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Abatement: Complete removal of an amount due, (usually referring to a tax ABATEMENT a penalty abatement or an INTEREST abatement within a governing agency).
Absorption Costing: An approach to product costing that assigns a representative portion of all types of manufacturing costs–direct materials, direct labor, variable factory overhead, and fixed factory overhead–to individual products.
Accelerated Depreciation: Method that records greater DEPRECIATION than STRAIGHT-LINE DEPRECIATION in the early years and less depreciation than straight-line in the later years of an ASSET’S HOLDING PERIOD.
Account: Formal record that represents, in words, money or other unit of measurement, certain resources, claims to such resources, transactions or other events that result in changes to those resources and claims.
Account Payable: Amount owed to a CREDITOR for delivered goods or completed services.
Account Receivable: Claim against a DEBTOR for an uncollected amount, generally from a completed transaction of sales or services rendered.
Accountant: Person skilled in the recording and reporting of financial transactions.
Accounting: Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the FINANCIAL STATEMENTS.
Accrued Interest: INTEREST that has accumulated between the most recent payment and the sale of a BOND or other fixed-income security.
Acquisition: One company taking over controlling interest in another company.
AICPA: National professional membership organization that represents practicing CERTIFIED PUBLIC ACCOUNTANTS (CPAs). The AICPA establishes ethical and auditing standards as well as standards for other services performed by its members. Through committees, it develops guidance for specialized industries. It participates with the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and the GOVERNMENT ACCOUNTING STANDARDS BOARD (GASB) in establishing accounting principles.
Annuity: Series of payments, usually payable at specified time intervals.
Asset: An economic resource that is expected to be of benefit in the future. Probable future economic benefits obtained as a result of past transactions or events. Anything of value to which the firm has a legal claim. Any owned tangible or intangible object having economic value useful to the owner.
Auditor: Person who AUDITS financial accounts and records kept by others. Includes both public accounting firms registered with the PCAOB and associated persons thereof.
Bank Statement: A periodic statement, usually monthly, that a bank sends to the holder of a checking account showing the balance in the account at the beginning of the month, during, and at the end of the month.
Bankruptcy: Legal process, governed by federal statute, whereby the DEBTS of an insolvent person are liquidated after being satisfied to the greatest extent possible by the DEBTOR’S ASSETS. During bankruptcy, the debtor’s assets are held and managed by a court appointed TRUSTEE.
Bond: One type of long-term PROMISSORY NOTE, frequently issued to the public as a SECURITY regulated under federal securities laws or state BLUE SKY LAWS. Bonds can either be registered in the owner’s name or are issued as bearer instruments.
Budget: Financial plan that serves as an estimate of future cost, REVENUES or both.
Capital Gain: Portion of the total GAIN recognized on the sale or exchange of a noninventory asset which is not taxed as ORDINARY INCOME. Capital gains have historically been taxed at a lower rate than ordinary income.
Cash Dividend: Distribution of a CORPORATION’s earnings to stockholders in the form of CASH.
Cash Flow: Net of cash receipts and cash disbursements relating to a particular activity during a specified accounting period.
Collateral: ASSET provided to a CREDITOR as security for a loan.
Compound Interest Principles: Interest computed on principal plus interest earned in previous periods.
Consumer Goods: Goods bought for personal or household use, as distinguished from capital goods or producer’s goods, which are used to produce other goods.
CPA: ACCOUNTANT who has satisfied the education, experience, and examination requirements of his or her jurisdiction necessary to be certified as a public accountant.
Credit: Entry on the right side of a DOUBLE-ENTRY BOOKKEEPING system that represents the reduction of an ASSETor expense or the addition to a LIABILITY or RVENUE.
Current Yield: Annual INTEREST on a BOND divided by the market price.
Debenture: General DEBT obligation backed only by the integrity of the borrower and documented by an agreement called and INDENTURE.
Debit: Entry on the left side of a DOUBLE-ENTRY BOOKKEEPING system that represents the addition of an ASSET or expense or the reduction to a LIABILITY or REVENUE.
Deficit: Financial shortage that occurs when LIABILITIES exceed ASSETS.
Deflation: Decline in the prices of goods and services.
Depreciation: Expense allowance made for wear and tear on an ASSET over its estimated useful life.
Derivatives: Financial instruments whose value varies with the value of an underlying asset (such as a stock, BOND, commodity or currency) or index such as interest rates. Financial instruments whose characteristics and value depend on the characterization of an underlying instrument or asset.
Due Diligence: (1) Procedures performed by underwriters in connection with the issuance of a SECURITIES EXCHANGE COMMISSION (SEC) registration statement. These procedures involve questions concerning the company and its business, products, competitive position, recent financial and other developments and prospects. Also performed by others in connection with acquisitions and other transactions. (2) Requirement found in ethical codes that the person governed by the ethical rules exercise professional care in conducting his or her activities.
Econometrics: Use of computer analysis and modeling techniques to describe in mathematical terms the relationship between key economic forces such as labor, capital, interest rates, and government policies, the test the effects of changes in economic scenarios.
Equity: Residual INTEREST in the ASSETS of an entity that remains after deducting its LIABILITIES. Also, the amount of a business’ total assets less total liabilities. Also, the third section of a BALANCE SHEET, the other two being assets and liabilities.
Expense: Something spent on a specific item or for a particular purpose.
Factoring: Selling a RECEIVABLE at a discounted value to a third party for cash.
Fiscal Year: Period of 12 consecutive months chosen by an entity as its ACCOUNTING period which may or may not be a calendar year. Fixed Asset – Any tangible ASSET with a life of more than one year used in an entity’s operations.
Foreign Exchange: Instruments employed in making payments between countries.
General Ledger: Collection of all ASSET, LIABILITY, owners EQUITY, REVENUE, and expense accounts.
Gross Income: The beginning point for the determination of income, including income from whatever sources derived.
Hedge: A financial term for a specific type of commodities planning and trading.
Income Statement: Summary of the effect of REVENUES and expenses over a period of time.
Inflation: Rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market.
Insolvency: Inability to pay DEBTS when due.
Invoice: Bill prepared by a seller of goods or services and submitted to the purchaser.
Junk Bonds: DEBT SECURITIES issued by companies with higher than normal credit risk. Considered “non-investment grade” bonds, these SECURITIES ordinarily yield a higher rate of interest to compensate for the additional risk.
Key Industry: Industry of primary importance to a nation’s economy.
LIFO (First In First Out): ACCOUNTING method of valuing inventory under which the costs of the last goods acquired are the first costs charged to expense. Commonly known as LIFO.
Ledger: Any book of accounts containing the summaries of debit and credit entries.
Liability: DEBTS or OBLIGATIONS owed by one entity (DEBTOR) to another entity (CREDITOR) payable in money, goods, or services.
Liquidity: Available money on hand to pay bills when they are due and to take care of unexpected needs for CASH.
Long Term Investment: An INVESTMENT that management plans to hold for more than one year.
Margin: Excess of selling price over the unit cost.
Microeconomics: Study of the behavior of basic economic units such as companies, industries, or households.
NASDAQ: National Association of Securities Dealers Automated Quotations system, which is owned and operated by the National Association of Securities Dealers; a computerized system that provides brokers and dealers with price quotations for securities traded OVER-THE-COUNTER as well as for many NEW YORK STOCK EXCHANGE (NYSE) listed securities.
Net Loss: The difference between expenses and REVENUES when expenses exceed revenues over a period of time.
NYSE: Oldest and largest stock exchange in the United States, located at 11 Wall Street in New York City; also known as the Big Board and The Exchange.
Offering Price: Price per share at which a new or secondary distribution of securities is offered for sale to the public.
Owners Equity: The residual INTEREST in the assets of a business entity that remains after deducting the entity’s liabilities.