Glossary-In Alphabetical Order

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Accounting Income:In accounting for income taxes, the amount on which the total income tax expense is based. The amount is calculated by taking income before taxes and extraordinary items, adding or deducting extraordinary items before related income taxes, and then adjusting for any permanent differences between accounting and taxable income.
Accounting Policies:The specific accounting principles followed by an organization and the procedures for applying those principles.
Accounts Payable:An amount owing to a creditor, usually arising from the purchase of goods or services. In financial statement presentation, accounts payable may include open accounts and notes.
Accounts Receivable: An amount claimed against a debtor, usually arising from the sale of goods or services. In financial statement presentation, accounts receivable may include open accounts and notes.
Accrual Basis (of Accounting):The method of recording transactions by which revenues and expenses are reflected in the determination of net income for the period in which they are considered to have been earned and incurred, respectively, whether or not such transactions have been settled finally by the receipt or payment of cash or its equivalent.
Balance Sheet:A formal statement of financial position, in the form of a concise statement, showing assets, liabilities and owners' equity as at a particular moment of time. The rules for determining values to be assigned to balance sheet items do not necessarily aim at portraying current economic worth.
Capitalize:1. To charge an expenditure to a capital asset account rather than to an expense account. 2. To appropriate retained earnings for permanent retention, e.g. by the issue of a stock dividend. 3. To provide capital for a purpose.Cost of Goods SoldCost of Sales:The total cost of finished goods sold during an accounting period, whether purchased or manufactured; selling and administrative expenses are normally excluded.Current Liability:A liability whose regular and ordinary liquidation is expected to occur within one year or within the normal operating cycle where that is longer than a year. A liability otherwise classified as current but for which provision has been made for payment from other than current resources should be excluded.
Depreciation:1. The gradual exhaustion of the service capacity of fixed assets which is not restored by maintenance practices. It is the consequence of such factors as use, obsolescence, inadequacy and decay. 2. The expense in an accounting period arising from the application of depreciation accounting.Double Entry Bookkeeping:The system of bookkeeping in which every transaction is recorded both in one or more accounts as a debit and in one or more as a credit in such a manner that the total of the debit entries equals the total of the credit entries.Drawings:Withdrawals of assets (usually cash or merchandise) from a business by a partner or a sole proprietor.
Expense:A cost properly identifiable with the operations of a period or with revenues earned during that period or that is not identifiable with the operations or revenues of a future period or periods.
Fiscal Year:A fiscal period of one year. A fiscal year may consist of (1) twelve consecutive months or (2) 52 consecutive weeks with one extra day added to the last week or (3) 52 or 53 consecutive weeks.Fixed Asset:A tangible non-current asset, such as land, building, equipment, etc., held for use rather than for sale.
GAAP:Abbreviation for generally accepted accounting principles.Generally Accepted Accounting Principles: Those accounting principles which have been established in a particular jurisdiction by formal recognition by a standard-setting body, or by authoritative support or precedent.Going Concern AssumptionGoing Concern Concept:The accounting concept that a business will continue in operation indefinitely and that assets are therefore valued on the basis of continued use as distinct from market or liquidation value.Goodwill:An intangible asset of a business when the business has value in excess of the sum of its net identifiable assets. Goodwill arises from anticipated earning power attributable to factors such as favourable record of management performance or relations with customers, employees or creditors. Goodwill is not recorded unless paid for.
Historical Cost Accounting:The traditional method of accounting in which data are expressed in terms of the number of units of currency in which a transaction originally took place.
Intangible Asset:A capital asset that lacks physical substance, e.g. goodwill, patents, copyrights, trademarks, leaseholds, mineral rights.
Joint Venture :A business undertaking entered into by two or more parties, which terminates upon completion of such undertaking, where control and contribution of resources are shared.
Kiting:1. The act of fraudulently misstating the accounts of an organization by showing the same amount on deposit simultaneously in two of its bank accounts, made possible by exploiting the time required for a cheque to clear through the banking system. This can be accomplished by depositing in one bank account a cheque drawn on another and recording in the books of account only the deposit on the day of the transfer. 2. Broadly, any act which takes advantage of the time required for a cheque to clear through the banking system.
Liquidity:The convertibility of assets into ready cash.
Margin of Safety:The excess of sales over the break-even sales volume. It may be expressed as a ration, in dollars, or other units.
Natural Business Year:A twelve month period ending on a date that is especially appropriate for the year end of the business because it coincides with the end of an operating cycle. This usually occurs at a time of seasonal decline in activity, when inventories and accounts receivable volume are relatively low.
Overhead:Expenses which are incurred to produce a commodity or render a service, but which cannot conveniently be attributed to individual units of production or service.
Partnership :1. The relationship which exists between persons carrying on a business in common with a view to profit. This term does not apply to the relationship which exists between members of corporation. 2. A business organization operated as a partnership.Limited Partnership:A partnership in which one or more of the partners have their liability for the debts of the partnership limited to their contributed capital.Prospectus:A document provided by a corporation to potential investors in an issue of securities. It contains information such as a description of the securities to be issued, a description of the corporation's business, names of directors and officers, financial data and other pertinent facts.
Quick Assets :Unrestricted cash on hand and in bank, marketable securities held temporarily, accounts receivable maturing within the normal term of credit, and short-term trade bills receivable.
Ratio Analysis:The study of financial condition and performance through ratios derived from items in the financial statements or from other financial information.Acid Test Ratio:The ratio of the total cash, accounts receivable and marketable securities included in current assets to current liabilities.Current Ratio:The ratio of current assets to current liabilities.Debt/Equity Ratio:1. Any ratio expressing a relationship between debt and shareholder's equity. 2. The ratio of long-term debt to the sum of long-term debt and shareholders' equity.Gross Profit Ratio:The ratio of gross profit to net sales.Interest Coverage Ratio:The ratio of net income before interest on long-term liabilities and income taxes to interest on long-term liabilities.Realized:An adjective generally used to describe a revenue, profit, gain or loss on a completed transaction which has produced an increase or decrease in monetary asset or in a liability, or in a more restricted sense, an increase or decrease in a liquid asset. Reversing Entry: An entry made at the beginning of an accounting period that is the opposite of an adjusting entry made to accrue revenues and expenses at the end of the prior period. This entry is made in order to permit recording of transactions in the regular manner as if no adjustments had been recorded in the preceding period.
Stock Split :Increase in the number of shares of a class of capital stock, with no change in the total dollar amount of the class, but with a converse reduction in the par or stated value of the shares. This is achieved by issuing a specified number of new shares in exchange for one old share.
Translation of Foreign Currency:The process of expressing financial statements derived from a set of accounts maintained in the currency of one country in terms of the currency of another country, or of expressing monetary items which are stated in one currency in equivalent terms of another currency.
Unrealized Exchange Gain/Loss:An exchange adjustment which results from the translation of monetary assets and liabilities relating to foreign currency transactions and from the translation of foreign currency financial statements.
Venture Capital :A term of imprecise meaning often used to describe equity investment in corporations whose securities are not publicly traded, by persons (venture capitalists) not directly managing the business.
Work in ProcessWork in Progress:Partly finished goods, services or contracts which are in the process of manufacture or completion.
Yield To Maturity:The effective rate of return to be realized on a bond assuming it is held to maturity.
Zero-Base Budgeting (ZBB):A management system whereby all programs are re-evaluated and must be justified each time a new budget is formulated.