow ratio is calculated by cash flow from operations/current liabilities.
Operating costs are those costs, which are incurred for maintaining property.
Operating cycle is the time difference between purchasing raw materials and realizing the cash from the sales of finished goods.
Operating Expenditure is the expenditure incurred on day-to-day items of expense in the business.
Operating expenses are the general and administrative and selling expenses of the business.
Operating Expenses to Sales
Operating expenses to sales ratio gives the percentage of the total sales revenue that is used to pay for operating expenses.
Operating income is the excess of revenues from operations over the operating expenses.
Operating Leverage is the ratio of fixed operating costs to the total operating costs.
Operating margin is the ratio, which compares operating income to sales revenue.
Operating profit is the excess of gross profit over operating expenses.
Operating Profit to Sales
Operating profit to sales ratio is the ratio, which compares the operating profit to the sales and shows how much percentage of sales constitutes the operating profit.
Operating Ratio = Operating Expenses / Operating Revenues
Operating revenue is the revenue earned on the basis of day-to-day operations like sales.
Operating risk is the risk inherent to the operations of any specific business.
Operating transfer is where a transfer of funds or resources is made from one account to another to fund the operations of that account.
Order of Liquidity
Order of liquidity is a format for preparing the balance sheet where all items on the asset side of the balance sheet are listed in descending order of liquidity.
Order of Permanence
Order of permanence is format for preparing the balance sheet where all the fixed assets are arranged in the descending order of their permanence.
Ordinary asset is a non-capital asset that is used for business purposes.
Ordinary income is the income earned through the ordinary course of business and not from any capital gains or extraordinary windfall gains.
Organization cost is the expenses incurred to begin a business entity. These costs are also known as startup costs and include the money spent on legal fees etc.
Other income is the income derived from sources other than the main activity of the business.
Out-of-the-pocket expenses are those that require an outlay of cash in a given time period.
Outstanding is an unpaid amount owed to someone.
Outstanding shares is the number of shares that are currently issued by the company and held by the shareholders.
Overdraft is a facility given by a bank to an account holder that allows the account holder to have a negative balance.
Overhead is the cost, which is not directly incurred on production, but indirectly incurred for other reasons.
Overhead budget gives all the expected production costs other than direct materials and direct labor.
Overhead rate is calculated by totaling all the expenses for one year, excluding labor and materials, and then divided by the total cost of labor and materials.
Overtime is the work done in excess of the regular working hours.
Something is said to be overstated when it is quoted to be more than it actually is.
PA is the acronym for per annum.
P & L
P & L is the acronym for profit and loss statement. It gives the details regarding the incomes and expenses of the business over the accounting period.
Parent company is the company which has a lot of subsidiaries under it.
Partnership is a business type which has not been incorporated but has more than one owner.
Par value is the face value. It is usually used while referring to bonds or other financial instruments.
Payable is some amount which is not paid by the business. It is a liability.
Payables Turnover = Purchases / Payables
Payable to Shareholders
Payable to shareholders generally refers to the payments that are to be made to shareholders.
Payback period is the period of time required to recover the amount spent for capital investment.
Pay cycle is a set of rules that define the criteria for selection of scheduled payments for payment creation.
Payment Due Date
Payment due date specifies the last date till which the payment must be made.
Payout ratio is the dividend paid by the company to the shareholders out of earnings expressed as a percentage.
Payroll is the list of all the employees in the organization and their salaries.
PBT is the acronym for Profit Before Taxes.
Price to Earnings ratio compares the current price of the share to the earnings per share. P/E Ratio = Market Price of the Share / Earnings per Share.
Performance budget is a budget format that individually relates the input of resources and the output of services for each unit in an organization.
Performing asset is an asset, which has been giving a good steady return over its functional life.
Period costs are those which cannot be accumulated and need to be paid off by charging them against the revenue in that year itself.
Periodicity Concept is the accounting concept, which states that each accounting period has an economic activity associated with it, and that this activity can be measured, accounted for, and reported.
Periodic valuation of the assets deals with determining the future value of assets and investment portfolios.
Perpetuity is an annuity, which is payable forever.
Persistent earnings are continually recurring level of earnings from one accounting period to the other.
Personal account is a type of account that keeps the record of transactions of different people associated with the business, such as debtors and creditors.
Personal equity is that portion of the owned equity that is invested in the asset.
Petty cash is a cash allowance made for small, day-to-day cash expenses.
Physical inventory is the total inventory present in the warehouses.
Piecemeal is either one thing at a time or a little bit at a time.
PITI is the acronym for Principle, Interest, Taxes, and Insurance.
Plant asset is the physical asset of the company where all the production activity takes place.
Pledged Accounts Receivable
Pledged accounts receivable is a short term loan arrangement where the accounts receivable of the business are kept as security with the lender.
Pledged asset is the asset given to the lender of a loan as security. In case the person who has taken the loan defaults on the payment, then the assets will be taken by the lender.
Pledged revenue is that part of the revenue that has to be obligatorily used to service a debt.
PLS is the acronym for Profit and Loss Sharing.
A portfolio is the details and summary of all the investments as purchased by a business entity or an individual.
Posting is to record all the transactions from the journal in the individual ledger accounts.
Preference shares are a type of capital stock, the holders of which enjoy the first right on the dividends of the company, which may be at a fixed rate and may even be cumulative.
Preferred creditor is the creditor whose debt is to be paid off before paying off the debts of other creditors.
Premium On Capital Stock
Premium on capital stock is the excess of paid value for the shares over the face value.
Pre-operating costs are costs, which are deferred till the related assets are ready for the revenue service at which time the costs are charged to operations.
Present value is the discounted value of the amount of money receivable in the future as a lump sum or an annuity.
Price to Book Ratio
Price to Book Ratio = Stock Capitalization / Book Value of Shares
Price to Cash Flow Ratio
Price to Cash Flow Ratio = Price per Share / Cash Flow per Share
Price to Revenue Ratio
Price to revenue = Market Value per Share / Revenue per Share
Prime Cost is the total of direct materials and direct labor used for production
Proceeds is the money that comes into the business on account of sales etc.
Process costing is the costing, which is done on the various process of the business to find out the cost of each process.
Product or goods is the main commodity, which is sold by the business to generate its revenues.
Product cost is the cost of inventory in the warehouses of the business.
Product invoice is the invoice for the sale of products.
Production budget is the budget set for all the activities related to production.
Productive activity is any such activity, which will produce economic value for the business.
Productivity Ratio is the ratio of the output produced by the business to the input used by the business for production.
Professional fees are the fees charged by service professionals for the service delivered by them.
Profit is the excess of income over expenses.
Profitability ratios is the set of ratios, which help measure the profitability of the business.
Profit after Tax
Profit after tax is the excess of revenue over all the expenses and after payment of tax.
A promissory note is a financial instrument made by the debtor stating that the debtor intends to pay the money he owes to the creditor in the specified period, and is signed by the debtor to that effect.
Proprietary asset is the asset, which is considered as intellectual property and should not be disclosed.
Proprietary theory assumes no difference between the business and its owners and considers them as one and the same.
Proprietor’s fund = Owners Capital + Net Profit – Proprietor’s Draw
Public issue is the decision made by the company to raise more capital by the public issue of share capital.
Purchase discount is the discount given by the seller to the business for purchases.
Purchases method is an accounting method for an acquisition using market value for the consolidation of the net assets of the two entities on the balance sheet.
Purchase order is to place a requisition to purchase goods with the supplier of raw materials.
Purchases are all the goods purchased by the company for production or resale.
Each company sets a purchase budget where the total expense on purchases is fixed.
Refer Purchase Account
Refer Interim Statement
Quick assets is the sum of the current assets minus inventory.
Refer Acid test Ratio
Quotation is a declaration of price at which the seller is willing to sell his goods.
RAB is the acronym for Regulatory Asset Base.
Rate of Return
Rate of return is the gain or loss made by an investment or a business as a whole, expressed as a percentage.
Ratio is a mathematical instrument, which helps compare the performance of two accounting results.
Ratio analysis is to use the various ratios that help compare the performance of the company with other companies, or with its previous results or for checking internal efficiency.
Real accounts are those accounts, which deal with the transactions for an asset or a liability account.
Realizable value is the value that is expected on converting the assets held by the company to cash.
Rebate is the payment made to the customer to induce him into a sale or to induce early payment for the sale.
Recast earnings are those earnings, which can be made if some costs can be eliminated.
Receivable is the money, which is due to the business and has not yet been received.
Receiver is someone who receives something, which may be cash, assets, etc.
Reconciliation is the process of cross-checking and correcting/adjusting the balance of two statements so that the figures of both these statements match for the single item.
Recording principle in accounting governs the time of recording a particular entry. It says that the entry should be recorded when the cash is earned or pledged, rather than when the actual inflow or outflow of cash takes place.
Recourse note is the right of the payee to demand payment from the maker or endorser of a negotiable instrument.
Recovery is the collection of amounts receivable that had previously been written of as bad debts.
A recurring entry is the entry that occurs regularly on the same date (of different months) and has the same amount.
Redeemable is something that can be converted to cash.
Redemption is to pay off the principal amount on a redeemable debt or security.
Register is to record the entries for the transactions in the official books or registers.
Registered Bonds are those for which the names and contact details of the bond holders are maintained by the issuing company.
Regulation is the control or direction according to the rules set by the government.
Reimbursement is to repay the amount to a person who had previously borne the expense on our behalf.
Related Party Transaction
Related party transaction is a transaction between two parties where one party has a significant control or influence over the other.
Relevance concept is the accounting concept which refers to the capacity of accounting information to make an impact on the decision makers.
Reliability concept is the accounting concept which says that the financial reporting by the company should be reliable and trustworthy.
Remittance advice is the notification sent to a debtor to remind him of the payment due.
Remuneration is the act of paying for the goods purchased or services received.
Replacement cost is the total cost at current prices of an asset, which may not necessarily be an exact duplicate of the subject asset, but serves the same purpose or performs the same function as the original.
Replacement value is the cost spent to replace an item or an asset.
Reported Earnings Per Share
Reported earnings per share is the part of the total profit actually payable to the shareholders divided by the number of shares available.
Representation expenses are those which are incurred for representational purposes such as business parties.
Reserve is a pool of money created out of profits for a specific purpose or as a security for contingencies
Residual is what is left when the rest of the entity is taken away.
Residual claim is the claim made on the earnings after all the other debt obligations have been satisfied.
Residual Equity Theory
Residual equity theory states that the owners of common stock are the actual owners of the company.
Residual income is the income, which will be earned without any additional effort or expense.
Residual value is defined as the book value of a fixed asset after it has been fully depreciated.
Resource absorption is when all the limited resources of the company are absorbed.
Restricted assets are those whose use or working is restricted by law.
Results from Operations
Results for operations is the commonly used synonym for financial statement.
Retained earnings are that part of the distributable profit, which have not been given to the owners, but retained in the business for future use.
Retained Earnings Statement;
Retained earnings statement is the statement that gives the details regarding the earnings retained by the company in the business.
Return on Assets
Return on asset is the ratio which compares the net profit after tax to the total assets in the company. Return on Assets = Earnings after Tax / Total Assets
Return on Capital Employed
Return on Capital employed is a measure of how effectively a business is using its capital. Return on Capital Employed = Profit Before Income and Taxes / (Total Assets – Current Liabilities)
Return on Equity
Return on Equity = Net Income / Shareholders Equity
Return on Investment
Return on investment measures the total cash coming into the business on account of an investment.
Return on Net Worth
Return on Sales
Return on Sales = Earning before Taxes / Total Sales.
Refer Sales Returns
Refer Purchase Return
Revaluation is an activity conducted by the company to review the value of the assets of the company to make sure that they are not undervalued or overvalued.
Revenue is the money that comes in on account of sales of goods or provision of services.
Revenue adjustment is an entry that adjusts the revenue based on received data.
Revenue expenditure is the total cost that is incurred on revenue generating activities.
Refer Realization Principle
Reversing entry is a rectifying entry, which is made to correct an original mistake in recording the entry.
Risk is a chance of losing or not gaining value from an economic activity.
Risk Adjusted Return
Risk adjusted return is subtracting the rate of return of one asset from the rate of return of another asset, both asset having similar risks.
ROACE is the acronym for Return on Average Capital Employed.
ROI is the acronym for Return on Investment. Read on to know How to Calculate Return on Investment.
Safety stock is the amount of stock a company defines as the lowest the inventory level of the company can go.
Salary is the remuneration paid to the employees of the organization.
The sales account is the ledger account, which gives the details regarding the sales of the business.
Sales and Collection Budget
Sales and collection budget is the amount of sales that the company expects to make in the year and the revenues that it expects to collect.
Sales and Marketing Expense
Sales and marketing expenses are the total expenses spent on creating awareness for the company and the products in the market and selling them.
The discount allowed by the company on sales to induce early cash payment is called sales discount.
Sales invoice is the record of the transaction between the buyer and the seller, made by the seller.
Sales Journal is where the entry for sales of goods is chronologically made.
Sales order is the contract in which the buyer and the seller of the goods agree on the terms of a contract.
Sales proceeds is the money realized from sales.
Sales revenue is the revenue realized from the sale of goods.
Sales tax is the tax levied on the sale of a product by the government.
Salvage value is the scrap value realized on the sale of a fully depreciated asset or a asset which cannot be used for production.
Refer Salvage Value
Selling and Administrative Expense Budget
Selling and administrative expenses budget gives the amount that is allocated for selling and administrative expenses of the business.
Semi-fixed costs are those costs where one component of the cost is fixed and the other is variable. They are also known as semi variable costs.
Sensitive assets are those assets, the return or usability of which can be affected by external uncontrollable factors.
Sensitive liabilities are those, which have a floating interest rate and can be affected by external uncontrollable factors.
Sensitivity analysis helps the company check the sensitivity of an item in relation to the various external or internal changes.
Separate Determination Concept
Separate determination concept in accounting says that each component of every category of assets or liabilities should be valued separately.
Separate Valuation Concept
Separate valuation concept in accounting says that in order to determine the aggregate amount of an asset or a liability, each individual asset or liability comprising the aggregate must be determined separately.
Service charge is the charge, which is paid over and above the basic fee for delivering a service.
Setoff is a way of discharging a debt by creating a debt of the same amount against the creditor, by the sale of goods etc.
A share is a part of the business. It is the total capital divided into small individual parts.
Share capital is the capital raised by the company by a public issue of shares in favor of cash.
Shareholder loan is any loan given to a shareholder by the company.
Share premium is the additional price paid for purchasing the stock, over and above the par value of the share at the time of issue.
Short Term Asset
Short term asset is an asset which is expected to be converted into cash within a year.
Short Term Liability
Short term liability is the liability that is expected to be paid off within a year.
Simple Journal Entry
Simple journal entry is one which has only one debit effect and one credit effect.
Single Entry Bookkeeping
Single entry book keeping is the opposite of double entry bookkeeping and only one effect of a transaction is recorded.
Sinking fund is a fund created by depositing the profits of each year, with the objective of ultimately paying off a debt.
Solvency is a situation where the assets of the entity are sufficiently more than the liabilities.
Split payment is a mode of payment, which allows you to pay partly in cash and partly on credit.
Spoilage includes all the materials wasted or spoiled in the process of production.
Spontaneous assets are those that arise from the day-to-day operations of the business.
Spontaneous liabilities are those that arise from the day-to-day liabilities of the business.
Spot cash is the immediate payment of cash.
Standard Cost System
Standard cost system is the cost system that is specifically designed to allocate various costs under their respective heads.
Startup costs are the various costs incurred in starting the business. Legal fees and registration fees are included in the startup costs.
Stated capital is the amount of cash declared by the business as capital in the financial statements of the company.
Statement of Accounts
Statement of account is the details of all the transactions between a debtor and creditor.
Statement of Cash Flows
Statement of cash flows shows the inflow and outflow of the cash from the business.
Statement of Retained Earnings
Statement of retained earnings gives the details of how the retained earnings of the company are being utilized.
Statement of stockholders equity
Statement of stockholders equity is the summary of the changes in shareholder equity for the accounting period.
Statutory account is an account created by the operation of law, rather than as a business need.
Statutory deductions are those, which are made in compliance of some law or regulation.
Tainted Accounts Receivable
Tainted accounts receivable are those, which have some legal problems attached to them, related to fraud, misuse, etc.
Takeover is when one company buys a controlling stake in or entirely purchases another.
Tangible assets are those, which can be seen or touched.
Tangible Book Value
Tangible book value is the summation of all the tangible assets of the business.
Tangible capital is the total of outstanding stocks and retained earnings.
Target costing involves setting a price for the product and then getting the production costs in line with the target price so that the business can earn profit too.
Target margin is the desired profit on a product.
Tariff is the tax paid by the importing country on the import of goods.
Tax is the amount charged against the profits of a business by the government for allowing the activity of the business in the country.
Taxable benefits are those non-cash benefits provided by the employer to the employee on which tax is to be paid.
Taxable income is the income earned by an individual or a business entity on which the tax liability is decided.
Tax accounting means taking into consideration the effect of taxes while planning business strategies.
Tax base is the value of the taxable assets, income, and property.
Tax Effect Method
Tax effect method says that the effect on tax to be paid, must be shown in the books of accounts in the year in which the income is recorded, irrespective of when the tax is actually paid.
Technically bankrupt is a situation where the company’s liabilities have exceeded its assets, currently, but the creditors haven’t yet asked for their money.
Term bonds are bonds which are held for a certain predefined amount of time whose principal amount is payable at maturity.
Term debt is a debt that will mature at a certain predefined date in the future.
Terminal value is the total discounted amount realizable in the future.
Term loan is a loan taken from a lender for a specified period of time.
Time Value of Money
Time value of money is a concept that states that money in hand today is more valuable than money receivable tomorrow.
Total assets is the sum of all the fixed and current assets.
Total Asset Turnover
Total asset turnover gives the efficiency of the business in managing their assets.
Trade debtors are those who owe the business money, on account of goods sold to them on credit.
Trade discount is reducing the selling price of goods to boost sales.
Trading concern is one that derives its products for sale by purchasing products from other producers for resale to their customer base, thereby generating revenue.
Transportation costs are those, which are incurred in transporting the goods from one place to another.
Trial balance is listing all the ledger accounts and their balances.
Turnover is sales.
Unabsorbed costs are those, which occur when the cost structure does not fully reflect all variable and/or fixed costs.
Unallocated costs are those, which are not included in the cost of goods sold.
Unappropriated profits are those, which have been withdrawn from the business by the proprietors or not appropriated.
Uncollectible Accounts Expense
Uncollectible accounts expense is the expense incurred in trying to realize payment from a debtor, but the debtor does not make the payment.
Uncontrollable expense is that expense incurred in the usual course of business, which cannot be controlled.
Underabsorbed overhead is the total overhead that is not allocated to the product sold.
Under-billing is not receiving the full amount payable or billing for a lower amount than what is receivable.
Understated is to state less than what it actually is.
Underwriting is to protect by insuring and to guarantee financial support.
Unearned rent is the rent received in advance before it is actually earned.
Unearned revenue is the revenue received before it is actually earned.
Unfavorable variance is when the actual costs incurred are greater than the standard costs.
Unliquidated is an asset, which has not been converted to cash.
Unrealized Accounts Receivables
Unrealized accounts receivable are bad debts.
Unrealized income is that income, which is earned but not yet received.
Unresolved equity is the difference between the total assets and the total liabilities in the balance sheet.
Unrestricted assets are those on which there is no government regulation regarding their use.
Unsecured debt is one where the borrower provides no collateral against the debt to the lender.
Usage variance is the difference between the budgeted and actual use of materials.
Useful life is the approximate amount of time for which the asset is assumed to be useful before it is fully depreciated.
Valuation allowance is an allowance, which provides for changes in the value of the assets of the company.
Valuation date is the date on which the valuation is made.
Variable costs are those, which vary with an increase or decrease in the production.
Refer Variable Costs
Variable Interest Rate
Variable interest rate is the interest rate, which changes depending on the changes in an underlying interest rate index.
Variance is a difference between something projected and actual.
Variance analysis is the use of the various types of variances to analyze the overall performance.
WACC is the acronym for Weighted Average Cost of Capital.
Wage is the remuneration paid to a worker for production of goods and services.
Warehouse is a store where all the unsold finished goods or the unused raw materials are kept.
Wholly Owned Subsidiary
Wholly owned subsidiary is one whose 100% of the stock is owned by the parent company
Windfall gain is a profit, which the company gets as a result of an uncontrollable event
WIP is the acronym for Work in Progress.
Working Capital = Current Assets – Current Liabilities
Working Capital Turnover
Working capital turnover shows how efficiently the working capital of the business is employed.
Write off is to decrease the value of an item.
Yield is the annual return on investment which is expressed as a percentage.
YTM is the acronym for Yield to Maturity.
YTD is the acronym for years to date.
Zero Coupon Bonds
Zero coupon bonds are those on which interest is not paid on a yearly basis.
So this was a comprehensive accounting terms and definitions glossary. I think this accounting glossary will answer all your queries and doubts regarding accounting terminology.