(See related pages)
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| accelerated depreciation methods | Depreciation methods that
recognize depreciation expense more rapidly in the early
stages of an asset’s life than in the later stages of its life. (See page(s) p. 413) |
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| account | Record used for the classification and summary of
transaction data. (See page(s) p. 9) |
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| account balance | Difference between total debits and total
credits in an account. (See page(s) p. 181) |
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| account groups | Self-balancing entities that account for a
governmental unit’s general fixed assets and the outstanding
principal of its general long-term liabilities. (See page(s) p. 535) |
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| accounting | Service-based profession that provides reliable and
relevant financial information useful in making decisions. (See page(s) p. 3) |
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| accounting controls | Procedures designed to safeguard assets
and to ensure accuracy and reliability of the accounting
records and reports. (See page(s) p. 316) |
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| accounting cycle | A cycle consisting of these stages: recording
accounting data, adjusting the accounts, preparing the financial
statements, and closing the nominal accounts; when one
accounting cycle ends, a new one begins. (See page(s) p. 61) |
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| accounting equation | Expression of the relationship between the
assets and the claims on those assets. (See page(s) p. 10) |
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| accounting event | Economic occurrence that causes changes in
an enterprise’s assets, liabilities, or equity. (See page(s) p. 11) |
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| accounting period | Span of time covered by the financial
statements, normally one year, but may be a quarter, a month
or some other time span. (See page(s) p. 17) |
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| accounts receivable | Expected future cash receipts arising from
permitting customers to buy now and pay later; usually are
small with a short term to maturity. (See page(s) 56, 359) |
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| accounts receivable turnover ratio | Financial ratio that
measures how fast accounts receivable are turned into cash;
computed by dividing sales by accounts receivable. (See page(s) p. 373) |
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| accrual | Recognition of events before exchanging cash. (See page(s) p. 56) |
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| accrual accounting | Method of accounting that records the
effects of accounting events in the period in which such events
occur regardless of when cash is exchanged. (See page(s) p. 55) |
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| accumulated depreciation | Contra asset account that indicates
the sum of all depreciation expense recognized for an asset
since the date of acquisition. (See page(s) 112, 412) |
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| adjusting entry | Entry that updates account balances prior to
preparing financial statements. (See page(s) p. 64) |
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| administrative controls | Procedures designed to evaluate
performance and the degree of compliance with a firm’s
policies and public laws. (See page(s) p. 316) |
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| adverse opinion | Audit opinion for a set of financial statements
issued by a certified public accountant that means that part of
or all of the financial statements are not in compliance with
GAAP and the auditors believe this noncompliance would be
material to the average prudent investor. (See page(s) p. 72) |
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| allocation | Recognition of expense by systematic assignment of
the cost of an asset to periods of use. (See page(s) p. 109) |
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| allowance | Reduction in the selling price of goods extended to
the buyer because the goods are defective or of lower quality
than the buyer ordered to encourage a buyer to keep
merchandise that would otherwise be returned. (See page(s) p. 223) |
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| Allowance for Doubtful Accounts | Contra asset account that
contains an amount equal to the accounts receivable that are
expected to be uncollectible. (See page(s) p. 361) |
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| allowance method of accounting for bad debts | Method of
accounting for bad debts in which bad debts are estimated and
expensed in the same period in which the corresponding sales
are recognized. The receivables are reported in the financial
statements at net realizable value (the amount expected to be
collected in cash). (See page(s) p. 360) |
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| American Institute of Certified Public Accountants’ Code of | Set of ethical rules and guidelines
above and beyond the requirements of laws and regulations
that certified public accountants must follow. (See page(s) p. 74) |
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| amortization | Method of systematically allocating the costs of
intangible assets to expense over their useful lives; also term
for converting the discount on a note or a bond to interest
expense over a designated period. (See page(s) 378, 408) |
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| amortization of loan | Systematic repayment of principal and
interest over the life of a loan. (See page(s) p. 459) |
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| annual report | Document in which an organization provides
information to stockholders, usually on an annual basis. (See page(s) p. 23) |
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| annuity | Series of equal payments made over a specified number
of periods. (See page(s) p. 480) |
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| appropriated retained earnings | Retained earnings restricted
by the board of directors for a specific purpose (e.g., to repay
debt or for future expansion); although a part of total retained
earnings, not available for distribution as dividends. (See page(s) p. 528) |
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| articles of incorporation | Items on an application filed with a
state agency for the formation of a corporation; contains such
information as the corporation’s name, its purpose, its location,
its expected life, provisions for its capital stock, and a list of
the members of its board of directors. (See page(s) p. 514) |
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| asset | Economic resource used by a business for the production
of revenue. (See page(s) p. 10) |
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| asset exchange transaction | A transaction that decreases one
asset while increasing another asset so that total assets do not
change; for example, the purchase of land with cash. (See page(s) p. 56) |
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| asset source transaction | Transaction that increases an asset
and a claim on assets; three types of asset source transactions
are acquisitions from owners (equity), borrowings from
creditors (liabilities), or earnings from operations (revenues). (See page(s) pp. 12, 56) |
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| asset use transaction | Transaction that decreases an asset and a
claim on assets; the three types are distributions (transfers to
owners), liability payments (to creditors), or expenses (used to
operate the business). (See page(s) p. 57) |
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| audit | Detailed examination of a company’s financial statements
and the documents that support the information presented in
those statements. (See page(s) p. 71) |
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| authority manual | A document that outlines the chain of
command for authority and responsibility. The authority
manual provides guidelines for specific positions such as
personnel officer as well a general authority such as all vice
presidents are authorized to spend up to a designated limit. (See page(s) p. 317) |
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| authorized stock | Number of shares that the corporation is
approved by the state to issue. (See page(s) p. 520) |
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| available-for-sale securities | Marketable securities that are not
properly classified as held-to-maturity or trading securities. (See page(s) p. 284) |
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| average days in inventory ratio (sometimes called average | Financial ratio that
measures the average number of days that inventory stays in
stock before being sold. (See page(s) p. 281) |
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| average number of days to collect accounts receivable | Length
of the average collection period for accounts receivable;
computed by dividing 365 (or 366) by the accounts receivable
turnover ratio. (See page(s) p. 374) |
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| bad debts expense | Expense associated with uncollectible
accounts receivable; amount recognized may be estimated
using the allowance method, or actual losses may be recorded
using the direct write-off method. (See page(s) p. 361) |
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| balance sheet | Statement that lists the assets of a business and
the corresponding claims (liabilities and equity) on those
assets. (See page(s) p. 18) |
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| balloon payment | Large final payment due at the maturity of a
debt that otherwise requires systematic smaller payments over
the term of the loan prior to maturity. (See page(s) p. 460) |
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| bank reconciliation | Schedule that identifies and explains
differences between the cash balance reported by the bank and
the cash balance in the firm’s accounting records. (See page(s) p. 322) |
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| bank statement | Statement issued by a bank (usually monthly)
that denotes all activity in the bank account for that period. (See page(s) p. 321) |
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| bank statement credit memo | Memo that describes an increase
in the account balance. (See page(s) p. 321) |
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| bank statement debit memo | Memo that describes a decrease in
the account balance. (See page(s) p. 321) |
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| basket purchase | Acquisition of several assets in a single
transaction with no specific cost attributed to each asset. (See page(s) p. 409) |
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| board of directors | Group of individuals elected by the
stockholders of a corporation to oversee its operations. (See page(s) p. 517) |
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| bond | Debt security used to obtain long-term financing in which
a company borrows funds from a number of lenders, called
bondholders; usually issued in denominations of $1,000. |
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| bond discount | Difference between the selling price and the face
amount of a bond sold for less than the face amount. (See page(s) p. 468) |
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| bond premium | Difference between the selling price and the
face amount of a bond that is sold for more than the face
amount. (See page(s) p. 473) |
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| book value | Historical (original) cost of an asset minus the
accumulated depreciation; alternatively, undepreciated amount
to date. (See page(s) pp. 112, 414) |
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| book value per share | Value of stock determined by dividing the
total stockholders’ equity by the number of shares of stock. (See page(s) p. 520) |
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| books of original entry | Journals in which a transaction is first
recorded. (See page(s) p. 169) |
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| call premium | Difference between the call price (the price that
must be paid for a called bond) and the face amount of the
bond. (See page(s) p. 465) |
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| call price | Specified price that must be paid for bonds that are
called; usually higher than the face amount of the bonds. (See page(s) p. 465) |
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| callable bonds | Bonds that include a feature allowing the issuer
to pay them off prior to maturity. (See page(s) p. 465) |
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| capital expenditures | (on an existing asset) Substantial amounts
of funds spent to improve an asset’s quality or to extend its
life. (See page(s) p. 420) |
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| capitalized | Recorded cost in an asset account until the item is
used to produce revenue. (See page(s) p. 127) |
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| carrying value | Face amount of a bond liability less any
unamortized bond discount or plus any unamortized bond
premium. (See page(s) p. 470) |
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| cash | Coins, currency, checks, balances in checking and certain
savings accounts, money orders, bank drafts, certificates of
deposit, and other items that are payable on demand. (See page(s) p. 319) |
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| cash discount | Discount offered on merchandise sold to
encourage prompt payment; offered by sellers of merchandise
and represent sales discounts to the seller when they are used
and purchase discounts to the purchaser of the merchandise. (See page(s) p. 223) |
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| cash inflows | Sources of cash. (See page(s) p. 561) |
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| cash outflows | Uses of cash. (See page(s) p. 561) |
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| Cash Short and Over | Account used to record the amount of
cash shortages or overages; shortages are considered expenses
and overages are considered revenues. (See page(s) p. 327) |
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| certified check | Check guaranteed by a bank to be drawn on an
account having funds sufficient to pay the check. (See page(s) p. 324) |
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| certified public accountant (CPA) | Accountant who has met
certain educational and experiential requirements and is
licensed by the state government to provide audit services to
the public. (See page(s) p. 71) |
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| chart of accounts | List of all ledger accounts and their
corresponding account numbers. (See page(s) p. 169) |
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| checks | Prenumbered forms, sometimes multicopy, with the
name of the business issuing them preprinted on the face,
indicating to whom they are paid, the amount of the payment,
and the transaction date. (See page(s) p. 321) |
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| claims | Owners’ and creditors’ interests in a business’s assets. (See page(s) p. 10) |
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| claims exchange transaction | Transaction that decreases one
claim and increases another so that total claims do not change.
For example, the accrual of interest expense is a claims
exchange transaction; liabilities increase, and the recognition
of the expense causes retained earnings to decrease. (See page(s) p. 57) |
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| classified balance sheet | Balance sheet that distinguishes
between current and noncurrent items. (See page(s) p. 330) |
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| closely held corporation | Corporation whose stock is exchanged
between a limited number of individuals. (See page(s) p. 515) |
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| closing entries | Entries used to transfer the balances in the
Revenue, Expense, and Dividends accounts to the Retained
Earnings account at the end of the accounting period. (See page(s) pp. 172) |
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| closing the books or closing | Process of transferring balances
from nominal accounts (Revenue, Expense, and Dividends) to
the permanent account (Retained Earnings). (See page(s) p. 61) |
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| code of professional conduct | A set of guidelines established by
the American Institute of Certified Public Accountants
(AICPA) to promote high ethical conduct among its
membership. (See page(s) p. 74) |
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| collateral for loans | Assets pledged as security for a loan. (See page(s) p. 461) |
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| common size financial statements | Financial statements in
which amounts are converted to percentages to allow a better
comparison of period-to-period and company-to-company
financial data since all information is placed on a common
basis. (See page(s) p. 232) |
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| common stock | Basic class of corporate stock that carries no
preferences as to claims on assets or dividends; certificates that
evidence ownership in a company. (See page(s) pp. 10, 521) |
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| compound interest | Practice of reinvesting interest so that
interest is earned on interest as well as on the initial principal. (See page(s) p. 478) |
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| compounding | Earning interest on interest. (See page(s) p. 478) |
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| comprehensive annual financial report (CAFR) | An annual
report that provides information regarding all funds and
account groups under the jurisdiction of a government
reporting entity. (See page(s) p. 535) |
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| comprehensive income | Net income plus or minus unrealized
gains or losses. |
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| consolidated financial statements | Financial statements that
represent the combined operations of a parent company and its
subsidiaries. (See page(s) p. 288) |
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| continuity | Concept that describes the fact that a corporation’s
life may extend well beyond the time at which any particular
shareholder decides to retire or to sell his or her stock. (See page(s) p. 517) |
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| contra account | Account that normally has a balance opposite to
that of the other accounts in a particular category (e.g.,
Accumulated Depreciation is classified as an asset, but it
normally has a credit balance). (See page(s) p. 165) |
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| contra asset account | Account subtracted from another account
with which it is associated; has the effect of reducing the asset
account with which it is associated. (See page(s) pp. 112, 412) |
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| contra liability account | Account reported in the liability
section of the balance sheet that has a debit balance; reduces
total liabilities. A discount on a Note Payable is an example of
a contra liability account. (See page(s) p. 377) |
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| contributed capital | Balance sheet term used to designate the
portion of assets contributed to a business by its owners. |
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| convertible bonds | Bonds that can be converted (exchanged)
to an ownership interest (stock) in the corporation. (See page(s) p. 465) |
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| copyright | Legal protection of writings, musical compositions,
and other intellectual property for the exclusive use of the
creator or persons assigned the right by the creator. (See page(s) p. 423) |
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| corporation | Legal entity separate from its owners;
formed when a group of individuals with a common purpose
join together in an organization according to state laws. (See page(s) p. 514) |
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| cost method of accounting for treasury stock | Method of
accounting for treasury stock in which the purchase of treasury
stock is recorded at its cost to the firm but does not consider
the original issue price or par value. (See page(s) p. 525) |
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| cost of goods available for sale | Total costs paid to obtain goods
and to make them ready for sale, including the cost of
beginning inventory plus purchases and transportation-in costs,
less purchase returns and allowances and purchase discounts. (See page(s) p. 218) |
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| cost of goods sold | Total cost incurred for the goods sold during
a specific accounting period. (See page(s) p. 218) |
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| credit | Entry that increases liability and equity accounts or
decreases asset accounts. (See page(s) p. 156) |
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| creditor | Individual or institution that has loaned goods or
services to a business. (See page(s) p. 5) |
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| cumulative dividends | Preferred dividends that accumulate
from year to year until paid. (See page(s) p. 521) |
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| current (short-term) asset | Asset that will be converted to cash
or consumed within one year or an operating cycle, whichever
is longer. (See page(s) pp. 330, 407) |
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| current (short-term) liability | Obligation due within one year
or an operating cycle, whichever is longer. (See page(s) p. 330) |
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| current ratio | Financial ratio that measures the relationship
between current assets and current liabilities; determined by
dividing current assets by current liabilities, with the result
expressed in decimal format. (See page(s) p. 331) |
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| date of record | Date that establishes who will receive the
dividend payment: shareholders who actually own the stock on
the record date will be paid the dividend even if the stock is
sold before the dividend is paid. (See page(s) p. 526) |
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| debenture | Unsecured bond issued based on the general credit of
the organization. (See page(s) p. 464) |
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| debit | Entry that increases asset accounts or decreases liability
and equity accounts. (See page(s) p. 156) |
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| debt security | Type of security acquired by loaning assets to the
investee company. (See page(s) p. 283) |
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| debt to assets ratio | Financial ratio that measures a company’s
level of risk. (See page(s) p. 124) |
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| declaration date | Date on which the board of directors actually
declares a dividend. (See page(s) p. 526) |
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| deferral | Recognition of revenue or expense in a period after the
cash is exchanged. (See page(s) p. 109) |
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| deferral transactions | Accounting transactions in which cash
payments or receipts occur before the associated expense or
revenue is recognized. (See page(s) p. 566) |
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| deferred tax liability | Taxes not paid until future years because
of the difference in accounting methods selected for financial
statements and methods required for tax purposes (e.g., a
company may select straight-line depreciation for financial
statement reporting but will be required to use MACRS for tax
reporting). (See page(s) p. 419) |
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| demand | Consumer preferences expressed by offering money
for goods or services. |
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| depletion | Method of systematically allocating the costs of
natural resources to expense as the resources are removed from
the land. (See page(s) p. 408) |
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| deposit ticket | Bank form that accompanies checks and cash
deposited into a bank account; normally specifies the account
number, name of the account, and a record of the checks and
cash being deposited. (See page(s) p. 321) |
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| deposits in transit | Deposits recorded in a depositor’s books but
not received and recorded by the bank. (See page(s) p. 323) |
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| depreciable cost | (See page(s) p. 414) |
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| depreciation | Method of systematically allocating the costs of
long-term tangible assets to expense over their useful lives. (See page(s) p. 408) |
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| depreciation expense | Portion of the original cost of a long-term
tangible asset allocated to an expense account in a given
period. (See page(s) p. 112) |
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| direct method | Method of preparing the statement of cash flows
that reports the total cash receipts and cash payments from
each of the major categories of activities (collections from
customers, payment to suppliers). (See page(s) p. 575) |
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| direct write-off method | Method of recognizing bad debts
expense only when accounts are determined to be
uncollectible. (See page(s) p. 368) |
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| disclaimer of audit opinion | Position that an auditor can take
with respect to financial statements when there is not enough
information to confirm compliance or noncompliance with
GAAP; is neither positive nor negative. (See page(s) p. 73) |
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| discount | Amount of interest included in the face of a note; the
discount (interest) is subtracted from the face amount of the
note to determine the principal amount of cash borrowed. (See page(s) p. 377) |
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| discount notes | Notes that have the interest included in their
face value. (See page(s) p. 376) |
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| Discount on Bonds Payable | Contra liability account used to
record the amount of discount on a bond issue. (See page(s) p. 470) |
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| Discount on Notes Payable | Contra liability account subtracted
from the Notes Payable account to determine the carrying
value of the liability. (See page(s) p. 377) |
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| dividend | Transfer of wealth from a business to its owners. (See page(s) pp. 13, 285) |
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| dividends in arrears | Cumulative dividends on preferred stock
that have not been paid; must be paid prior to paying dividends
to common stockholders. (See page(s) p. 521) |
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| double taxation | Policy to tax corporate profits distributed to
owners twice, once when the income is reported on the
corporation’s income tax return and again when the dividends
are reported on the individual’s return. (See page(s) p. 516) |
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| double-declining-balance depreciation | Depreciation method
that recognizes larger amounts of depreciation in the early
stages of an asset’s life and progressively smaller amounts as
the asset ages. (See page(s) p. 410) |
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| double-entry accounting (bookkeeping) | Method of keeping
records that provides a system of checks and balances by
recording transactions in a dual format. (See page(s) pp. 12, 156) |
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| earnings | The difference between revenues and expenses. Same
as net income or profit (See page(s) p. 4) |
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| effective interest rate | Yield rate of bonds, which is usually equal
to the market rate of interest on the day the bonds are sold. (See page(s) p. 469) |
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| effective interest rate method | Method of amortizing bond
discounts and premiums that computes interest based on the
carrying value of liability. As the liability increases or
decreases, the amount of interest expense also increases or
decreases. (See page(s) p. 482) |
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| elements | Primary components of financial statements including
assets, liabilities, equity, contributions, revenue, expenses,
distributions, and net income. (See page(s) p. 5) |
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| entity | Specific unit (individual, business, or institution) for
which the accountant records and reports economic
information; has boundaries that are distinct and separate from
those of the owners, creditors, managers, and employees. (See page(s) p. 23) |
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| entrenched management | Management that may have become
ineffective but because of political implications may be
difficult to remove. (See page(s) p. 517) |
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| equity | Portion of assets remaining after the creditors’ claims have
been satisfied (i.e., Assets _ Liabilities _ Equity); also called
residual interest or net assets. (See page(s) p. 10) |
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| equity method | Method of accounting for investments in
marketable equity securities; is required when the investor
owns more than 20 percent of the investee company. The
amount of investments carried under the equity method
represents a measure of the book value of the investee
rather than the cost or market value of the investment
security. (See page(s) p. 288) |
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| equity security | An equity security is certificate that evidences
an ownership interest in a company. An example is a common
stock certificate. (See page(s) p. 283) |
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| estimated useful life | Time for which an asset is expected to be
used by a business. (See page(s) p. 410) |
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| ex-dividend | Stock traded after the date of record but before the
payment date; does not receive the benefit of the upcoming
dividend. (See page(s) p. 526) |
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| expense | An economic sacrifice (decrease in assets or increase in
liabilities) that is incurred in the process of generating revenue. (See page(s) pp. 13, 59, 76) |
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| expense transactions | Transactions completed in the process of
operating a business that decrease assets or increase liabilities. (See page(s) p. 564) |
| |
| |
| |
| face value | Amount of the bond to be paid back (to the
bondholders) at maturity. (See page(s) p. 464) |
| |
| |
| |
| fair value | The price at which securities or other assets sell in
free markets. Also called market value. (See page(s) p. 284) |
| |
| |
| |
| fidelity bond | Insurance policy that a company buys to insure
itself against loss due to employee dishonesty. (See page(s) p. 316) |
| |
| |
| |
| financial accounting | Accounting information designed to
satisfy the needs of an organization’s external users, including
business owners, creditors, and government agencies. (See page(s) p. 6) |
| |
| |
| |
| Financial Accounting Standards Board (FASB) | Privately
funded organization with the primary authority for the
establishment of accounting standards in the United States. (See page(s) p. 9) |
| |
| |
| |
| financial audit | Detailed examination of a company’s financial
statements and the documents that support the information
presented in those statements; includes a verification process
that tests the reliability of the underlying accounting system
used to produce the financial reports. (See page(s) p. 71) |
| |
| |
| |
| financial leverage | Concept of increasing earnings through debt
financing; investment of money at a higher rate than that paid
to borrow the money. (See page(s) pp. 126, 475) |
| |
| |
| |
| financial resources | Money or credit arrangements supplied to a
business by investors (owners) and creditors. (See page(s) p. 5) |
| |
| |
| |
| financial statements | Primary means of communicating the
financial information of an organization to the external users.
The four general-purpose financial statements are the income
statement, statement of changes in equity, balance sheet, and
statement of cash flows. (See page(s) p. 8) |
| |
| |
| |
| financing activities | Cash transactions associated with owners
and creditors; also one of the three categories of cash inflows
and outflows shown on the statement of cash flows. This
category of cash activities shows the amount of cash provided
by these resource providers and the amount of cash that is
returned to them. (See page(s) pp. 18, 562) |
| |
| |
| |
| first-in, first-out (FIFO) cost flow method | Inventory cost
flow method that treats the first items purchased as the first
items sold for the purpose of computing cost of goods sold. (See page(s) p. 268) |
| |
| |
| |
| fiscal year | Year for which a company’s accounting records are
kept. (See page(s) p. 155) |
| |
| |
| |
| fixed interest rate | Interest rate (charge for the use of money)
that does not change over the life of the loan. (See page(s) p. 459) |
| |
| |
| |
| FOB (free on board) destination | Term that designates the
seller as the responsible party for freight costs (transportationin
costs). (See page(s) p. 224) |
| |
| |
| |
| FOB (free on board) shipping point | Term that designates the
buyer as the responsible party for freight costs (transportationin
costs). (See page(s) p. 224) |
| |
| |
| |
| footnotes to the financial statements | Explanations of the
information in the financial statements such as estimates used
and options allowable under GAAP that have been chosen. (See page(s) p. 174) |
| |
| |
| |
| franchise | Exclusive right to sell products or perform services in
certain geographic areas. (See page(s) p. 423) |
| |
| |
| |
| fund | Independent accounting entity with a self-balancing set of
accounts segregated for the purposes of carrying on specific
activities. (See page(s) p. 535) |
| |
| |
| |
| fund accounting | Type of accounting used by governmental
entities. (See page(s) p. 535) |
| |
| |
| |
| future value | Amount an investment will be worth at some point
in the future, assuming a specified interest rate and the
reinvestment of interest each period that it is earned. (See page(s) p. 479) |
| |
| |
| |
| gains | Increases in assets or decreases in liabilities that result
from peripheral or incidental transactions. (See page(s) p. 121) |
| |
| |
| |
| general authority | Policies and procedures that apply across
different levels of a company’s management, such as everyone
flies coach class. (See page(s) p. 317) |
| |
| |
| |
| general journal | Journal in which all types of accounting
transactions can be entered but which is commonly used to
record adjusting and closing entries and unusual types of
transactions. (See page(s) p. 169) |
| |
| |
| |
| general ledger | Complete set of accounts used in accounting
systems. (See page(s) p. 14) |
| |
| |
| |
| generally accepted accounting principles (GAAP) | Rules and
regulations that accountants agree to follow when preparing
financial reports for public distribution. (See page(s) p. 8) |
| |
| |
| |
| going concern assumption | Assumption that a company will
continue to operate indefinitely, will pay its obligations and
should therefore report those obligations at their full face value
in the financial statements. (See page(s) p. 360) |
| |
| |
| |
| goodwill | Added value of a successful business that is
attributable to factors—reputation, location, and superior
products—that enable the business to earn above-average
profits; stated differently, the excess paid for an existing
business over the appraised value of the net assets. (See page(s) p. 424) |
| |
| |
| |
| gross margin (gross profit) | Difference between sales revenue
and cost of goods sold; the amount a company makes from
selling goods before subtracting operating expenses. (See page(s) p. 218) |
| |
| |
| |
| gross margin method | Method of estimating ending inventory
that assumes that the percentage of gross margin to sales
remains relatively stable from one accounting period to the
next. (See page(s) p. 279) |
| |
| |
| |
| gross margin percentage | Expression of gross margin as a
percentage of sales computed by dividing gross margin by net
sales; the amount of each dollar of sales that is profit before
deducting any operating expenses. (See page(s) p. 232) |
| |
| |
| |
| half-year convention | Tax rule that requires six months of
depreciation expense to be taken in the year of purchase of the
asset and the year of disposal regardless of the purchase date. (See page(s) p. 418) |
| |
| |
| |
| held-to-maturity securities | Debt securities intended to be held
until maturity. (See page(s) p. 284) |
| |
| |
| |
| historical cost concept | Actual price paid for an asset when it
was purchased. (See page(s) pp. 14, 73, 409) |
| |
| |
| |
| horizontal statements model | Arrangement of a set of financial
statements horizontally across a sheet of paper. (See page(s) p. 19) |
| |
| |
| |
| imprest basis | Description of the periodic replenishment of a
fund to maintain it at its specified original amount. (See page(s) p. 327) |
| |
| |
| |
| income | Added value created in transforming resources into
more desirable states. (See page(s) p. 4) |
| |
| |
| |
| income statement | Statement that measures the difference
between the asset increases and the asset decreases associated
with running a business. This definition is expanded in
subsequent chapters as additional relationships among the
elements of the financial statements are introduced. (See page(s) p. 17) |
| |
| |
| |
| independent auditor | Certified public accountant licensed to
perform audits who is independent of the company being
audited. (See page(s) p. 71) |
| |
| |
| |
| indirect method | Method of preparing the statement of cash
flows that uses the net income from the income statement as a
starting point for the reporting of cash flow from operating
activities. The adjustments necessary to convert accrual-based
net income to a cash-equivalent basis are shown in the
operating activities section of the statement of cash flows. (See page(s) p. 575) |
| |
| |
| |
| intangible assets | Assets that may be represented by pieces of
paper or contracts that appear tangible; however, the true value
of an intangible asset lies in the rights and privileges extended
to its owners. (See page(s) p. 408) |
| |
| |
| |
| interest | Fee paid for the use of borrowed funds; also refers to
revenue from debt securities. (See page(s) pp. 6, 285) |
| |
| |
| |
| interest-bearing notes | Notes that require the payment of the
face value plus accrued interest at maturity. (See page(s) p. 376) |
| |
| |
| |
| internal controls | A company’s policies and procedures designed
to reduce the opportunity for fraud and to provide reasonable
assurance that its objectives will be accomplished. (See page(s) pp. 75, 316) |
| |
| |
| |
| inventory | Supply of goods that is in the process of being made
or is finished and ready for sale; also describes stockpiles of
goods used in the business (office supplies, cleaning supplies). (See page(s) p. 217) |
| |
| |
| |
| inventory cost flow methods | Methods used to allocate the cost
of goods available for sale between cost of goods sold and
inventory. (See page(s) p. 267) |
| |
| |
| |
| inventory turnover | Ratio of cost of goods sold to inventory
that indicates how many times a year the average inventory is
sold (turned over). (See page(s) p. 281) |
| |
| |
| |
| investee | Company that receives assets or services in exchange
for a debt or equity security. (See page(s) p. 283) |
| |
| |
| |
| investing activities | One of the three categories of cash inflows
and outflows shown on the statement of cash flows; includes
cash received and spent by the business on productive assets
and investments in the debt and equity of other companies. (See page(s) pp. 18, 562) |
| |
| |
| |
| investment | Commitment of assets (usually cash) by a business to
acquire other assets that will be used to produce revenue. (See page(s) p. 63) |
| |
| |
| |
| investment securities | Certificates that describe the rights and
privileges that investors receive when they loan or give assets
or services to investees. (See page(s) p. 283) |
| |
| |
| |
| investor | Company or individual who gives assets or services
and receives a security certificate in exchange. (See page(s) pp. 5, 283) |
| |
| |
| |
| issued stock | Stock sold to the public. (See page(s) p. 520) |
| |
| |
| |
| issuer of a bond | Party that issues the bond (the borrower). (See page(s) p. 68) |
| |
| |
| |
| issuer of a note | Individual or business borrowing funds (the
party receiving the cash when a note is issued). (See page(s) p. 377) |
| |
| |
| |
| journal | Book of original entry in which accounting data are
entered chronologically before posting to the ledger accounts. (See page(s) p. 169) |
| |
| |
| |
| labor resources | Both intellectual and physical labor used in the
process of converting goods and services to products of greater
value. (See page(s) p. 6) |
| |
| |
| |
| last-in, first-out (LIFO) cost flow method | Inventory cost
flow method that treats the last items purchased as the first
items sold for the purpose of computing cost of goods sold. (See page(s) p. 268) |
| |
| |
| |
| ledger | Collection of all accounts used by a business; primary
information source for the financial statements. (See page(s) p. 168) |
| |
| |
| |
| legal capital | Amount of assets that should be maintained as
protection for creditors; the number of shares multiplied by the
par value. (See page(s) p. 519) |
| |
| |
| |
| liabilities | Obligations of a business to relinquish assets, provide
services, or accept other obligations. (See page(s) p. 10) |
| |
| |
| |
| limited liability | Concept that investors in a corporation may not
be held personally liable for the actions of the corporation (the
creditors cannot lay claim to the owners’ personal assets as
payment for the corporation’s debts). (See page(s) p. 516) |
| |
| |
| |
| limited liability company (LLC) | Organizational form offering
many of the best features of corporations and partnerships and
with many legal benefits of a corporation (e.g., limited liability
and centralized management) but permitted by the Internal
Revenue Service to be taxed as a partnership, thereby avoiding
double taxation of profits. (See page(s) p. 516) |
| |
| |
| |
| line of credit | Preapproved credit arrangement with a lending
institution in which a business can borrow money by simply
writing a check up to the approved limit. (See page(s) p. 462) |
| |
| |
| |
| liquidation | Process of dividing up the assets and returning them
to the resource providers. Creditors normally receive first
priority in business liquidations; in other words, assets are
distributed to creditors first. After creditor claims have been
satisfied, the remaining assets are distributed to the investors
(owners) of the business. (See page(s) p. 5) |
| |
| |
| |
| liquidity | Ability to convert assets to cash quickly and meet
short-term obligations. (See page(s) pp. 18, 330) |
| |
| |
| |
| long-term operational assets | Assets used by a business to
generate revenue; condition of being used distinguishes them
from assets that are sold (inventory) and assets that are held
(investments). (See page(s) p. 407) |
| |
| |
| |
| losses | Decreases in assets or increases in liabilities that result
from peripheral or incidental transactions. (See page(s) p. 120) |
| |
| |
| |
| lower-of-cost-or-market rule | Accounting principle of reporting
inventories at market value if their value declined below their
cost, regardless of the cause. (See page(s) p. 277) |
| |
| |
| |
| Management’s Discussion and Analysis (MD&A) | Section of
the annual report that management uses to explain many
different aspects of the company’s past performance and future
plans. (See page(s) p. 175) |
| |
| |
| |
| managerial accounting | Branch of accounting that provides
information useful to internal decision makers and managers in
operating an organization. (See page(s) p. 6) |
| |
| |
| |
| manufacturing businesses | Makers of goods sold to customers. (See page(s) p. 23) |
| |
| |
| |
| market | Gathering of people or organizations for the purpose of
buying and selling resources. (See page(s) p. 4) |
| |
| |
| |
| market interest rate | Current interest rate available on a wide
range of alternative investments. (See page(s) p. 474) |
| |
| |
| |
| market value | Value at which securities sell in the secondary
market; also called fair value. (See page(s) pp. 284, 520) |
| |
| |
| |
| marketable securities | Securities that are readily traded in the
secondary securities market. (See page(s) p. 284) |
| |
| |
| |
| matching concept | Process of matching expenses with the
revenues they produce; three ways to match expenses with
revenues include matching expenses directly to revenues,
matching expenses to the period in which they are incurred, and
matching expenses systematically with revenues. (See page(s) pp. 64, 114) |
| |
| |
| |
| material error | Error or other reporting problem that, if known,
would have influenced the decision of an average prudent
investor. (See page(s) p. 71) |
| |
| |
| |
| materiality | Concept that recognizes practical limits in financial
reporting by allowing flexible handling of matters not
considered material; information is considered material if the
decisions of a reasonable person would be influenced by its
omission or misstatement. (See page(s) p. 116) |
| |
| |
| |
| merchandise inventory | Supply of finished goods held for
resale to customers. (See page(s) p. 217) |
| |
| |
| |
| merchandising businesses | Companies that buy and sell
merchandise inventory. (See page(s) pp. 23, 217) |
| |
| |
| |
| Modified Accelerated Cost Recovery System (MACRS) | Prescribed method of depreciation for tax purposes that
provides the maximum depreciation expense deduction
permitted under tax law. (See page(s) p. 418) |
| |
| |
| |
| mortgage bond | Type of secured bond that conditionally
transfers title of a designated piece of property to the
bondholder until the bond is paid. (See page(s) p. 464) |
| |
| |
| |
| multistep income statement | Income statement format that
matches particular revenue items with related expense items
and distinguishes between recurring operating activities and
nonoperating items such as gains and losses. (See page(s) p. 228) |
| |
| |
| |
| natural resources | Mineral deposits, oil and gas reserves, and
reserves of timber, mines, and quarries are examples;
sometimes called wasting assets because their value wastes
away as the resources are removed. (See page(s) p. 408) |
| |
| |
| |
| net assets | Portion of the assets remaining after the creditors’
claims have been satisfied (i.e., Assets _ Liabilities _ Net
assets); also called equity or residual interest. (See page(s) p. 10) |
| |
| |
| |
| net income | Increase in net assets resulting from operating the
business. (See page(s) p. 17) |
| |
| |
| |
| net income percentage | Another term for return on sales. Refer
to return on sales for the definition. (See page(s) p. 232) |
| |
| |
| |
| net loss | Decrease in net assets resulting from operating the
business. (See page(s) p. 17) |
| |
| |
| |
| net method | A method of accounting for cash discounts that
records inventory purchases at the net price (the list price
minus the purchase discount). (See page(s) p. 223) |
| |
| |
| |
| net realizable value | Face amount of receivables less an
allowance for accounts whose collection is doubtful (amount
actually expected to be collected). (See page(s) pp. 360, 361) |
| |
| |
| |
| net sales | Sales less returns from customers and allowances or
cash discounts given to customers. (See page(s) p. 232) |
| |
| |
| |
| nominal accounts | Accounts that contain information applicable
to a single accounting period (Revenues, Expenses and
Dividends); sometimes called temporary accounts. (See page(s) p. 61) |
| |
| |
| |
| noncash investing and financing activities | Business
transactions that do not directly affect cash, such as
exchanging stock for land or purchasing property by using a
mortgage and that are reported as both an inflow and outflow
in a separate section of the statement of cash flows. (See page(s) p. 562) |
| |
| |
| |
| non-sufficient-funds (NSF) check | Customer’s check deposited
but returned by the bank on which it was drawn because the
customer did not have enough funds in its account to pay the
check. (See page(s) p. 323) |
| |
| |
| |
| note payable | Liability that results from the execution of a legal
document called a note that describes technical terms, including
interest charges, maturity date, collateral, and so on. (See page(s) p. 67) |
| |
| |
| |
| notes receivable | Notes that evidence rights to receive cash in
the future; usually specify the maturity date, rate of interest,
and other credit terms. (See page(s) p. 359) |
| |
| |
| |
| not-for-profit entities | Organizations (also called nonprofit or
nonbusiness entities) whose primary motive is something other
than making a profit, such as providing goods and services for
the social good. Examples include state-supported universities
and colleges, hospitals, public libraries, and public charities. (See page(s) p. 7) |
| |
| |
| |
| operating activities | One of the three categories of cash inflows
and outflows shown on the statement of cash flows; show the
amount of cash generated by revenue and the amount of cash
spent for expenses. (See page(s) pp. 18, 562) |
| |
| |
| |
| operating cycle | Time required to turn cash into inventory,
inventory into receivables, and receivables back to cash. (See page(s) pp. 330, 375) |
| |
| |
| |
| operating income | Income determined by subtracting operating
expenses from operating revenues. Gains and losses and other
peripheral activities are added to or subtracted from operating
income to determine net income or loss. (See page(s) p. 121) |
| |
| |
| |
| opportunity cost | Income given up by choosing one alternative
over another; for example, the wage a working student forgoes
to attend class. (See page(s) p. 234) |
| |
| |
| |
| outstanding checks | Checks deducted from the depositor’s cash
account balance but not yet presented to the bank for payment. (See page(s) p. 323) |
| |
| |
| |
| outstanding stock | Stock owned by outside parties; normally the
amount of stock issued less the amount of treasury stock. (See page(s) p. 521) |
| |
| |
| |
| Paid-in Capital in Excess of Par Value account | Account used
to record any amount received above the par or stated value of
stock when stock is issued. (See page(s) p. 522) |
| |
| |
| |
| par value | Arbitrary value assigned to stock by the board of
directors. (See page(s) p. 519) |
| |
| |
| |
| parent company | Company that holds a controlling interest
(more than 50 percent ownership) in another company. (See page(s) p. 288) |
| |
| |
| |
| partnership | Business entity owned by at least two people who
share talents, capital, and the risks of the business. (See page(s) p. 514) |
| |
| |
| |
| partnership agreement | Legal document that defines the
responsibilities of each partner and describes the division of
income and losses. (See page(s) p. 514) |
| |
| |
| |
| patent | Legal right granted by the U.S. Patent Office ensuring a
company or an individual the exclusive right to a product or
process. (See page(s) pp. 408, 423) |
| |
| |
| |
| payables | Obligations to make future economic sacrifices,
usually cash payments. (See page(s) p. 359) |
| |
| |
| |
| payment date | Date on which a dividend is actually paid. (See page(s) p. 526) |
| |
| |
| |
| period costs | Expenses matched to the period in which they are
incurred regardless of when cash payments for them are made;
costs that cannot be directly traced to products but are usually
recognized as expenses in the period in which they are
incurred. (See page(s) pp. 102, 218) |
| |
| |
| |
| periodic inventory system | Method of accounting for changes
in the Inventory account only at the end of the accounting
period. (See page(s) p. 236) |
| |
| |
| |
| peripheral (incidental) transactions | Transactions that do not
arise from ordinary business operations. (See page(s) p. 120) |
| |
| |
| |
| permanent accounts | Accounts that contain information
transferred from one accounting period to the next. (See page(s) p. 61) |
| |
| |
| |
| perpetual inventory system | Method of accounting for
inventories that increases the Inventory account each time
merchandise is purchased and decreases it each time
merchandise is sold. (See page(s) p. 220) |
| |
| |
| |
| petty cash fund | Small amount of cash set aside in a fund to pay
for small outflows for which writing checks is not practical. (See page(s) p. 327) |
| |
| |
| |
| petty cash voucher | A document prepared by the petty cash
custodian that evidences a petty cash disbursement. The person
who receives the cash signs the voucher as evidence of
receiving the money. Supporting documents, such as an
invoice, restaurant bill, or parking fee receipt, should be
attached to the petty cash voucher. (See page(s) p. 328) |
| |
| |
| |
| physical flow of goods | Physical movement of goods through
the business; normally a FIFO flow so that the first goods
purchased are the first goods delivered to customers, thereby
reducing the likelihood of obsolete inventory. (See page(s) p. 268) |
| |
| |
| |
| physical resources | Natural resources used in the transformation
process to create resources of more value. (See page(s) p. 6) |
| |
| |
| |
| posting | Process of copying information from journals to
ledgers. (See page(s) p. 169) |
| |
| |
| |
| preferred stock | Stock that receives some form of preferential
treatment (usually as to dividends) over common stock;
normally has no voting rights. (See page(s) p. 521) |
| |
| |
| |
| present value | Current value of some investment amount that
is expected to be received at some specified future time. (See page(s) p. 479) |
| |
| |
| |
| price-earnings (P/E) ratio | Ratio of the selling price per share
to the earnings per share; generally, a higher P/E ratio
indicates that investors are optimistic about a company’s
future. (See page(s) p. 20) |
| |
| |
| |
| primary securities market | Market made up of transactions
between the investor and investee. (See page(s) p. 284) |
| |
| |
| |
| principal | Amount of cash actually borrowed. (See page(s) p. 377) |
| |
| |
| |
| procedures manual | Manual that sets forth the accounting
procedures to be followed. (See page(s) p. 317) |
| |
| |
| |
| product costs | Inventory costs directly traceable to the product
including the cost to acquire goods or make them ready for
sale. (See page(s) p. 218) |
| |
| |
| |
| productive assets | Assets used to operate the business;
frequently called long-term assets. (See page(s) p. 18) |
| |
| |
| |
| profit | Value created by transforming goods and services to more
desirable states. (See page(s) p. 4) |
| |
| |
| |
| property, plant, and equipment | Category of assets, sometimes
called plant assets, used to produce products or to carry on the
administrative and selling functions of a business; includes
machinery and equipment, buildings, and land. (See page(s) p. 408) |
| |
| |
| |
| purchase discount | Reduction in the gross price of merchandise
extended under the condition that the purchaser pay cash for
the merchandise within a stated time (usually within 10 days of
the date of the sale). (See page(s) p. 223) |
| |
| |
| |
| qualified opinion | Opinion issued by a CPA that falls between
an unqualified opinion (see later definition) and an adverse
opinion; means that for the most part, the company’s financial
statements are in compliance with GAAP, but the auditors have
reservations about something in the statements or have other
reasons not to give a fully unqualified opinion; reasons that a
qualified opinion is being issued are explained in the auditor’s
report. (See page(s) p. 73) |
| |
| |
| |
| realization | A term that usually refers to transactions that
involve the collection or payment of cash. (See page(s) p. 55) |
| |
| |
| |
| recognition | Reporting an accounting event in the financial
statements. (See page(s) p. 55) |
| |
| |
| |
| relative fair market value method | Method of assigning value
to individual assets acquired in a basket purchase in which
each asset is assigned a percentage of the total price paid for
all assets. The percentage assigned equals the market value of
a particular asset divided by the total of the market values of
all assets acquired in the basket purchase. (See page(s) p. 409) |
| |
| |
| |
| reliability concept | Information is reliable if it can be
independently verified. Reliable information is factual rather
than subjective. (See page(s) p. 14) |
| |
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| reporting entities | Particular businesses or other organizations
for which financial statements are prepared. (See page(s) p. 8) |
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| residual interest | Portion of the assets remaining after the
creditors’ claims have been satisfied (Assets _ Liabilities _
Residual Interest); also called equity or net assets. (See page(s) p. 10) |
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| restrictive covenants | Special provisions specified in the loan
contract that are designed to prohibit management from taking
certain actions that place creditors at risk. (See page(s) p. 462) |
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| retail companies | Companies that sell goods to consumers. (See page(s) p. 217) |
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| retained earnings | Increase in equity that results from the
retention of assets obtained through the operation of the
business. (See page(s) p. 11) |
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| return on assets ratio | Ratio that measures the relationship
between the level of net income and the size of the investment
in assets. (See page(s) p. 124) |
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| return on equity ratio | Ratio that measures the relationship
between the amount of net income and the stockholders’ equity
of a company. (See page(s) p. 126) |
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| return on sales | Percent of net income generated by each $1 of
sales; computed by dividing net income by net sales. (See page(s) p. 232) |
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| revenue | An economic benefit (an increase in assets or a
decrease in liabilities) that is gained by providing goods and
services to customers. (See page(s) pp. 13, 76) |
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| revenue transactions | Transactions completed in the process of
operating a business that increase assets or decrease liabilities. (See page(s) p. 564) |
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| salaries payable | Amounts of future cash payments owed to
employees for services that have already been performed. (See page(s) p. 57) |
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| sales discount | Cash discount extended by the seller of goods to
encourage prompt payment. When the buyer of the goods takes
advantage of the discount and pays less than the original
selling price, the difference between the selling price and the
cash collected is the sales discount. (See page(s) p. 223) |
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| salvage value | Expected selling price of an asset at the end of its
useful life. (See page(s) p. 410) |
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| Sarbanes-Oxley Act of 2002 | An act of Congress that was
established to promote ethical behavior in corporate governance
and fairness in financial reporting. Key provisions of the act
include a requirement that a company’s chief executive officer
(CEO) and chief financial officer (CFO) must certify in writing
that they have reviewed the financial reports being issued, and
that the reports present fairly the company’s financial status. An
executive who falsely certifies the company’s financial reports
is subject to significant fines and imprisonment. The act also
establishes the Public Company Accounting Oversight Board
(PCAOB). This Board assumes the primary responsibility for
developing and enforcing auditing standards for CPAs who
audit SEC companies. The Sarbanes-Oxley Act also prohibits
auditors from providing most types of non-audit services to
companies they audit. (See page(s) p. 515) |
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| schedule of cost of goods sold | Schedule that reflects the
computation of the amount of the cost of goods sold under the
periodic inventory system; an internal report not shown in the
formal financial statements. (See page(s) p. 236) |
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| secondary securities market | Market in which securities are
exchanged between investors. (See page(s) p. 284) |
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| secured bonds | Bonds secured by specific identifiable assets. (See page(s) p. 464) |
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| Securities Act of 1933 and Securities Exchange Act of 1934 | Acts passed after the stock market crash of 1929 designed to
regulate the issuance of stock and govern the stock
exchanges; created the Securities and Exchange Commission
(SEC), which has the authority to establish accounting
policies for companies registered on the stock exchanges. (See page(s) p. 515) |
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| Securities and Exchange Commission (SEC) | Government
organization responsible for overseeing the accounting rules to
be followed by companies required to be registered with it. (See page(s) p. 176) |
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| selling and administrative costs | Costs that cannot be directly
traced to products that are recognized as expenses in the period
in which they are incurred. Examples include advertising
expense and rent expense. (See page(s) p. 218) |
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| separation of duties | Internal control feature of, whenever
possible, assigning the functions of authorization, recording,
and custody to different individuals. (See page(s) p. 316) |
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| serial bonds | Bonds that mature at specified intervals throughout
the life of the total issue. (See page(s) p. 464) |
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| service businesses | Organizations—accountants, lawyers, and
dry cleaners—that provide services to consumers. (See page(s) p. 23) |
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| service charges | Fees charged by a bank for services performed
or a penalty for the depositor’s failing to maintain a specified
minimum cash balance throughout the period. (See page(s) p. 323) |
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| shrinkage | A term that reflects decreases in inventory for
reasons other than sales to customers. (See page(s) p. 230) |
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| signature card | Bank form that records the bank account
number and the signatures of the people authorized to write
checks on an account. (See page(s) p. 321) |
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| simple interest | Interest computed by multiplying the principal
by the interest rate by the number of periods. Interest earned in
a period is not added to the principal, so that no interest is
earned on the interest of previous periods. (See page(s) p. 478) |
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| single-step income statement | Single comparison between total
revenues and total expenses. (See page(s) p. 228) |
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| sinking fund | Fund to which the bond issuer annually
contributes to ensure the availability of cash for the payment of
the face amount on the maturity date. (See page(s) p. 464) |
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| sole proprietorship | Business (usually small) owned by one
person. (See page(s) p. 514) |
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| solvency | Ability of a business to pay liabilities in the long run. (See page(s) p. 330) |
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| source document | Document such as a cash register tape,
invoice, time card, or check stub that provides accounting
information to be recorded in the accounting journals and
ledgers. (See page(s) p. 169) |
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| special journals | Journals designed to improve the efficiency of
recording specific types of repetitive transactions. (See page(s) p. 169) |
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| specific authorizations | Policies and procedures that apply to
designated levels of management, such as the policy that the
right to approve overtime pay may apply only to the plant
manager. (See page(s) p. 317) |
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| specific identification | Inventory method that allocates costs
between cost of goods sold and ending inventory using the cost
of the specific goods sold or retained in the business. (See page(s) p. 268) |
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| spread | Difference between the rate a bank pays to obtain money
(e.g., interest paid on savings accounts) and the rate that the
bank earns on money it lends to borrowers. (See page(s) p. 475) |
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| stakeholders | Parties interested in the operations of a business,
including owners, lenders, employees, suppliers, customers,
and government agencies. (See page(s) p. 3) |
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| stated interest rate | Rate of interest specified in the bond
contract that will be paid at specified intervals over the life of
the bond. (See page(s) p. 464) |
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| stated value | Arbitrary value assigned to stock by the board of
directors. (See page(s) p. 520) |
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| statement of activities | Statement that reports the revenues,
expenses, gains, and losses that increase or decrease the net
assets of a not-for-profit organization. (See page(s) p. 533) |
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| statement of cash flows | Statement that explains how a
business obtained and used cash during an accounting period. (See page(s) pp. 18, 533) |
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| statement of changes in stockholders’ equity | Statement that
summarizes the transactions occurring during the accounting
period that affected the owners’ equity (See page(s) p. 17) |
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| statement of financial position | Statement that reports the
assets, liabilities, and net assets of a not-for-profit
organization. (See page(s) p. 533) |
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| statements model | Simultaneous representation of a set of
financial statements. (See page(s) p. 14) |
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| stock certificate | Evidence of ownership interest issued when an
investor contributes assets to a corporation; describes the rights
and privileges that accompany ownership. (See page(s) p. 514) |
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| stock dividend | Proportionate distribution of additional shares of
the declaring corporation’s stock. (See page(s) p. 527) |
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| stockholders | Owners of a corporation. (See page(s) pp. 11, 517) |
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| stockholders’ equity | Stockholders’ equity represents the
portion of the assets that is owned by the stockholders. (See page(s) p. 11) |
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| stock split | Proportionate increase in the number of outstanding
shares; designed to reduce the market value of the stock and its
par value. (See page(s) p. 527) |
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| straight-line amortization | Method of amortization that
allocates bond discount or premium in equal amounts to each
period over the life of the bond. (See page(s) p. 471) |
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| straight-line depreciation | Method of computing depreciation
that allocates the cost of an asset to expense in equal amounts
over its life. (See page(s) p. 410) |
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| straight-line method | Allocation method computed by
subtracting the salvage value from the cost and then dividing
by the number of years of useful life. (See page(s) p. 112) |
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| subordinated debentures | Unsecured bonds that have a lower
priority than general creditors, that is, are paid off after the
general creditors are paid in the case of liquidation. (See page(s) p. 464) |
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| subsidiary company | Company controlled (more than 50
percent owned) by another company. (See page(s) p. 288) |
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| systematic allocation of cost | Process of spreading the cost of
an asset over several accounting periods in an orderly manner. (See page(s) p. 114) |
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| T-account | Simplified account form, named for its shape, with
the account title placed at the top of a horizontal bar, debit
entries listed on the left side of the vertical bar, and credit
entries shown on the right side. (See page(s) p. 156) |
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| T-account method | Method of determining net cash flows by
analyzing beginning and ending balances on the balance sheet
and inferring the period’s transactions from the income
statement. (See page(s) p. 564) |
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| tangible assets | Assets that can be touched, such as equipment,
machinery, natural resources, and land. (See page(s) p. 408) |
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| temporary accounts | Accounts used to collect information for a
single accounting period (usually revenue, expense, and
distribution accounts). (See page(s) p. 61) |
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| term bonds | Bonds in an issue that mature on a specified date in
the future. (See page(s) p. 464) |
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| time value of money | Recognition that the present value of a
promise to receive a dollar some time in the future is worth
less than a dollar. For example, a person may be willing to pay
$0.90 today for the right to receive $1.00 one year from today. (See page(s) p. 478) |
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| times interest earned ratio | Ratio that computes how many
times a company would be able to pay its interest by using the
amount of earnings available to make interest payments;
amount of earnings is net income before interest and income
taxes. (See page(s) p. 477) |
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| trademark | Name or symbol that identifies a company or an
individual product. (See page(s) p. 423) |
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| trading securities | Securities bought and sold to generate profit
from short-term appreciation in stock and bond prices. (See page(s) p. 284) |
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| transaction | Particular event that involves the transfer of
something of value between two entities. (See page(s) p. 11) |
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| transferability | Concept referring to the practice of dividing the
ownership of corporations into small units that are represented
by shares of stock, which permits the easy exchange of
ownership interests. (See page(s) p. 517) |
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| transportation-in (freight-in) | Cost of freight on goods
purchased under terms FOB shipping point that is usually
added to the cost of inventory and is a product cost. (See page(s) p. 224) |
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| transportation-out (freight-out) | Freight cost for goods
delivered to customers under terms FOB destination; a period
cost expensed when it is incurred. (See page(s) p. 224) |
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| treasury stock | Stock first issued to the public and then bought
back by the corporation. (See page(s) p. 520) |
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| trial balance | List of ledger accounts and their balances that
provides a check on the mathematical accuracy of the
recording process. (See page(s) p. 173) |
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| true cash balance | Actual balance of cash owned by a company at
the close of business on the date of the bank statement. (See page(s) p. 322) |
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| 2/10, n/30 | Term indicating that the seller will give the purchaser
a 2 percent discount on the gross invoice price if the purchaser
pays cash for the merchandise within 10 days from the date of
purchase. (See page(s) p. 223) |
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| unadjusted bank balance | Ending cash balance reported by the
bank as of the date of the bank statement. (See page(s) p. 322) |
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| unadjusted book balance | Balance of the Cash account as of
the date of the reconciliation before making any adjustments. (See page(s) p. 322) |
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| unearned revenue | Revenue for which cash has been collected
but the service has not yet been performed. (See page(s) p. 110) |
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| units-of-production depreciation | Depreciation method based
on a measure of production rather than a measure of time; for
example, an automobile may be depreciated based on the
expected miles to be driven rather than on a specific number of
years. (See page(s) pp. 410, 416) |
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| unqualified opinion | Opinion on financial statements audited by
a CPA that means the auditor believes the financial statements
are in compliance with GAAP. (See page(s) p. 72) |
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| unrealized gain or loss | Paper gain or loss on investment
securities that has not yet been realized and is not realized until
the securities are sold or otherwise disposed of. (See page(s) p. 285) |
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| unsecured bonds | Also known as debentures, bonds issued on
the general credit of the organization. (See page(s) p. 464) |
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| unsubordinated debentures | Unsecured bonds that have equal
claims with the general creditors. (See page(s) p. 464) |
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| users | Individuals or organizations that use financial information
for decision making. (See page(s) p. 3) |
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| variable interest rate | Interest rate that fluctuates (may change)
from period to period over the life of the loan. (See page(s) p. 459) |
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| vertical statements model | Arrangement of a full set of
financial statements on a single page with account titles
arranged from the top to the bottom of the page. (See page(s) p. 69) |
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| voluntarily disclosing | Professional responsibility to clients that
forbids CPAs from voluntarily disclosing information obtained
as a result of their client–accountant relationships. (See page(s) p. 73) |
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| warranty | Promise to correct a deficiency or dissatisfaction in
quality, quantity, or performance of a product or service sold. (See page(s) p. 370) |
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| weighted-average cost flow method | Inventory cost flow
method in which the cost allocated between inventory and
cost of goods sold is based on the average cost per unit,
which is determined by dividing total costs of goods available
for sale during the accounting period by total units available
for sale during the period. If the average is recomputed each
time a purchase is made, the result is called a moving average. (See page(s) p. 268) |
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| wholesale companies | Companies that sell goods to other
businesses. (See page(s) p. 217) |
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| withdrawals | Distributions to the owners of proprietorships and
partnerships. (See page(s) p. 518) |