MY PAKISTAN

Total Pageviews

Sunday, January 31, 2010

HOW TO PASS AN ACCOUNTING EXAM

Why is it that so many students struggle with accounting exams? Is it the ambiguity of the concepts or the way in which the subjects are taught in our Universities?

This area has been a focus for me over the past few years. After tutoring several hundred students and seeing the variety of courses available through Universities, both undergraduate and post-graduate, there are usually a number of techniques, that while may seem relatively simple, are usually the reason for the downfall in students not passing he dreaded accounting exam. Its amazing that passing accounting can sometimes be the difference between a few marks and that is why its important to maximise your marks.
Here are my list of top tips for passing the accounting exam and can also apply to other topic areas as well. While they may seem to be generic, this is typically what lets students down and the reason for having to repeat a class again:-

1. Read the Question carefully - while this may seem obvious, you’d be surprised to see how many students fail to actually read and understand what the question is asking of them. Accounting concepts can be broken down into the various topic areas and once understand what types of questions belong into what topic area, you can learn the technique to answer these questions. For example posting journal entries, creating a trial balance and financial statements, ratio analysis etc..

2. Read the question prior to reading the supporting material – a number of students, particularly in accounting, spend their time during reading time absorbing all of the facts rather than pin pointing what the questions is asking, then fishing for the right information. This is a technique that will guarantee you to focus on the right answer.

3. Include narrations and workings – this is typical for accounting journal questions and it is important to lay out your assumptions and narrate what the transaction is for. You never know the marker may give you extra marks if he can see where you went wrong, yet your presentation and logic were almost correct. So use this technique to be clear in your responses.

4. Ensure to include the correct format - i’ve seen questions where the marker can offer you a mark purely for putting the right format such as a cash flow statement or balance sheet. Just by putting in the company name, report name, period & correct sub-headings can make a massive difference.

5. Time management - work out the number of minutes for the exam and divide by the number of marks. So for example a 3 hours exam work 100 marks should be work 1.8 minutes per mark. It is important to plan this out during reading time and then to stick to this time frame, which will make a massive difference during the actual exam, if you can be this disciplined. If a question is incomplete, just move on to the next question.

6. Prioritise the question from easiest to hardest - this can be planned out during reading time and this technique helps you to maximise your marks. So for example if there is a question on T-accounts versus doing a cash flow statement, you may be able to start with the t-accounts, if you find this easier. That way you are maximising your marks to help your chances of passing the course.

7. Think in concepts rather than rote learning – the biggest problem in accounting exams is that students rote learn material rather than thinking in concepts. Taking a much higher level view and thinking and understanding the concept will guarantee you a much more successful preparation and pass mark for your course.

8. Everything comes back to the basic principles – at the end of the day Accounting isn’t rocket science and all come back to basic principles which appear simple, yet are the foundation of understanding more advanced principles. Everything comes back to the accounting equation, understanding your debits and credits etc…

9. Accounting follows a standard structure – nearly all accounting courses start off with the same principles of A = L + OE, then move onto the various elements, then onto T-accounts, ledgers & preparing the trial balance, adjusting entries, preparing financial statements, ratio analysis etc… Likewise with management accounting there is a pretty common theme of concepts such as cost accounting, cost volume profit analysis, overhead and allocations, budgets & forecasting, investment decisions, value-chain / retail accounting etc… So once you learn the structure and what type of questions belong into what type of topic area you will find it a lot easier to know how to approach these types of questions.

10. Check your calculations – simple easy marks can be lost through careless calculations and by not checking your figures, you can lose out which can cost you the difference between a pass and fail grade.

All of these tips sounds simple in theory, yet require discipline to implement in practice.

GOVERNMENT MERCY!!!!!!!!!!!!!!!!

ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) on Sunday dropped the petrol bomb on inflation-stricken 170 million people of the country by increasing the petroleum products by 5 per cent to 9 per cent with massive increase in motor gasoline (petrol) by Rs 6.10, from Rs 65.11 to Rs 71.21 per litre, HOBC (High Octane Blending Component) by Rs 7.41, to Rs 86.84 from Rs 79.43 per litre, with immediate effect from today (Monday, February 1, 2010).

In its notification released late on Sunday night, the Ogra also increased the price of High Speed Diesel (HSD) by Rs 3.33 per litre to Rs 71.99 per litre from Rs 68.56, kerosene by 5 per cent from Rs 60.75 to Rs 64.07 per litre, Light Diesel Oil (LDO) by 5 per cent to Rs 61.07 from Rs 58.10 per litre.

The whopping increase would multiply economic miseries of the masses as the transportation cost of the goods would inflate manifold and, therefore, the inflation would surge. However, the increase in POL products would bring relief for the current regime, which is struggling a lot to increase its revenue generation to meet the target of Rs 1,396 billion as agreed with the International Monetary Fund (IMF), as the sales tax collection would increase.

The price increase of kerosene will inflict huge monetary losses to the people living in the far-flung areas, especially in the Northern Areas, where natural gas and even Liquefied Natural Gas (LNG) is not available.

However, the government remained indifferent to the unscrupulous owners of petrol pumps, who closed their sale from Sunday evening till midnight to capitalise on the illegal windfall profits by not selling the stocks, which the owners had purchased at old prices.

The increase in diesel will also bring financial miseries to the farmers’ community. The country is facing over 30 per cent water shortage, which has further aggravated because of the four-month drought. Now the farmers would have to use the ground water through tubewells, which are mainly operated through diesel, where the electricity is not available because of the massive power outages.

The federal government has linked the local prices with the developments in the international oil market and has been passing the impact to the domestic prices accordingly. The Arab Gulf petroleum product prices showed steep increase during the month of January 2010, and, therefore, the Ogra notified the revised prices of petrol, HOBC, kerosene and LDO upward w.e.f February 01, 2010.

Friday, January 29, 2010

‘FORENSIC ACCOUNTING’

PREVENTING FINANCIAL FRAUD THROUGH ‘FORENSIC ACCOUNTING’

There has been a surge in commercial litigations in recent times entailing greater demand of the services of forensic accountants. This article deals with different aspects of forensic accountancy and discusses as to where the Forensic Accountants may be of help.


Thrill seeking and accountancy are not, whatever you may think, mutually exclusive. Forensic accountancy can be a high profile and fascinating blend of legal and numerical problem solving where you are key to beating the bad guys. There’s nothing better than that thrill of getting the final bit of evidence that pieces the jigsaw together – Mark Alden.

“Auditor should be watchdog and not be the bloodhound”. It’s a good quote that every auditor should know. This quote makes the definition of Forensic accountants even more simple.
The forensic Accountant is a bloodhound of Bookkeeping. These bloodhounds sniff out fraud and criminal transactions in bank, corporate entity or from any other organization’s financial records. They hound for the conclusive evidences. External Auditors find out the deliberate misstatements only but the Forensic Accountants find out the misstatements deliberately. External auditors look at the numbers but the forensic auditors look beyond the numbers.
Forensic accountant takes a more proactive, skeptical approach in examining the books of Accounting. They make no assumption of management integrity (if they can assume so then there is no need for their appointment) show less concerns for the arithmetical accuracy have nothing to do with the Accounting or Assurance standards but are keen in exposing any possibility of fraud.
The term Forensic Accounting encompasses a wide range of activities including:
• The expert witness – preparation of formal reports for filing in Court and giving evidence as an Expert
• Litigation Consultancy – working with lawyers and their clients engaged in litigation and assisting with evidence, strategy and case preparation.
• Fraud Detection – assisting clients in detecting financial fraud by employees and others and tracing misappropriated funds.
• Computer Forensics – assisting in electronic data recovery and enforcement of IP rights etc...


General Nature of Forensic Accountancy Work

Forensic accounting (or at least, accounting expert witnessing) can be traced as far back as 1817 to a court decision. According to The Accountant’s Handbook on Fraud & Commercial Crime, forensic accounting is defined as: the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of the rules of evidence.
Forensic accountant takes a more proactive, skeptical approach in examining the books of Accounting. They make no assumption of management integrity (if they can assume so then there is no need for their appointment) show less concerns for the arithmetical accuracy have nothing to do with the Accounting or Assurance standards but are keen in exposing any possibility of fraud.
The traits of the forensic Accountants could be compared to well bake Pizza. The base of forensic accounting is Accounting knowledge. Size and the extent of baking decide the quality of the Pizza. A middle layer is a dispersed knowledge of auditing, internal controls, risk assessment and fraud detection. It is like the spread of the cheese in Pizza. The toppings of this Pizza are a basic understanding of the legal environment. The legal environment is essential in order to support the litigations. The Cherry on the toppings of the pizza is a strong set of communication skills, both written and oral. It is just the beautification part. Perfect combination of the Pizza base, Cheese spread and good toppings make the pizza delicious and the Forensic Auditor the perfect. It’s a combination that will be in demand for as long as human nature exists.
Forensic accounting is the application of a specialized knowledge and specific skills to stumble upon the evidence of economic transactions. The job demands reporting, where the accountability of the fraud is established and the report is considered as evidence in the court of law or in the administrative proceeding.
In addition to the specialized knowledge about the techniques of finding out the frauds one needs patience and analytical mindset. One has to look beyond the numbers and grasp the substance of the situation. It is basically the work of the intelligent accountants. He needs to question seemingly benign document and look for inconsistencies. He searches for evidence of criminal conduct or assists in the determination of, or rebuttal of, claimed damages.
He requires the ability to think. Far from being an ability that is specific to success in any particular field, developing the ability to think enhances a person’s chances of success in life, thus increasing a person’s worth in today’s society.
Sherlock Holmes was probably the most famous practitioner being the Forensic Chemist. But the Kautilya was the first economist who openly recognized the need of the forensic accountants. He mentioned forty ways of embezzlement centuries ago.
The Techniques in Forensic Accounting

The conventional accounting and auditing with the help of different accounting tools like ratio technique, cash flow technique, a standard statistical tool examination of evidences are all part of forensic accounting.

In cases involving significant amounts of data, the present day forensic accountant has technology available to obtain or source data, sort and analyze data and even quantify and stratify results through computer audit software applications and various other techniques. This enables the forensic accountant to pinpoint theft of assets for fidelity bond coverage, proof of losses for insurance or recovery through litigation, and illegal payments by corporations. Some of the techniques involved in forensic accounting are:

1. Benford’s law: It is a mathematical tool and is one of the various ways to determine whether variable under study is a case of unintentional errors (mistakes) or fraud. On detecting any such phenomenon, the variable under study is subjected to a detailed scrutiny. The law states that fabricated figures possess a different pattern from random (or valid) figures. The steps of Benford’s law are very simple. Once the variable or field of financial importance is decided, the left most digit of variable under study extracted and summarized for entire population. The summarization is done by classifying the first digit field and calculating its observed count percentage. Then Benford’s set is applied. A parametric test called the Z test is carried out to measure the significance of variance between the two populations, i.e. Benford’s percentage numbers for first digit and observed percentage of first digit for a particular level of confidence. If the data confirms to the percentage of Benford’s law, it means that the data is Benford’s set, i.e. there is 68% chance of no error or fraud. The first digit may not always be the only relevant field. Benford has given separate sets for 2nd,3rd,….and for last digit as well. It also works for combination numbers, decimal numbers and rounded numbers. There are many advantages of Benford’s law like it is not affected by scale invariance, and is of help when there is no supporting document to prove the authenticity of the transactions.

2. Theory of relative size factor: It highlights all unusual fluctuations, which may be routed from fraud or genuine errors. RSF is measured as the ratio of the largest number to the second largest number of the given set. In this method the records that fall outside the prescribed range are suspected of errors or fraud. These records or fields need to relate to other variables or factors in order to find the relationship, thus establishing the truth.

3. Computer Assisted Auditing tools (CAATs): CAATs are computer programs that auditor use as part of the audit procedures to process data of audit significance contained in a client’s information systems, without depending on him. CAAT helps auditor to perform various auditing procedures such as:
a) Testing details of transactions and balances
b) Identifying inconsistencies of significant fluctuations
c) Testing general as well as application control of computer systems
d) Sampling programs to extract data for audit testing, and
e) Redoing calculations performed by accounting systems

Forensic accounting software (for accounting purpose) comes into two different varieties:
 Data extraction software: It is designed to conduct spreadsheet analysis on all the company’s computer database records such as billings, account receivable, payments to vendors, payroll & purchasing.
 Financial analysis software: It uses monthly, quarterly or annual financial statements and benchmarks the ratios between different accounts such as billings by revenues or supply cost as a percentage of revenue.
Other computer software that forensic accountants might use include so- called ‘spy’ software.

4. Data mining techniques: It is a set of computer assisted techniques designed to automatically, mine large volumes of data for new, hidden or unexpected information or patterns. Data mining techniques can be categorized in three ways:
o Discovery: It discovers the usual knowledge or patterns in data without any prior knowledge of fraud.
o Predictive modeling: In this, patterns discovered from the database are used to predict the outcome and to guess data for new value items.
o Deviation analysis: In this the norm is found first, and those items are detected that deviate from the usual within a given threshold.
Link discovery has emerged recently for detecting a suspicious pattern. It mostly uses deterministic graphical techniques, Bayesian probabilistic casual networks. This method involves “pattern matching” algorithm to ‘extract’ any rare or suspicious cases.

5. Ratio Analysis: Another useful fraud detection technique is the calculation of data analysis ratios. Three commonly employed ratios are-
 The ratio of the highest value to the lowest value
 The ratio of the highest value to the second highest value and
 The ratio of the current year to the previous year.

Forensic Accountants: How Different?

A Forensic Accountant is someone with a combination of skills. Beyond being a CA, a forensic accounting has auditing and investigating capabilities that are ideal for detailing the complexity of litigation involving tax and finance. A Forensic accountant can take a seemingly needle in-a-haystack pile of financial information and distill it into the important elements that need to be presented clearly and concisely as courtroom testimony.

Need for Forensic accountant:

The forensic accountants are used by attorneys in a broad range of activities from expert witness testimony to special counsel’s investigation of fraud, to bolster corporate governance. Forensic accountants become involved in a wide range of investigations, spanning a myriad range of industries. These include:

o Criminal Investigations
o Shareholders and Partnership disputes
o Business Interruption/Other types of insurance claims
o Business/Employee fraud investigations
o Business economic losses

Thursday, January 28, 2010

ACCOUNTING DEFINITIONS PART 4

DAC, in accounting, is an acronym for Deferred Acquisition Costs.

DAIRY QUEEN ACCOUNTING is a figure of speech from the steel industry meaning that some people don't know if they are doing accounting for Dairy Queen or a steel mill.

DATA EVENT ANALYSIS is the examination of something which happens within the business environment which the company needs to know about and which must be recorded in the company memory, that is, the company files. A data event may be externally or internally generated and may occur through some action being taken or merely as a result of the passage of time. The occurrence of data events recorded in some manner. Data event analysis determines what information must be recorded such that the event can be recalled and acted upon. It must also determine how that event became known to the company; that is, what triggered the company awareness of the event?

DATA FIXATION, in behavioral accounting, is a compulsive preoccupation to focus only upon the numbers without looking beyond for the meaning behind the results themselves.

DATE DRAFT is a payment option draft that matures in a specified number of days after the date issued.

DATE OF RECORD is the date which determines which shareholders receive dividends.

DAY BOOK is a written record/ledger in which transactions have been recorded as they occurred.

DAYS CASH ON HAND is calculated: Cash/([operating expense - depreciation expense]/365).

DAYS' INVENTORY shows the average length of time items are in inventory, i.e., how many days a business could continue selling using only its existing inventory. The goal, in most cases, is to demonstrate efficiency through having a high turnover rate and therefore a low days’ inventory. However, realize that this ratio can be unfavorable if either too high or too low. A company must balance the cost of carrying inventory with its unit and acquisition costs. The cost of carrying inventory can be 25% to 35%. These costs include warehousing, material handling, taxes, insurance, depreciation, interest and obsolescence. Formula: Inventory / (Net Revenue / 365)

DAYS PAYABLE OUTSTANDING (DPO) is an estimate of the length of time the company takes to pay its vendors after receiving inventory. If the firm receives favorable terms from suppliers, it has the net effect of providing the firm with free financing. If terms are reduced and the company is forced to pay at the time of receipt of goods, it reduces financing by the trade and increases the firm's working capital requirements. It is calculated: Days Payable Outstanding = 365 / Payables Turnover (Payables Turnover = Purchases / Payables).

DAYS SALES OUTSTANDING (DS0), also known as Collection Period (period average), is a financial indicator that shows both the age, in terms of days, of a company's accounts receivable and the average time it takes to turn the receivables into cash. It is compared to company and industry averages, as well as company selling terms (e.g., Net 30) for determination of acceptability by the company. DSO is calculated: DSO = (Total Receivables/Total Credit Sales in the Period Analyzed) x Number of Days in the Period Analyzed. Note: Only credit sales are to be used. Cash sales are excluded.

DBA (doing business as) is a legal entity (sole proprietorship, partnership, corporation) conducting business under any chosen name for which a business license has been issued.

DCAA is the Defense Contract Audit Agency.

DCR see Debt Coverage Ratio.

DDA, among others, can mean: Disability Discrimination Act (1995, UK), Dividend Disbursing Agent (finance), Demand Deposit Account, Direct Deposit Advance (Wells Fargo), Direct Deposit Advice, Deposit Demand Account, or Design Development Activity.

DDU is Delivered Duty Unpaid (shipping), or Destination Delivery Unit (US Postal Service; fee for bulk mail).

DEAD ASSETS are assets that do not have life beyond their immediate use.

DEBENTURE is a corporate IOU that is not backed by the company's assets (unsecured) and is therefore somewhat riskier than a bond.

DEBIT is a record of an indebtedness; specifically : an entry on the left-hand side of an account constituting an addition to an expense or asset account or a deduction from a revenue, net worth, or liability account.

DEBIT CARD is a banking card enhanced with automated teller machine (ATM) and point-of-sale (POS) features so that it can be used at merchant locations. A debit card is linked to an individual's checking account, allowing funds to be withdrawn at the ATM and point-of-sale without writing a check. Each financial institution creates an identity for its debit card to customize the product and differentiate it in the market. Debit cards can also be called deposit access cards.

DEBIT MEMORANDUM can be either a) a form or document given by the bank to a depositor to notify that the depositor's balance is being decreased due to some event other than the payment of depositor originated check, e.g. bank service charges; or b) a form of document used by a seller to notify a buyer that the seller is debiting (increasing) the amount of the buyer's accounts payable due to errors or other factors requiring adjustments.

DEBIT NOTES are issued to indicate a short payment.

DEBIT RECORD (DR) is an entry in a double-entry bookkeeping system recording an increase in an asset or an expense, or a decrease in liability, or owner's equity item. Debit entries are conventionally made on the left-hand side of T accounts.

DEBT is money, goods or services owed by an individual or company to another individual or company. Monetary debt can be represented by a loan note, bond, mortgage or other form stating repayment terms and, if applicable, interest payments to be made. All forms of debt all imply intent to repay an amount owed by a specific date. Bad debts are likely to remain uncollectable and be written off.

DEBT COVENANT is one of many terms used to describe rules governing the loans that a company has outstanding. Other related phrases would be "loan terms" "credit agreement," "loan agreement."

DEBT COVERAGE RATIO is the ratio between the net income of an investment and the amount of debt service of the investment: expressed as (NOI / DS = DCR), i.e. it is the relationship of net operating income divided by annual debt service.

DEBT FINANCING is raising money through selling bonds, notes, or mortgages or borrowing directly from financial institutions. You must repay borrowed money in full, usually in installments, with interest. A lender incurs risk and charges a corresponding rate of interest based on that risk. The lender usually assesses a variety of factors such as the strength of your business plan, management capabilities, financing, and your past personal credit history, to evaluate your company’s chances of success.

DEBT INSTRUMENT is a written promise to repay a debt. Examples: notes, bills, bonds, CDs, GICs, commercial paper, and banker's acceptances.

DEBTOR is the party against who one has a claim.

DEBTOR DAYS is a ratio used to work out how many days on average it takes a company to get paid for what it sells. It is calculated by dividing the figure for trade debtors shown in its accounts by its sales, and then multiplying by 365.

DEBTORS CONTROL ACCOUNT reflects the total amount owed by the all the individual debtors. The balance of the debtors control account must equal the total of the debtors list, which represents the amounts owed by the individual debtors obtained from the individual balances in the various subsidiary ledger accounts for each debtor. This subsidiary ledger is known as the debtors' ledger.

DEBTORS LEDGER see LEDGER.

DEBT RATIO measures the percent of total funds provided by creditors. Debt includes both current liabilities and long-term debt. Creditors prefer low debt ratios because the lower the ratio, the greater the cushion against creditor's losses in liquidation. Owners may seek high debt ratios, either to magnify earnings or because selling new stock would mean giving up control. Owners want control while "using someone else's money." Debt Ratio is best compared to industry data to determine if a company is possibly over or under leveraged. The right level of debt for a business depends on many factors. Some advantages of higher debt levels are:

•The deductibility of interest from business expenses can provide tax advantages.
· Returns on equity can be higher.

· Debt can provide a suitable source of capital to start or expand a business.

Some disadvantages can be:

· Sufficient cash flow is required to service a higher debt load. The need for this cash flow can place pressure on a business if income streams are erratic.

· Susceptibility to interest rate increases.

· Directing cash flow to service debt may starve expenditure in other areas such as development which can be detrimental to overall survival of the business.

Formula: Total Liabilities / (Total Liabilities + Stockholders Equity)

DEBT SECURITY is a security representing a loan given by an investor to an issuer. In return for the loan, the issuer promises to pay interest and to repay the debt on a specified date. Debt security issuers may include corporations, municipalities, the federal government, or a federal agency. See CONVERTIBLE and CONVERTIBLE DEBT.

DEBT SERVICE COVERAGE is the ratio of cash flow available to pay for debt to the total amount of debt payments to be made (interest and principal payments).

DEBT SERVICE RATIO is the measurement of debt payments to gross income.

DEBT TO EQUITY measures the risk of the firm's capital structure in terms of amounts of capital contributed by creditors and that contributed by owners. It expresses the protection provided by owners for the creditors. In addition, low Debt/Equity ratio implies ability to borrow. While using debt implies risk (required interest payments must be paid), it also introduces the potential for increased benefits to the firm's owners. When debt is used successfully (operating earnings exceeding interest charges) the returns to shareholders are magnified through financial leverage. Depending on the industry, different ratios are acceptable. The company should be compared to the industry, but, generally, a 3:1 ratio is a general benchmark. Should a company have debt-to-equity ratio that exceeds this number; it will be a major impediment to obtaining additional financing. If the ratio is suspect and you find the company's working capital, and current / quick ratios drastically low, this is a sign of serious financial weakness. Formula: Total Liabilities / Stockholders Equity

DEBT TO TOTAL ASSETS RATIO measures the percentage of assets financed by all terms of debt, includes both current and long term debt.

DECISION THEORY is a body of knowledge and related analytical techniques of different degrees of formality designed to help a decision maker choose among a set of alternatives in light of their possible consequences.

DECLINING-BALANCE DEPRECIATION METHOD is an accelerated depreciation method in which an asset's book value is multiplied by a constant depreciation rate (such as double the straight-line percentage, in the case of double-declining-balance.). This depreciation method is allowed by the U.S. tax code and gives a larger depreciation in the early years of an asset. Unlike the straight line and the sum of the digits methods, both of which use the original basis to calculate the depreciation each year, the double declining balance uses a fixed percentage of the prior year's basis to calculate depreciation. The percentage rate is 2/N where N is the life of the asset. With this method, the basis never becomes zero. Consequently, it is standard practice to switch to another depreciation method as the basis decreases. Usually the taxpayer will convert to the straight line method when the annual depreciation from the declining balance becomes less than the straight line.

DECRETION is a decrease. See also ACCRETION.

DEDICATED TRANSACTIONS, in securities, is a list all the transactions (including cash) for each portfolio together with any relevant fees and notes. And, not only can one monitor profit/loss but you can also chart the historical valuation of a portfolio, monitor the annualized rate of return, compare portfolio performance against indices or sectors and chart the performance of different constituents of a portfolio on a single chart.

DEDUCTION is the act of deducting; subtraction. It is an amount that is or may be deducted, e.g. tax deductions.

DEDUCTIVE ACCOUNTING THEORY (mathematical method) assumes that optimal accounting standards and reporting rules can be derived by deduction much in the way that Pythagoras derived the rule for measuring the hypotenuse of a triangle based upon square root of the summed squares of the other two sides (assuming one angle is a perfect 90-degree angle).

DEED OF TRUST see TRUST DEED.

DEFAULT, in finance, default is what occurs when a party is unwilling or unable to pay their debt obligations. This can occur with all debt obligations including bonds, debentures, mortgages, loans, and notes. Default can also occur with sovereign bonds, that is, governments can default on their payments to creditors. In corporate finance, a default is typically a prelude to bankruptcy. With most mortgages and loans the total amount owing becomes immediately payable on the first instance of a default of payment.

DEFEASANCE is the release of a debtor from the primary obligation for a debt. A legal defeasance could take place in absolute terms, i.e., the debt could cease to exist for anyone (by being forgiven or set aside), or the creditor could formally recognize that another party has taken over the primary obligation for the debt.

DEFEASANCE CLAUSE is the clause in a mortgage that permits the mortgagor to redeem his or her property upon the payment of the obligations to the mortgagee.

DEFENSE INTERVAL see BASIC DEFENSE INTERVAL.

DEFERMENT see DEFERRED.

DEFERRAL see DEFERRED.

DEFERRED, in accounting, is any account where the asset or liability is not realized until a future date, e.g. annuities, charges, taxes, income, etc. The deferred item may be carried, dependent on type of deferral, as either an asset or liability.

DEFERRED ANNUITY is an annuity in which the income payments/withdrawals begin at some future date

DEFERRED ASSET is an amount owed to an entity that is not expected to be received by that entity within one year from the date of the balance sheet.

DEFERRED CREDITOR see DEFERRED INCOME.

DEFERRED DEVELOPMENT COSTS is the non-recognition of costs of development until such until some condition(s) is satisfied.

DEFERRED EXPENDITURE is a expenditure for which payment has been made or a liability incurred but which is carried forward on the presumption that it will be of benefit over a subsequent period or periods. This is also referred to as deferred revenue expenditure.

DEFERRED EXPENSES see PREPAID EXPENSES.

DEFERRED INCOME is that income for which the cash has been collected by the company, but have yet to be "earned". For example, a customer pays their annual software license upfront on the 1st Jan. As the company financial year-end is 31st May, the company would only be able to record five months of the income as turnover in the profit and loss account. The rest would be accrued in the balance sheet as a "deferred" creditor.

DEFERRED MAINTENANCE is asset maintenance that was not performed when it should have been or was scheduled to be performed and was delayed until a future period, i.e. in most cases it is a nice way to say that the asset has not been kept up and is depreciating both in value and physically.

DEFERRED PAYMENT CREDIT is a type of a letter of credit where payment is made at a specified interval after collection papers are submitted.

DEFERRED REVENUE see DEFERRED INCOME.

DEFERRED REVENUE EXPENDITURE see DEFERRED EXPENDITURE.

DEFERRED TAX ASSETS have an effect of decreasing future income tax payments, which indicates that they are prepaid income taxes and meet definition of assets. Whereas deferred tax liabilities have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities.

DEFERRED TAXES refers to all deferred taxes.

DEFERRED TAX LIABILITIES have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities. Whereas deferred tax assets have an effect of decreasing future income tax payments, which indicates that they are prepaid income taxes and meet definition of assets.

DEFICIT is a debit balance in the Retained Earnings account resulting from accumulated losses.

DEFICIT BUDGET is where the estimates of expenses are greater than estimates of revenue.

DEFICIT SPENDING is an excess of government expenditures over government revenue, resulting in a shortfall that must be financed through borrowing.

DEFINED CONTRIBUTION is a pension design that defines the amount of contributions, usually a percentage of salary. The benefits payable at retirement depend on factors such as future investment return and annuity rate at retirement. If a plan is registered for tax purposes, the maximum contribution amount (usually a percentage of earnings or income up to a dollar limit) is defined by tax regulations.

DEFLATION is a contraction of economic activity resulting in a decline of prices.

DELINQUENCY RATIO is the ratio of past-due loans to total number of loans serviced.

DELIVERY NOTE is a document, issued by the suppliers, which accompanies a delivery of goods, specifying their type and quantity.

DELIVERY ORDER is a document from the consignee, shipper, or owner of freight ordering the release of freight to another party.

DELTA, in securities trading, is the relationship between an option price and the underlying futures contract or stock price. In general usage, it is the difference between two empirical data points, e.g. the delta between 4 and 6 is 2.

DEMAND DEPOSIT is a bank deposit f rom which withdrawals may be made without notice.

DEMAND DRAFT, also known as sight draft, is a draft payable on demand from the date of issue, e.g. a payroll check.

DEMAND NOTE is a note payable on demand from the person who is owed the money.

DEMAT ACCOUNT is an account offered by a bank in its capacity as a depository participant. The demat account reduces brokerage charges, makes pledging/hypothecation of shares easier, enables quick ownership of securities on settlement resulting in increased liquidity, avoids confusion in the ownership title of securities, and provides easy receipt of public issue allotments. It also helps you avoid bad deliveries caused by signature mismatch, postal delays and loss of certificates in transit. Further, it eliminates risks associated with forgery, counterfeiting and loss due to fire, theft or mutilation. Demat account holders can also avoid stamp duty, avoid filling up of transfer deeds, and obtain quick receipt of such benefits as stock splits and bonuses.

DEMINIMUS, root is 'De minimis non curat lex' (Latin), a common law principle whereby judges will not sit in judgement of extremely minor transgressions of the law. It has been restated as "the law does not concern itself with trifles". It is commonly used to include a test of anyone judging conformance to accounting principles, regulations or rules.

DEMOGRAPHICS are the attributes such as income, age, and occupation that best describe your target market.

DEMUTUALIZATION refers to the demutualizing of an insurance company. The proceeds from such an event are normally distributed to the policyholders in the form of either cash, shares, or a combination thereof in the surviving entity.

DENOMINATION is one of a series of kinds, values, or sizes, as in a system of currency or weights, e.g. U.S. currency comes in denominations of $1, $5, $10, $20, etc.

DEPARTMENTAL ACCOUNTING is where departments within an entity have varying degrees of autonomy, but are not usually separated geographically from the rest of the business. They may be concerned with manufacturing or, in the case of a department store, with retailing. Departmental accounts usually include a trading account and may also include a profit and loss account to which overheads are allocated or imputed.

DEPENDENT, generally, is a person who relies on another person for support (especially financial support); in U.S. tax law, it means a dependent as defined in tax code Section 152 which excludes those individuals who do not qualify for a dependent deduction on the employee’s tax return including domestic partners and parents.

DEPLETION is the process of cost allocation that assigns the original cost of a natural resource to the periods benefited. For example: a mining company purchases mineral rights to a deposit for $5 million for a period of ten years. The cost of the natural resource, $5 million, will be depleted over the ten years of the benefit; i.e., it is the physical exhaustion of a natural resource (e.g., timber, oil and coal).

DEPOSIT can mean a variety of things: a. a payment given as a guarantee that an obligation will be met; b. the act of putting money into a bank account; c. a partial payment made at the time of purchase with the balance to be paid later; or, d. money given as security for an article acquired for temporary use.

DEPOSITS IN TRANSIT is deposits made to a bank account that have not been credited to the bank statement.

DEPOSITORY ACCOUNT are those accounts where assets; e.g. cash or securities; are placed on deposit in favor of the depositor.

DEPRECIABLE COST is fixed asset cost that is subject to depreciation. Depreciable cost equals acquisition cost less salvage value.

DEPRECIATED HISTORICAL COST (DHC) is he method of valuation of certain assets at the actual cost of their acquisition and subsequent enhancement less a reduction for depreciation to date.

DEPRECIATION is the amount of expense charged against earnings by a company to write off the cost of a plant or machine over its useful life, giving consideration to wear and tear, obsolescence, and salvage value. If the expense is assumed to be incurred in equal amounts in each business period over the life of the asset, the depreciation method used is straight line (SL). If the expense is assumed to be incurred in decreasing amounts in each business period over the life of the asset, the method used is said to be accelerated. Two commonly used variations of the accelerated method of depreciating an asset are the sum-of-years digits (SYD) and the double-declining balance (DDB) methods. Frequently, accelerated depreciation is chosen for a business' tax expense but straight line is chosen for its financial reporting purposes.

DEPRECIATION ALLOCATION is the allocation of the cost of capital expenditures so that revenue is matched
with expenses for items that will last more than one year (land is not depreciable). The methodolgy is to allocate plant and equipment cost to expense through the use of accelerated, straight line and units of production amortization methods; as well as the disposal of assets; and, repairs and betterments to assets.

DEPRECIATION CONVENTION is utilized to determine how much depreciation to charge the first year when an item is bought part way through the year. Three different conventions are used: 1. Half year convention - All property placed in service is considered to be placed in service half way through the year. During the first year, half of the "normal" depreciation is taken. At the end of the depreciation period, the other half of the "normal" depreciation is taken; 2. Mid-quarter convention - If the amount of depreciation claimed on new items during the last 3 months of a year exceeds 40% of the total depreciation claimed during the year, then the mid-quarter convention is used. The amount of depreciation of each item is figured for one year then multiplied by 87.5% if was placed in service during Jan. - March, 62.5% if it was placed in service during April - June, 37.5% for items placed in service during July-Sept, and 12.5% for items placed in service during Oct. - Dec.; or, 3. Mid-month convention - All property is considered to be placed in service during the midpoint of the month. This requires some calculations.

DEPRECIATION METHOD see DEPRECIATION.

DEPRECIATION RECAPTURE is a provision contained in the Internal Revenue Code that makes excess depreciation taken on real property subject to income tax upon the sale or disposition of the property.

DEPRECIATION RESERVE in the process of allocating the cost of a fixed asset over its effective service life in a systematic and rational manner (depreciation schedule), the value of each depreciable asset is reduced by its depreciation amount. To match this, the depreciation amounts are added to a "depreciation reserve" in the long-term liabilities.

DEPRECIATION REVERSAL is the reversal of a depreciaton amount in the depreciation reserve account.

DEPRECIATION SCHEDULE is the statement, over time, as to the schedule (timing and amounts) of depreciation of any long-term asset. A depreciation schedule is used for any type of depreciation applicable, i.e., either straight line or accelerated depreciation. See DEPRECIATION.

DERECOGNIZE is to no longer approve or accept what was once accepted or approved.

DERIVATIVE is a transaction or contract whose value depends on or, as the name implies, derives from the value of underlying assets such as stock, bonds, mortgages, market indices, or foreign currencies. One party with exposure to unwanted risk can pass some or all of the risk to a second party. The first party can assume a different risk from a second party, pay the second party to assume the risk, or, as is often the case, create a combination. Derivatives are normally used to control exposure or risk. See DERIVATIVE CONTRACT.

DERIVATIVE CONTRACT is, generally, a financial contract the value of which is derived from the values of one or more underlying assets, reference rates, or indices of asset values, or credit-related events. Derivative contracts include interest rate, foreign exchange rate, equity, precious metals, commodity, and credit contracts, and any other instruments that pose similar risks. See DERIVATIVE.

DERIVATIVE LIABILITIES are financial instruments under contracts that have one or more underlying and one or more notional amounts. See DERIVATIVE.

DESCRIPTIVE THEORY, in property rights, describes how property rights are created or initiated, how they are transferred from party to party, and finally how property rights are terminated.

DESIGNATED is something selected or named for a duty, e.g., designated receipts.

DESIGNATED RECEIPTS is that revenue which is identified for a specific purpose.

DESTINATION is the place to which a shipment is consigned.

DETAIL, in accounting, is extended treatment of particulars of an accounting entry e.g., the from or to, date, amounts, purposes, balances, and, if needed, comments.

DEVALUATION, in economics, is the lowering in value of one currency in relation to other currencies.

DEVELOPMENT normally refers to a) improving a product or producing new types of products; or b) in real estate, process of placing improvements on or to a parcel of land.

DEVOLUTION is the delegation of authority from higher to lower levels.

DEVOLVE is to pass on or delegate to another, e.g. a devolved letter of credit.

DEVOLVED BUDGETING follows from devolving managerial responsibility, and assumes that those who are closest to the point of delivery of product/service and other activities will normally be in the best position to make informed choices between alternative courses of action. For devolved budgeting to be fully effective, the budget holder should maintain proper control of the costs being charged to him or her and be accountable for performance against budget. The budget structures are being scrutinized continuously, the aim being to establish what further scope exists for useful devolution of authority and responsibility

DILUTED EARNINGS PER SHARE are earnings per share, including common stock, preferred stock, unexercised stock options, and some convertible debt. Diluted earnings per share are usually a more accurate reflection of the company's real earning power.

DILUTED SHARE see DILUTED EARNINGS PER SHARE.

DILUTION is the decrease, weakening, or loss in a financial statement related item. For example, share value may be diluted through the issuance of additional common shares.

DIMINISHING VALUE METHOD (DV) is one of two methods to calculate the decline in value of depreciating assets for income tax purposes; the other is the prime cost method. The diminishing value method results in a higher decline in value deduction in the early years of the effective life of the asset, but the available deduction gets progressively smaller each year. See also PRIME COST METHOD.

DIO is Days Inventory Outstanding.

DIRECT ATTRIBUTION is the most precise method of costing an output. It seeks to capture accurately the volume and cost of resources used by particular activities. This can be expensive unless the information is already available because it requires detailed measurement of actual costs. Such direct measurement is seldom justifiable solely to improve the accuracy of a cost system, but many institutions use this method to obtain efficiency gains and cost savings.

DIRECT COST is that portion of cost that is directly expended in providing a product or service for sale and is included in the calculation of COST OF GOODS SOLD, e.g. labor and inventory (it can be traced to a given cost object in an economically feasible manner). Opposite of indirect cost.

DIRECT EXPENSE is that portion of expense that is directly expended in providing a product or service for sale and is included in the calculation of COST OF GOODS SOLD, e.g. labor and inventory.

DIRECT FINANCING LEASE is one in which the lessor’s only source of revenue isinterest. The lessor (generally a bank or other financial institution) buys anasset and leases it to the lessee. This transaction is an alternative to the morecustomary lending arrangement in which a borrower uses the loan proceedsto purchase an asset. A direct financing lease is the functional equivalent of a loan.

DIRECT JOURNAL PAYMENT is a payment that is recognized that is not included in the Accounts Receivable ledger, e.g. a double payment on a mortgage that has a monthly payment due and payable will cause a split-payment posting: one in the Accounts Receivable ledger for one half of the payment (principal and interest that is invoiced), with the other half of the payment being posted to the Long Term Loan ledger as a direct journal payment.

DIRECT LABOR is work performed by individuals which is directly related to a specific cost objective. This work is readily identifiable with a particular product or service.

DIRECT LABOR BUDGET is a budget of planned expenditures for direct labor. The direct labor budget indicates the rate per hour and the number of hours necessary to meet production requirements. See OPERATING BUDGET.

DIRECT LABOR RATE VARIANCE reveals the difference between the standard rate and actual rate for the actual labor hours worked [(standard rate - actual rate) X actual hours].

DIRECT LABOR UTILIZATION RATE is total payroll charged directly to job numbers in the period divided by the total payroll (direct and indirect) expended in the period. Since payroll is by far the single largest cost to operate a firm, generally speaking, the higher the direct labor rate, the more efficiently economically managed is the firm.

DIRECT MATERIAL is the cost of raw materials and components that can easily and economically be identified either with individual units of production or with a responsibility center.

DIRECTOR'S REPORT is written by the Directors of a company and forms part of the company's financial statements. This report must support and elaborate on the information contained in the Income Statement, Balance Sheet and Source and Application of Funds Statement.

DIRECTORS RESPONSIBILITY STATEMENT contains written assurances from the board of directors that all company policies are followed: i) in the preparation of the Annual Accounts, the applicable Accounting Standards and there are no material departures; ii) selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period.

DIRECTORS VALUATION is a valuation that is not an independent valuation.

DIRECT WRITE-OFF METHOD is a method of accounting for bad debts that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate uncollectible accounts or bad debt expense.

DISABILITY INSURANCE, in the United States, is a payroll tax required in some states that is deducted from employee paychecks to insure income during periods where an employee is unable to work due to an injury or illness.

DISBURSE/DISBURSEMENT is the paying out of money to satisfy a debt or an expense.

DISBURSEMENT VOUCHER is a document used to request reimbursement of expenses, items purchased or services rendered.

DISCLOSURE DOCUMENT PROGRAM, in the United States, is a form of legal protection that safeguards intellectual property while it is in its development stages.

DISCLOSURE NOTE see DISCLOSURE PRINCIPLE.

DISCLOSURE PRINCIPLE states that any and all information that affects the full understanding of a company's financial statements must be included with the financial statements. Some items may not affect the ledger accounts directly. These would be included in the form of accompanying notes. Examples of such items are outstanding lawsuits, tax disputes, and company takeovers.

DISCOUNT is a decrease in value (often due to interest to be earned) or decrease in price.

DISCOUNT ALLOWED, normally, is a reduction of the invoice amount for early payment of the invoice value.

DISCOUNTED CASH FLOW is a valuation method best used to evaluate a business established for the purpose of fulfilling a specific project, in certain startup and other companies where cash flow is more important than net income, and when a certain time frame is set where an investor wishes to see his investment returned over a specific period of time. In discounted cash flow, the present value of liabilities is subtracted from the combined present value of cash flow and tangible assets, which determines the value of the business.

DISCOUNTED CASH FLOW METHOD is a budgeting method for project evaluation and selection.

DISCOUNTED EARNINGS determines the value of a business based upon the present value of projected future earnings, discounted by the required rate of return (capitalization rate). Usually, the question is how well earnings are projected.

DISCOUNTED LOAN is a loan that is offered or traded for less than its face value.

DISCOUNTED PAYBACK is the period of time required to recover initial cash outflow when the cash inflows are discounted at the opportunity cost of capital.

DISCOUNTING is the selling of accounts receivable to a financial entity.

DISCONTINUED OPERATIONS is the sale, disposal, or planned sale in the near future of a business segment (product line or class of customer).

DISCOUNT RATE is the interest rate that the Federal Reserve of the U.S. Government charges a U.S. bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.

DISCREPANCY is a difference between conflicting facts or claims or opinions. In import / export, it is situations relating to official documents that are presented that do not conform to what is required within the Letter of Credit.

DISCRETIONARY means it is not mandatory, it is up to the individual or company.

DISCRETIONARY ACCRUAL is a non-mandatory expense/asset that is recorded within the accounting system that has yet to be realized. An example of this would be management bonus.

DISCRETIONARY CASH FLOW is the cash flow of the net income of the business after adding back income taxes, interest, depreciation, amortization, one time expenses and the owner’s salary and other fringe benefits.

DISCRETIONARY COST can be increased or decreased at the discretion of the decision maker (e.g., advertising and business travel).

DISCRETIONARY INCOME means the amount of a company's income available for spending after the essentials have been met. See DISPOSABLE INCOME.

DISHONORED NOTE is a note on which a debtor has defaulted.

DISINTERMEDIATION is the diversion of savings from accounts with low fixed interest rates to direct investment in high-yielding instruments.

DISPATCH, in shipping, is the amount paid by a vessel's operator to a charterer if loading or unloading is completed in less time than stipulated in the charter party.

DISPOSABLE INCOME is the amount of an individual's income left after taxes which is available for spending and / or savings. See DISCRETIONARY INCOME.

DISPOSAL, in accounting, is the final placement or riddance of wastes, excess, scrap, etc., under proper process and authority with no intention to retrieve. Disposal may be accomplished by abandonment, destruction, internment, incineration, donation, sale, etc.

DISSOLUTION is the act of ending, terminating or winding-up a company or state of affairs. For example, when the life of a company is ended by normal legal means, it is said to be "dissolved". The same is said of marriage or partnerships which, by dissolution, ends the legal relationship between those persons formally joined by the marriage or partnership.

DISTRIBUTABLE CASH is a common term used by income funds to describe the amount of cash that is available to meet distribution obligations of the fund. Distributable cash does not have a standard meaning and may be calculated differently by different income funds.

DISTRIBUTION COST is any cost incurred to fill an order for a product or service. It includes all money spent on warehousing, delivering and/or shipping products and services to customers.

DISTRIBUTIONS are payments from fund or corporate cash flow. May include dividends from earnings, capital gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least once per year. Some corporations offer Dividend Reinvestment Plans (D.R.P.).

DISTRIBUTION TO OWNERS is payment of earnings to owners of a business organization in the form of a dividend. A dividend is a distribution to a corporation's stockholders usually in cash; sometimes in the corporation's stock and much less frequently in property (usually other securities).

DIT is Depreciation, Interest and Taxes.

DIVESTITURE is the sale by a company of a product line, a subsidiary or a division.

DIVIDEND is that portion of a corporation's earnings which is paid to the stockholders.

DIVIDEND CAPITALIZATION: Since most closely held companies do not pay dividends, when using dividend capitalization valuators must first determine dividend paying capacity of a business. Dividend paying capacity based on average net income and on average cash flow are used. To determine dividend paying capacity, near term capital needs, expansion plans, debt repayment, operation cushion, contractual requirements, past dividend paying history of a business and dividends of a comparable company should be investigated. After analyzing these factors, percent of average net income and of average cash flow that can be used for the payment of dividends can be estimated. What also must be determined is the dividend yield, which can best be determined by analyzing comparable companies. As with the price earnings ratio method, this usually produces a subjective result.

DIVIDEND COVER see DIVIDEND PAYOUT RATIO.

DIVIDEND PAYOUT RATIO is a measure of the percentage of earnings paid out in dividends; computed by dividing cash dividends by the net income available to each class of stock.

DIVIDENDS PER SHARE (DPS) ratio is very similar to the EPS: EPS shows what shareholders earned by way of profit for a period whereas DPS shows how much the shareholders were actually paid by way of dividends. The formula: Dividends per share = Dividends paid to equity shareholders / Average number of issued equity shares.

DIVIDEND YIELD is the annual rate of return, expressed as a percentage, on an investment.

DIVIDEND YIELD RATIO allows investors to compare the latest dividend they received with the current market value of the share as an indictor of the return they are earning on their shares. The formula for the dividend yield is: Dividend yield = Latest annual dividends / Current market share price.

DIVISION is a self sufficient unit within a company. A division contains all the functions necessary to operate indepently from the parent company.

DMP is Direct Material Productivity, Debt Management Plan, Debt Management Program, or Data Management Plan.

DOCK RECEIPT is a document issued by the ocean carrier of a shipment acknowledging receipt of the goods to be shipped.

DOCTRINE is a. something that is taught; b. a principle or position or the body of principles in a branch of knowledge or system of beliefs; c. a principle of law established through past decisions; d. a statement of fundamental government policy especially in international relations.

DOCUMENTARY CREDIT is an arrangement by banks for settling international business transactions. A letter of credit is a form of documentary credit.

DOCUMENT CONTROL is a function or department which keeps track of all documentation, specifications and processes. The purpose is to ensure that everyone uses the correct and most current processes and specifications.

DOCUMENT MAINTENANCE is a formalized system of ensuring that all controlled documents are to the latest configuration or version.

DOCUMENT RECONCILIATION is the synchronization of formalized documents to approved or changed requirements or specifications.

DOCUMENT RETENTION POLICY is a set of guidelines that a company follows to determine how long it should keep certain records, including e-mail and web pages. The policy is important for many reasons, including legal requirements that apply to some documents. For example: a. for tax-related items - the recommended retention is seven years; and, b. for real estate records - the recommended retention is twenty years.

DOCUMENT REVIEW is a formalized technique of data collection involving the examination of existing records or documents.

DOH is Days on Hand (inventory).

DOLLAR CONTROL SYSTEMS are systems used in inventory management that reveals the cost and gross profit margin on individual inventory items.

DOLLARIZATION is the use of U.S. dollars by a country as its own currency; the linking of a currency’s value to that of the U.S. dollar; or, the use of the U.S. dollar for accounting purposes.

DOLLAR VALUE LIFO, in the U.S., is a method of expressing the value of an inventory in monetary values rather than units. Each homogeneous group of inventory items is converted into base-year prices by using the appropriate price indices. The difference between opening and closing inventories is a measure in monetary terms of the change in the financial period.

DOLLAR-WEIGHTED RATE OF RETURN is also called the internal rate of return; the interest rate that makes the present value of the cash flows from all the sub-periods in an evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.

DONATED ASSETS are assets received in a voluntary non-reciprocal transfer from another entity such as gifts of capital assets; usually voluntary contributions of resources to a governmental entity by a non-governmental entity.

DONATED CAPITAL is a gift of assets to a company, usually by state or local governments, to induce a business to relocate to their jurisdiction.

DOOMSDAY RATIO is related to the quick (acid test) ratio in that it is a conservative approach to debt coverage. The doomsday ratio only considers the cash on hand when evaluating if an entity can cover their current liabilities. The approach is that if the business were to go bankrupt today, would the business have enough cash on hand to cover current debts. The ratio is considered a good indicator of the cash cushion of safety. It may spot cash shortages, thereby assisting in avoiding a credit crisis. It is calculated: Cash divided by Current Liabilities.

DOUBLE ACCOUNTING is the un-intentional, or sometimes fraudulently intentional, double counting of assets or liabilities, or any other datasets, which, in the end, give an inaccurate view of what the data really means. In accounting, this is usually caused by a multiplicity of entries of the same data which, in the end, causes confusion or financial reporting inaccuracies.

DOUBLE DECLINING BALANCE DEPRECIATION see DECLINING BALANCE DEPRECIATION.

DOUBLE DIPPING is two incomes received from the same source (as by holding a government job and receiving a government pension.

DOUBLE-ENTRY ACCOUNTING is a system of recording transactions in a way that maintains the equality of the accounting equation. The accounting technique records each transaction as both a credit and a debit. Double-entry bookkeeping (DEB) or accounting was developed during the fifteenth century and was first recorded in 1494 as a system by the Italian mathematician Luca Pacioli.

DOUBLE LEVERAGE usually refers to a situation where a holding company raises debt and downstreams it as equity capital, or subordinated debt, to a subsidiary, i.e. it is the use of debt by both the parent company and the subsidiary, in combination with the company's equity capital, to finance the assets of the subsidiary.

DOUBTFUL DEBT is a debt where circumstances have rendered its ultimate recovery uncertain. Conservatism requires that doubtful debts should be treated in the same way as bad debts. They should thus be recorded as an expense in the profit and loss account and to be credited to a provision to set off against ultimate default if it occurs.

DOW JONES INDUSTRIAL AVERAGE is an index that tracks the daily share value of 30 large US companies listed on the New York Stock Exchange. The Dow Jones generally mirrors the exchange as a whole.

DOWN PAYMENT is a partial payment made at the time of purchase; the balance to be paid later as stipulated by contract; written or oral.

DOWNSTREAM is of or relating to earnings or operations (costs) at a firm that are near or at the final stage of consumption, e.g. marketing and transportation are downstream operations (costs) for a large, integrated oil company. See UPSTREAM.

DOWNSTREAM / UPSTREAM SALES see UPSTREAM / DOWNSTREAM SALES.

DPO see Days Payables Outstanding.

DPS see DIVIDENDS PER SHARE.

Dr is an ancient Italian abbreviation for the Italian word ‘debare’; meaning ‘debit’ (not to be confused with the acronym DR with both letters in uppercase).

DR, in accounting, is an acronym for Debit Record. See DEBIT RECORD.

DRAFT, in import / export, is a contract between buyer and seller that the buyer will pay a certain amount of money, within a specified period of time, for the goods purchased.

DRAFT, DEMAND OR SIGHT, in import / export, is a draft payable upon presentation to the drawee. It may be used when the exporter wishes to retain control of the shipment for credit or title retention reasons. The buyer must pay the bank before receiving the documents to take custody of the goods. A COD shipment is similar.

DRAW see PROPRIETORS DRAW.

DRAWDOWN is the magnitude of a decline in account value, either in percentage or currency terms.

DRAWEE is the buyer of a draft instrument.

DRAWING ACCOUNT see PROPRIETORS DRAW.

DRAWINGS see PROPRIETORS DRAW.

DROP SHIP is where the seller/retailer of a product ships the product directly from the manufacturer to the customer without requiring inventory carrying by the seller/retailer.

DSO, in accounting, is an acronym that usually means 'Days Sales Outstanding'.

DTD can be: Dated, Day-to-day, or Document Type Description, among others.

DUALITY CONCEPT is the foundation of the universally applicable double entry book keeping system. It stems from the fact that every transaction has a double (or dual) effect on the position of a business as recorded in the accounts. For example, when an asset is bought, another asset cash (or bank) is also and simultaneously decreased OR a liability such as creditors is also and simultaneously increased. Similarly, when a sale is made the asset of stock is reduced as goods leave the business and the asset of cash is increased (or the asset of debtors is increased) as cash comes into the business (or a promise to pay is made and accepted). Every financial transaction behaves in this dual way.

DUE DILIGENCE usually refers to an internal audit of a target firm by an acquiring firm.

DUMPING is the selling of merchandise in a foreign country at, or, below cost in order to seize market share.

DUN is when you importune (beg or are insistent upon) a debtor for payment: a dunning letter.

DUN & BRADSTREET (D&B) is a United States based for profit agency that furnishes subscribers with marketing statistics and the financial standings and credit ratings of businesses.

DUPONT ANALYSIS is a method for analyzing Return on Equity (ROE). The formula: ROE = Net Margin x Asset Turnover x Leverage Factor.

DURATION DRIVERS represent the amount of time required to perform an activity.

DUTY is a tax imposed by a customs authority on imported goods. Often used interchangeably with the term "tariff."

DV see DIMINISHING VALUE METHOD.

Wednesday, January 27, 2010

B.COM 1 & 2 KARACHI UNIVERSITY SUBJECTS


B.COM PART 1 AND 2 COACHING CLASSES FOR SUPPLEMENTARY EXAMS.
HOME AND COACHING.
ACCOUNTING, STATISTICS AND ECONOMICS OF PART 1.
ADVANCED ACCOUNTING OF PART 2.
CONTACT TIMINGS 4PM-7PM, MONDAY-SATURDAY,
CLASSES 9AM-9PM
SIR KHALID AZIZ
0322-3385752
R-1173, AL-NOOR SOCIETY, BLOCK 19, F.B.AREA, KARACHI. NEAR POWER HOUSE AND MASJID E AQSA

https://www.facebook.com/BCOM.KARACHI

GUESS PAPERS AVAILABLE FOR B.COM SUPPLEMENTARY EXAMS:
RS 100,
FROM 26TH MAY 2014
4PM-7PM
CONTACT:
KHALID AZIZ
0322-3385752
R-1173, AL-NOOR SOCIETY, BLOCK 19, F.B.AREA, KARACHI. NEAR POWER HOUSE AND MASJID E 

                
B.COM PART 1

PRINCIPLES OF ACCOUNTING

STATISTICS & BUSINESS MATHS

ECONOMICS

INTRODUCTION TO BUSINESS

ENGLISH

PAKISTAN STUDIES

ISLAMIAT


B.COM PART 2

ADVANCED ACCOUNTING

 COST ACCOUNTING

MANAGEMENT

BUSINESS LAW

BUSINESS COMMUNICATION

ECONOMICS OF PAKISTAN

OPTIONAL---- A) AUDITING

B) BANKING AND FINANCE

C) COMPUTER IN BUSINESS

D) FUNDAMENTALS OF MARKETING

E) PRINCIPLES OF INSURANCE


Accounting Definitions 3

C.A. is sometimes used to identify the Chief Accountant & Chartered Accountant

CAD see CASH AGAINST DOCUMENTS.

CAFR see Comprehensive Annual Financial Report.

CAGR see COMPOUND ANNUAL GROWTH RATE.

CALL can be 1. process of redeeming a bond or preferred stock issue before its normal maturity. A security with a call provision typically is issued at an interest rate higher than one without a call provision. Investors look at yield-to-call rather than yield-to-maturity; 2. right to buy 100 shares of stock at a specified price within a specified period; or, 3. option to buy (call) an asset at a specified price within a specified period.

CALLABLE BOND is a bond the issuer has the right to pay off at issuer's discretion.

CALL CENTER is the part of an organization that handles inbound/outbound communications with customers.

CALL PREMIUM is a premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date.

CALL PROVISION is a. a provision of a bond or preferred stock issue, listed in its indenture (the formal agreement between the bond issuer and the holder) that allows the issuer to redeem the bond before the maturity date either at par or at a premium to par; or, b. a clause in a mortgage giving the lender the right to demand and receive payment of the balance of the unpaid principal in full under certain conditions. A call provision is similar to an acceleration clause.

C&C can mean: Cash and Carry or Collection & Classification.

C&F (COST & FREIGHT) includes all shipping costs but insurance. Generally used in statement of terms, stating cost and freight are paid by the exporter from his warehouse to a port in the importer's country. In this case, the buyer is responsible for insurance.

C&I (COST & INSURANCE), in a price that is quoted “C&I”, means that the cost of the product and insurance are included in the quoted price. In this case, the cost of shipping would be borne by the buyer.

CANDY DEAL is a slang term that refers to an illegal business practice to inflate revenue/sales numbers by selling product to distributors with a pledge to buy them back later, in addition to providing a percentage kickback to the distributor for assisting in falsifying the sale.

CAP is a series of European interest rate call options used to protect against rate moves above a set strike level.

CAPEX see CAPITAL EXPENDITURE.

CAPITAL, in economics, can mean: factories, machines, and other man-made inputs into a production process. In finance, capital is money and other property of a corporation or other enterprise used in transacting the business.

CAPITAL ACCOUNT, in finance, is an account of the net value of a business at a specified date; in economics, it is that part of the balance of payments recording a nation's outflow and inflow of financial securities.

CAPITAL ADDITION is a. new (as opposed to replacement) part added to an existing non-current productive asset (e.g., equipment) used for business purposes that increases the useful life and service potential of the asset; or, b. in taxation, cost of capital improvements and betterments made to the property by a taxpayer.

CAPITAL ADEQUACY RATIO (CAR), also called Capital to Risk (Weighted) Assets Ratio (CRAR), is a ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss.

CAPITAL ASSET is a long-term asset that is not purchased or sold in the normal course of business. Generally, it includes fixed assets, e.g., land, buildings, furniture, equipment, fixtures and furniture.

CAPITAL ASSET PRICING MODEL (CAPM) is an equilibrium model which describes the pricing of assets, as well as derivatives. The model concludes that the expected return of an asset (or derivative) equals the riskless return plus a measure of the assets non-diversiable risk ("beta") times the market-wide risk premium (excess expected return of the market portfolio over the riskless return). That is: expected security return = riskless return + beta x (expected market risk premium). It concludes that only the risk which cannot be diversified away by holding a well-diversified portfolio (e.g. the market portfolio) will affect the market price of the asset. This risk is called systematic risk, while risk that can be diversified away is called diversifiable risk (or "nonsystematic risk"). Unfortunately, The CAPM is more difficult to implement in practice than the binomial option pricing model or the Black-Scholes formula because to price an asset it requires measurement of the asset's expected return and its beta. But, on the other hand, it also attempts to answer a more difficult question: The binomial option pricing model or the Black-Scholes formula asks what is the value of a derivative relative to the concurrent value of its underlying asset. The CAPM asks what is the value of an asset (or derivative) relative to the return of the market portfolio. Because of this, the option models are often referred to as "relative" valuation models, while the CAPM is considered an "absolute" valuation model. William Sharpe won the Nobel Prize in Economics principally for his role in the development of the CAPM.

CAPITAL BUDGET is the estimated amount planned to be expended for capital items in a given fiscal period. Capital items are fixed assets such as facilities and equipment, the cost of which is normally written off over a number of fiscal periods. The capital budget, however, is limited to the expenditures that will be made within the fiscal year comparable to the related operating budgets.

CAPITAL CHARGE is a monetary amount, calculated by multiplying the money the business has tied up in capital, by the weighted average cost of capital (WACC). Capital charge is deducted from net operating profit after tax to arrive at Economic Profit.

CAPITAL COMMITMENT is an agreement to undertake capital expenditure at some set time in the future which has not yet become an actual liability.

CAPITAL CONTRIBUTION is cash or property acquired by a corporation from a shareholder without the receipt of additional stock.

CAPITAL COST ALLOWANCE (CCA) is a tax deduction that Canadian tax laws allow a business to claim for the loss in value of capital assets due to wear and tear or obsolescence.

CAPITAL EMPLOYED is the value of the assets that contribute to a company's ability to generate revenue, i.e, fixed assets plus current assets minus current liabilities.

CAPITAL EXPENDITURE (CAPEX) is the amount used during a particular period to acquire or improve long-term assets such as property, plant or equipment.

CAPITAL EXPENDITURE RATIO is the ratio of capital expenditure and other investments to total assets. It is used as a proxy for growth opportunities in a financial analysis.

CAPITAL FUNDS is the total of capital debentures, if any, capital stock, if any, surplus, undivided profits, unallocated reserves, guaranty fund, and guaranty fund surplus.

CAPITAL GAIN is the excess of selling price over purchase price, which may be given special treatment for tax purposes provided the sale takes place more than a given number of months after purchase.

CAPITAL IMPROVEMENT, in real estate, is any permanent structure or other asset added to a property that adds to its value. In general, it is any value added activity or cost to a long-term or permanent asset that increases its value.

CAPITAL IN EXCESS OF PAR see ADDITIONAL PAID IN CAPITAL.

CAPITAL INFUSION often refers to the cross-subsidization of divisions within a firm. When one division is not doing well, it might benefit from an infusion of new funds from the more successful divisions. In the context of venture capital, it can also refer to funds received from a venture capitalist to either get the firm started or to save it from failing due to lack of cash.

CAPITAL INTENSIVE is used to describe industries or sectors of the economy that require large investments in capital assets to produce their goods, such as the automobile industry. These firms require large profit margins and/or low costs of borrowing to survive.

CAPITAL INVESTMENT see CAPITAL EXPENDITURE.

CAPITAL ITEM is a long-lived business asset (buildings, plant and equipment, etc) of an entity.

CAPITALIZATION is the statement of capital within the firm - either in the form of money, common stock, long-term debt, or in some combination of all three. It is possible to have too much capital (in which case the firm is overcapitalized) or too little capital (in which case the firm is undercapitalized).

CAPITALIZATION OF MAINTAINABLE EARNINGS is a valuation method; perhaps the most generally accepted method that involves capitalizing the future maintainable earnings by the application of a suitably chosen capitalization rate or multiple. The definition of earnings may be profit after tax ("PAT") or earnings before interest and tax ("EBIT"). This methodology, which in reality is a surrogate for the discounted cash flow method, requires consideration of several factors, including: a. an estimate of future maintainable earnings having regard to historical operating results and forecasts of future earnings; b. determination of an appropriate capitalization rate which will reflect the risks inherent in the business including sensitivity to industry risk factors, growth prospects, the general economic outlook and alternative investment opportunities; and c. a separate assessment of any surplus or unrelated assets and liabilities which are not essential to the continuing earning capacity of the business operations.

CAPITALIZATION RATE, also known as CAP RATE, is the rate of return a property will produce on the owner's investment. It is stated as a rate of interest or discount rate used to convert a series of future payments into a single 'present value'. In real estate, the rate includes annual capital recovery in addition to interest.

CAPITALIZE, in general business, it is to supply with capital, as of a business by using a combination of capital used by investors and debt capital provided by lenders; or, to consider expenditures as capital assets rather than expenses. Specifically, it is to: a) convert a schedule of income into a principal amount, called capitalized value, by dividing by a rate of interest; b) record capital outlays as additions to asset accounts, not as expenses; c) convert a lease obligation to an asset/liability form of expression called a capital lease, i.e., to record a leased asset as an owned asset and the lease obligation as borrowed funds; or d) turn something to one’s advantage economically, e.g., sell umbrellas on a rainy day.

CAPITALIZED COSTS are business expenses that are written off or deducted over a period of time through depreciation or amortization schedules.

CAPITALIZED INTEREST is the accrued interest added to the principal balance of a loan while you are not making payments or your payments are insufficient to cover both the principal and interest due. When this occurs, you are paying interest on interest, sometimes called "negative amortization".

CAPITALIZED LABOR means all direct costs of labor that can be identified or associated with and are properly allocable to the construction, modification, or installation of specific items of capital assets and, as such, can thereby be written down over time via a depreciation or amortization schedule as capitalized costs.

CAPITAL LEASE is a lease obligation that has to be capitalized on the balance sheet. It is characterized by: it is non-cancelable; the life of lease is less than the life of the asset(s) being leased; and, the lessor does not pay for the upkeep, maintenance, or servicing costs of the asset(s) during the lease period.

CAPITAL LOSS is the excess of purchase price over selling price when the assets have been held for more than a certain period of time and which is given a special treatment for tax purposes.

CAPITAL MAINTENANCE contains two concepts, a financial concept and a physical concept. Most entities adopt a financial concept of capital maintenance. Under this concept a profit is earned only if the monetary amount of net assets at the end of the period, excluding distributions/contributions to/from owners, exceeds the monetary amount of net assets at the beginning of the period. Financial capital maintenance is usually measured in monetary units; however, the requirement to report the impact of hyperinflation results in the measurement of assets and liabilities in monetary units of constant purchasing power.

CAPITAL MARKET is a market where equity or debt securities are traded.

CAPITAL OUTLAY see CAPITAL EXPENDITURE.

CAPITAL PROFIT is a synonym for: RETURN OF CAPITAL is the distribution of cash that resulted from tax savings on depreciation, sale of a capital asset or securities, or any other sources unrelated to retained earnings.

CAPITAL RATIONING is restrictions put of the amount planned for new expenditures.

CAPITAL RECEIPTS is proceeds from the sale of capital assets. They may be used to finance new capital expenditure or repay existing loan debt. Receipts available to finance capital expenditure in future years are normally held in the usable capital receipts reserve.

CAPITAL REDEMPTION RESERVE, in Great Britain, the S170 Companies Act 1985 provides that where shares of a company are redeemed or purchased wholly out of the company’s profits, or by a fresh issue the amount by which the company’s issued share capital is diminished on cancellation of the shares shall be transferred to a reserve called the ‘capital redemption reserve’. It also provides that the reduction of the company’s share capital shall be treated as if the capital redemption reserve were paid up capital of the company.

CAPITAL REDUCTION means reducing a company's stated capital base.

CAPITAL REPLACEMENT, or economic depreciation, is the portion of the value of machinery and equipment, in addition to repairs, that is used up in the production of a particular commodity. It is based on the current value of the machinery. Capital replacement may be regarded as a discretionary expense in any particular year. It may be deferred when income is low but ultimately must be paid to maintain the capital stock so that over the long term, the operation remains in business.

CAPITAL RESERVE is a fund set aside for specific purposes, thereby cannot be distributed for other uses. See also REVENUE RESERVE.

CAPITAL SPARE is the parts within inventory that are purchased as spare parts for depreciable assets (e.g., capital equipment). As such, the capital spares within inventory are depreciable and should not be treated as normal inventory.

CAPITAL STOCK is the ownership shares of a corporation authorized by its articles of incorporation, including preferred and common stock.

CAPITAL STRUCTURE refers to the permanent long-term financing of a company. Capital structure normally includes common and preferred stock, long-term debt and retained earnings. It does not include accounts payable or short-term debt.

CAPITAL SURPLUS is an archaic term. See PREMIUM ON CAPITAL STOCK.

CAPITAL TO RISK (WEIGHTED) ASSETS RATIO (CRAR) see CAPITAL ADEQUACY RATIO (CAR).

CAPITATION, generally, is a tax or payment levied on the basis of a fixed amount per person. In medical insurance, it is a method of paying for healthcare services on the basis of the number of patients who are covered for specific services over a specified period of time rather than the cost or number of services that are actually provided.

CAPM see CAPITAL ASSET PRICING MODEL.

CAP RATE see CAPITALIZATION RATE.

CAPS, FLOORS AND COLLARS: CAP is a series of European interest rate call options used to protect against rate moves above a set strike level; FLOOR a series of European interest rate put options used to protect against rate moves below a set strike level; and, COLLAR is the simultaneous purchase of an interest rate cap and sale of an interest rate floor on the same index for the same maturity and notional principal amount.

CAPTIVE DISTRIBUTOR is one held under control of another but having the appearance of independence; especially: owned or controlled by another concern and operated for its needs rather than for an open market.

CAR see Capital Adequacy Ratio.

CARNET is a customs document which permits you to send or carry merchandise into a country duty and tax free for a short period, for use as samples or as display merchandise in a trade show, for example.

CARRIED DOWN (CD) is a bookkeeping term for the previous period amount that will be the opening amount (opening balance) for the next period.

CARRIER is any company which transports passengers or freight.

CARRY FORWARD (CF) is data items that will always carry forward into subsequent transactions. If the item is allowed per the required/conditional matrix and no entry is made, the new transaction will reflect the data from the most current record. For example, if the new transaction to be added is current (in sequence), the CF data item will carry forward the data from the prior active record. If the new transaction to be added is out-of-sequence and no entry is made, the CF data item will reflect the data from the current status record. If the item is not allowed, the new transaction will reflect the data from the prior active record.

CARRYING VALUE, also known as "book value", it is a company's total assets minus intangible assets and liabilities, such as debt.

CARTE BLANCHE is unrestricted power to act at one's own discretion, i.e. unconditional authority.

CASE-BASED REIMBURSEMENT, in healthcare, is a hospital payment system in which a hospital is reimbursed for each discharged inpatient at rates prospectively established for groups of cases with similar clinical profile and resource requirements.

CASH is money, in the form of notes and coins, which constitutes payment for goods at the time of purchase.

CASH AGAINST DOCUMENTS (CAD) is a transaction where the buyer assumes ownership/title for the goods being purchased upon paying the agreed upon sale price in cash.

CASH & EQUIVALENTS means all cash, marketplace securities, and other near-cash items. Excludes sinking funds.

CASH BASIS OF ACCOUNTING is the accounting basis in which revenue and expenses are recorded in the period they are actually received or expended in cash. Use of the cash basis generally is not considered to be in conformity with generally accepted accounting principles (GAAP) and is therefore used only in selected situations, such as for very small businesses and (when permitted) for income tax reporting. See also Accrual Basis.

CASH BILL is a documented receipt of cash payment as opposed to an invoice or promise to pay.

CASH BOOK is a book that records all payments and receipts of business transactions – whether by cash, check or credit card.

CASH BUDGET tracks a business’s anticipated cash receipts and disbursements. This is a very detailed and important schedule that draws on information in the Operating Budget.

CASH-CARD is a credit card that entitles the holder to receive cash.

CASH CLEARING ACCOUNT represents a clearing account for voided and reissued imprest cash checks. It is also used for miscellaneous corrections of imprest cash checks.

CASH CONVERSION CYCLE see CASH CYCLE.

CASH COVERAGE RATIO see CASH DEBT COVERAGE RATIO.

CASH COWS are products that produce a large amount of revenue or margin because they have a large share of an existing market which is only expanding slowly.

CASH CYCLE is the length of time, normally stated in numbers of days, between the purchase of raw materials and the collection of accounts receivable generated in the sale of the final product.

CASH DEBT COVERAGE RATIO is the ratio of net cash provided by operating activities to average total liabilities, called the cash debt coverage ratio, is a cash-basis measure of solvency. This ratio indicates a company’s ability to repay its liabilities from cash generated from operating activities without having to liquidate the assets used in operations.

CASH DEFICIT, in accounting, is a shortage of available funds to satisfy current obligations.

CASH DISBURSEMENT see DISBURSE/DISBURSEMENT.

CASH DISBURSEMENTS/PAYMENTS JOURNAL is the journal recording all disbursements (or payments).

CASH DISCOUNT is a refund of some fraction of the amount paid because the purchase price is paid by the buyer in cash, as opposed to making the purchase on credit or, sometimes, credit card or check.

CASH DIVIDEND is the payment of earnings to shareholders.

CASH DRAW see PROPRIETORS DRAW.

CASH EARNINGS is cash revenues minus cash expenses. This differs from earnings in that it does not include non-cash expenses such as depreciation.

CASH FLOW is earnings before depreciation and amortization. Cash flow is calculated as the difference between cash inflows and outflows. Cash flow can be derived from Operating Profit by adjusting for items which do not affect payments (e.g. depreciation) and items (e.g. changes in working capital) which affect payments but are not recorded in Operating Profit.

CASH FLOW ANALYSIS is a type of financial analysis that compares the timing and amount of cash inflows with the timing and amount of cash outflows. A firm’s cash flow position can greatly affect its ability to remain in business. These effects may not be apparent from a cost-benefit analysis.

CASH FLOW / CURRENT PORTION OF LONG TERM DEBT is a measure of the firm's ability to meet its obligations with internally generated cash.

CASH FLOW PROJECTION is a forecast of the cash (checks or money orders) a business anticipates receiving and disbursing during the course of a given span of time - frequently a month. It is useful in anticipating the cash portion of your business at specific times during the period projected.

CASH FLOW STATEMENT see STATEMENT OF CASH FLOWS.

CASH FREE BALANCE AMOUNT, in the general ledger, usually represents the net amount of Balance Forward plus Allocations plus Revenue minus Expenditures minus Encumbrances.

CASH FROM FINANCING is the sum of all the individual financing activity cash flow line items.

CASH FROM INVESTING is the sum of all the individual investing activity cash flow line items.

CASH FLOW FROM OPERATIONS is the sum of all the individual operating activity cash flow line items, less cash realized from the sale of extraordinary items, e.g., fixed assets.

CASH-GENERATING UNIT (CGU) is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

CASHIER'S CHECK also known as a bank check, official check, teller's check, bank draft or treasurer's check; is a check guaranteed by a bank. They are normally treated as cash because most banks clear them instantly.

CASH IN ADVANCE is when full payment is due before the merchandise is shipped. Least risk to seller, most risk to buyer.

CASH IN BANK literally means coin, currency, and cash items on deposit.

CASH INFLOW / OUTFLOW is the realization of cash increase (inflow) or decrease (outflow). Some examples:

Cash inflows

•Payment for goods or services from your customers.
•Receipt of a bank loan.
•Interest on savings and investments.
•Shareholder investments.
•Increased bank overdrafts or loans.
Cash outflows
◦Purchase of stock, raw materials or tools.
◦Wages, rents and daily operating expenses.
◦Purchase of fixed assets - PCs, machinery, office furniture, etc.
◦Loan repayments.
◦Dividend payments.
◦Income tax, corporation tax, VAT and other taxes.
◦Reduced overdraft facilities
CASH IN TRANSIT is cash being transferred from one business to another or between two parts of the same business. If it is not recorded as an asset in either an adjusting entry may be necessary.

CASH MANAGEMENT is the management of the cash balances of a concern in such a manner as to maximize the availability of cash not invested in fixed assets or inventories and to avoid the risk of insolvency. According to Keynes there are three motives for holding cash: the transactions motive, the precautionary motive, and the speculative motive. The most useful technique of cash management is the cash budget.

CASH MARGIN is the difference in cash terms between the sales price and the costs directly attributable to the product sold. See also GROSS MARGIN.

CASH MARKET see SPOT MARKET.

CASH-ON-CASH RETURN is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. It is often used to evaluate the cash flow from income-producing assets. It is generally considered a quick napkin test to determine if the property qualifies for further review and analysis. Cash on Cash analyses are generally used by investors looking for properties where cash flow is king, however, some use it to determine if a property is under priced, indicating instant equity in a property. It is calculated: Annual Before-tax Cash Flow divided by the Total Cash Invested.

CASH ON HAND literally means coin, currency, and cash items on hand. It is not possible to have negative cash on hand.

CASH PORTION is that percentage of assets consisting of the legal tender of the amounts in question; the balance of which is the non-cash portion; an example, a transaction where a corporation is acquired via a combination of cash and stock.

CASH PROFIT is profit after tax plus depreciation.

CASH RATIO is a refinement to the QUICK RATIO. It is the ratio of cash and marketable securities to current liabilities. The CASH RATIO indicates the extent to which liabilities could be liquidated immediately. Sometimes called LIQUIDITY RATIO.

CASH RECEIPTS see RECEIPTS.

CASH RECEIPTS JOURNAL is the journal for recording all cash receipts.

CASH REGISTER TAPE see PAPER TAPE.

CASH RESERVE RATIO (CRR) is a ratio which banks have to maintain with itself in the form of cash reserves or by way of current account with the Reserve Bank, computed as a certain percentage of its demand and time liabilities. The objective is to ensure the safety and liquidity of the deposits with the banks.

CASH SHORT/OVER ACCOUNT, in retail sales, is where any differences between the cash register tape totals and the actual cash receipts is charged against the cash short and over account. If the ending balance of the account is a debit it is shown on the Income Statement as a miscellaneous expense. If the ending balance of the account is a credit it is shown on the Income Statement as Other Revenue.

CASH SWEEP is the use of surplus cash to prepay debt or provide extra security for lenders, instead of paying it out to investors.

CASH VOUCHER is a receipt or sales slip. See VOUCHER.

CAVEAT, generally, is a warning against certain acts; in law, is a formal notice filed with a court or officer to suspend a proceeding until filer is given a hearing.

CCA see CAPITAL COST ALLOWANCE.

CD see CERTIFICATE OF DEPOSIT.

CD see CARRIED DOWN.

CDPA is Certified Data Processing Auditor.

CDS see CREDIT DEFAULT SWAP.

CEBS is Certified Employee Benefit Specialist, Committee of European Banking Supervisors, or Capital Equipment Budget System.

CEO is an acronym for Chief Executive Officer. The CEO is the principle individual responsible for the activities of a company.

CERTIFICATE OF DEPOSIT (CD) is a document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.

CERTIFICATE OF INSPECTION is certification, generally by an independent third party, that the goods were in good condition at the time of shipment.

CERTIFICATE OF OBLIGATION is a bond issued by a city, without voter approval.

CERTIFICATE OF ORIGIN is a document that states where the goods were made. This document is legally required for many countries for the importation of merchandise.

CERTIFIED FINANCIAL PLANNER (CFP) is a financial planner who has received a license from the Institute of Certified Financial Planners, indicating that he/she was trained in investments, budgeting, taxes, banking, estate planning and insurance. Some CFPs work on commission for the products they sell, and some work for a flat hourly fee.

CERTIFIED FINANCIAL STATEMENTS are financial statements that have undergone a formal audit by a certified public accountant and usually contain statements of certification by the CPA.

CERTIFIED PAYROLL REPORT means the record that a contractor or subcontractor engaged on a public work is required to submit to an awarding government body with a statement of compliance as required pursuant to regulations for each month in which the contractor or subcontractor employs one or more workmen in connection with the public work.

CERTIFIED PUBLIC ACCOUNTANT (CPA) is an accountant licensed to practice public accounting.

CFD see CONTRACT FOR DIFFERENCE.

CFFA is Certified Financial Forensic Analyst.

CFM, in finance / accounting, means Certified In Financial Management.

CFO is an acronym for: a. Cash Flow From Operations; or, b. Chief Financial Officer. The CFO is the officer in a corporation responsible for handling funds, signing checks, the keeping of financial records, and financial planning for the company.

CFO to DEBT see CASH FLOW / CURRENT PORTION OF LONG TERM DEBT.

C.G.A. means Certified General Accountant.

CGU see CASH-GENERATING UNIT.

CHAIRPERSON OF THE BOARD is the head of the board of directors of a corporation, and generally considered as head of the firm.

CHANNEL COSTING is the fulfillment cost information pertaining to distribution channels.

CHARGEBACK, in the credit industry, occurs when a credit card processor “charges back” to the merchant the cost of returned items or incorrect orders that the customer claims were made to his or her credit card.

CHARGE OFF see BAD DEBT.

CHAPTER S or SUBCHAPTER S is a legal corporate entity organized under the United States Federal Tax Code that allows Subchapter S Corporations to distribute all income / loss proportionately to its shareholders, who then claim that income / loss on their personal income taxes; thereby avoiding the payment of corporate taxes.

CHARTER is the document of corporation organization.

CHARTERED ACCOUNTANT (CA) is a British accountant who is a member of the Institute of Chartered Accountants. They work in many areas of business and the public sector, in roles ranging from sole practitioner to chief executive of a multinational company. In public practice firms, they provide professional services to a wide range of fee paying clients from private individuals to large commercial and public sector organizations, including banks. The seservices include audit/assurance, accountancy, tax, business advisory, management consultancy, systems and IT,corporate finance, corporate recovery and forensic accounting. In commerce/industry and the public sector, they work in a variety of roles including fund management, venture capital and equity analysis, as well as financial management and financial reporting roles.

CHARTERED FINANCIAL CONSULTANT (ChFC) is a financial planning designation for the insurance industry. ChFCs must meet experience requirements and pass exams covering finance and investing. They must have at least three years of experience in the financial industry, and have studied and passed an examination on the fundamentals of financial planning, including income tax, insurance, investment and estate planning.

CHART OF ACCOUNTS is a list of ledger account names and associated numbers arranged in the order in which they normally appear in the financial statements. The Chart of Accounts are customarily arranged in the following order: Assets, Liabilities, Owners' Equity (Stockholders' Equity for a corporation), Revenue, and Expenses.

CHATTEL MORTGAGE CONTRACT is a credit contract used for the purchase of equipment where the purchaser receives title of the equipment upon delivery but the creditor holds a mortgage claim against it.

CHECK is a draft drawn against a bank, payable upon demand to the person/entity named upon the draft.

CHECK BOOK see CHECK REGISTER.

CHECKING ACCOUNT is an account at a bank or savings and loan from which an individual can withdraw money by check, ATM card or debit card.

CHECK REGISTER is the journal for recording payments by check.

CHEQUE see CHECK.

CHEQUE BOOK see CHECK REGISTER.

CHIEF ACCOUNTING OFFICER see CFO.

CHURN RATE is the percentage of customers (e.g., cellular telephone subscribers) that cancels their service per month.

CIA, in accounting, is an acronym for Certified Internal Auditor; or, Cash in Advance.

CIBT is an acronym for Cash Income Before Taxes.

CIF (COST, INSURANCE AND FREIGHT) is a shipment where all shipping costs are paid by the exporter, including insurance.

CIP could be Capital Improvement Plan, Capital Improvement Program, Capital Investment Program, or Capital Investment Proposal(s).

CIRCA means about or approximately. It is used before a year, e.g. circa 2000.

CK is Check.

CLAIM, in health care, is an itemized statement of healthcare services and their costs provided by a hospital, physician's office, or other provider facility. Claims are submitted to the insurer or managed care plan by either the plan member or the provider for payment of the costs incurred. In general law, a claim is: 1) to make a demand for money, for property, or for enforcement of a right provided by law. 2) the making of a demand (asserting a claim) for money due, for property, from damages or for enforcement of a right. If such a demand is not honored, it may result in a lawsuit. In order to enforce a right against a government agency (ranging for damages from a negligent bus driver to a shortage in payroll) a claim must be filed first. If rejected or ignored by the government, a lawsuit may be filed.

CLAIMS OUTSTANDING, in general, is the difference between claims against assets (liabilities) and claims settled/paid. Within the insurance industry it would be the difference between insurance claims filed and claims settled/paid.

CLASSIFICATION, generally, is the act of distributing things into classes or categories of the same type. In accounting, there are many ways to classify information, e.g. assets, liabilities or equity and the many subsets to those three classifications.

CLEARANCE LETTER is a documented certification from a recognized authority that the cleared entity has satisfied certain requirements, payments, actions, etc.

CLEARED ITEMS are accounts payable documents which have been paid.

CLEARING ACCOUNT, in banking, is a bank account used by a mortgage servicing company for the temporary, short-term deposit of mortgage payments that have been collected and are either awaiting transmittal to investors who bought the mortgages or awaiting deposit in escrow accounts. See CASH CLEARING ACCOUNT.

CLIENT is someone who pays for goods or services.

CLOSE is 1. The planned termination of accounting ledger activity with the resultant consolidation within a business, i.e. monthly, quarterly or annual; 2.The final half-hour of a securities trading session; 3. The price of the last transaction for a given security at the end of a given trading session. also called closing price; or, 4. To consummate a sale, contract or ownership transfer.

CLOSELY HELD is a description of a corporation whose voting stock is owned by a very small number of shareholders.

CLOSING ACCOUNT is the determining the balance of an account and posting an entry to offset such balance.

CLOSING DATE is the date the purchase of the asset becomes final and you, the new owner, obtain title.

CLOSING ENTRY is a journal entry at the end of a period to transfer the net effect of revenue and expense items from the income statement to owners' equity.

CLOSING STOCK is a business' remaining stock at the end of an accounting period. It includes finished products, raw materials, or work in progress and is deducted from the period's costs in the balance sheets.

C.M.A. means Certified Management Accountant.

CMI see COST MANAGEMENT INDEX.

CMO see COLLATERIALIZED MORTGAGE OBLIGATION.

CNF is Cost and Freight

COA, in accounting, means Chart Of Accounts or Cost of Acquisition.

COD is Cash On Delivery; which is exactly what it means.

COC see COST OF CONTROL.

CODING, in accounting, is the assignation of the proper account code to invoices.

COE see COST OF EQUITY.

COGM is Cost Of Goods Manufactured. See Cost of Goods Sold.

COGNOVIT NOTE is a note in which the maker acknowledges the debt and authorizes the entry of judgment against him or her without notice or a hearing : a note containing a confession of judgment. This type of note is not valid in many states.

COGAS is Cost Of Goods Available for Sale. See Cost of Goods Sold.

COGS see COST OF GOODS SOLD

COGS (COST OF GOODS) RATIO = COGS / Total Sales.

COHORT SURVIVAL METHOD, in academia, utilizes historic enrollment data and birth records to estimate future enrollments.

COLLAR is the simultaneous purchase of an interest rate cap and sale of an interest rate floor on the same index for the same maturity and notional principal amount.

COLLATERAL is assets used as security for the extension of a loan.

COLLATERALIZED MORTGAGE OBLIGATION (CMO) or, since 1986, as a Real Estate Mortgage Investment Conduit (REMIC). CMOs and REMICs (terms which are often used interchangeably) are similar types of securities which allow cash flows to be directed so that different classes of securities with different maturities and coupons can be created. They may be collateralized by mortgage loans as well as securitized pools of loans.

COLLATERAL NOTE is a note secured by collateral. Same as secured note.

COLLECTIBLE is an amount subject to or requiring payment especially as specified, e.g. a collectible bill.

COLLECTION PAPERS are those documents specified as necessary for payment to be made, such as the commercial invoice, certificate of inspection, and bill of lading.

COLLECTION PERIOD (Period End) is used to appraise accounts receivable (AR). This ratio measures the length of time it takes to convert your average sales into cash. This measurement defines the relationship between accounts receivable and cash flow. A longer average collection period requires a higher investment in accounts receivable. A higher investment in accounts receivable means less cash is available to cover cash outflows, such as paying bills. NOTE: Comparing the two COLLECTION PERIOD ratios (Period Average and Period End) suggests the direction in which AR collections are moving, thereby giving an indication as to potential impacts to cash flow. Formula: AR (current) / (Net Revenue / 365)

COLLECTION PERIOD (Period Average), also known as Days Sales Outstanding, is used to appraise accounts receivable (AR). This ratio measures the length of time it takes to convert your average sales into cash. This measurement defines the relationship between accounts receivable and cash flow. A longer average collection period requires a higher investment in accounts receivable. A higher investment in accounts receivable means less cash is available to cover cash outflows, such as paying bills. NOTE: Comparing the two COLLECTION PERIOD ratios (Period Average and Period End) suggests the direction in which AR collections are moving, thereby giving an indication as to potential impacts to cash flow. Formula: (AR (current) + AR (period ago) / 2) / (Net Revenue / 365)

COLLECTIVE INVESTMENT SCHEME, globally, is any arrangement for pooling several investors' funds so that the pooled fund can obtain economies of scale and a spread of investments beyond the reach of individual investors. It is usually called an investment company in the U.S.A.

COMBINED FINANCIAL STATEMENT is a financial statement that merges the assets, liabilities, net worth, and operating figures of two or more affiliated companies. A combined statement is distinguished from a consolidated financial statement of a company and subsidiaries, which must reconcile investment and capital accounts.

COMFORT LETTERS see KEEP-WELL AGREEMENTS.

COMMANDER THEORY holds that the goals of the managers of the entity are as equally important as the stockholders. The theory assumes that the "commander's" view will transpose the view of the investor.

COMMERCIAL BANK is a financial institution that provides commercial banking services. A commercial bank accepts deposits, gives business loans and provides other services to businesses.

COMMERCIAL ATTACHÉ is a business and trade expert on the staff of a consulate or embassy. They are responsible for promoting exports of their country's goods and are an excellent source of help.

COMMERCIAL INVOICE, generally, is the seller's bill of sale for the goods sold, specifying type of goods, quantity and price of each type and terms of sale. In import/export, it represents a complete record of the transaction between exporter and importer with regard to the goods sold. Also reports the content of the shipment and serves as the basis for all other documents about the shipment.

COMMERCIAL LOAN is a short-term business loan usually issued for a term of up to six months.

COMMERCIAL PAPER is short-term obligations with maturities ranging from 2 to 270 days issued by corporations, banks, or other borrowers to investors who have temporarily idle cash on hand. Commercial paper is usually unsecured and discounted.

COMMISSION is remuneration proportional to sales volume.

COMMITMENT is the act of standing behind a policy whose value ends when the policy is concluded. For example: " We made a commitment to do this".

COMMITMENT BASED ACCOUNTING is where spending controls are enacted that ensures that no budget executor can exceed his annual appropriation.

COMMITTED COSTS are costs, usually fixed costs, which the management of an organization has a long-term responsibility to pay. Examples include rent on a long-term lease and depreciation on an asset with an extended life.

COMMODITY is an article of commerce or product that can be used for commerce. In a narrower sense, commodity is product traded on an authorized commodity exchange. Some types of commodities: agricultural products, metals, petroleum, foreign currencies, financial instruments and indices, etc.

COMMON EQUITY is the result of subtracting redeemable and non-redeemable preferred stock from total equity.

COMMON LAW is an unwritten body of law based on general custom in England; it is used to some extent in the United States.

COMMON SIZE ANALYSIS, as used in vertical analysis of financial statements, an item is used as a base value and all other accounts in the financial statement are compared to this base value. On the balance sheet, total assets equal 100% and each asset is stated as a percentage of total assets. Similarly, total liabilities and stockholder's equity are assigned 100%, with a given liability or equity account stated as a percentage of total liabilities and stockholder's equity. On the income statement, 100% is assigned to net sales, with all revenue and expense accounts then related to it in percentages. See COMMON SIZE PERCENTAGES.

COMMON SIZE PERCENTAGES are financial statements in which each item is expressed as a percentage of a major financial statement component. In the Income Statement, each "Common Size %" is the field amount expressed as a percent of "Net Revenues." In the Balance Sheet, each "Common Size %" is the amount in the category as a percent of Total Assets. Common sized financial statements can be used to: a. identify key structural changes in a company’s financial data over a period of time; b. more easily compare the financial data of firms that vary significantly in size; and, c. compare a company’s financial data to industry norms.

COMMON-SIZE STATEMENT see COMMON SIZE ANALYSIS.

COMMON STOCK is the most frequently issued class of stock; usually it provides a voting right but is secondary to preferred stock in dividend and liquidation rights.

COMPANY is an organized group of people to perform an activity, business or industrial enterprise.

COMPANY TAX see CORPORATION TAX.

COMPANY KIT, normally, is a for sale commercially packaged self-instruction product containing written instructions, forms, software (sometimes), for establishing an enterprise.

COMPANY LIMITED BY GUARANTEE is where the liabilities of the members will be restricted to the amount each agrees to contribute to the assets of the company in the event of dissolution or liquidation.

COMPANY LIMITED BY SHARES is where the members personal liabilities are limited to the par value of their shares. a company limited by guarantee.

COMPARABILITY is the quality or state of being similar or alike.

COMPARATIVE STATEMENT is a form of financial-statement presentation in which current period results and positions are presented with corresponding figures for previous periods.

COMPENSATING BALANCES are the funds a business might be required to keep in a deposit or reserve account to help offset what the bank perceives as risk. The lender might require that an amount based on the business’ average account balance or a certain percentage of the face value of the loan be maintained in a deposit account.

COMPENSATING ERROR is the name given to the situation where one mistake cancels out the effect of a second mistake.

COMPETITIVE PRICING generally is where firms must be able to offer the best price in the market and meet price erosion without compromising quality. This is normally met whenever a firm finds acceptable a prices-production combination such that: a. At these prices, there is no other production plan yielding higher profits and using fewer capital goods; namely, firms behave as constrained profit maximizers at given prices; and, b. There is no price vector satisfying "a." with higher prices for capital goods. In other words, the prices of capital goods are maximal within those satisfying constrained profit maximization

COMPILATION is the presentation of financial statement information by the entity without the accountant’s assurance as to conformity with Generally Accepted Accounting Principles (GAAP). In performing this accounting service, the accountant must conform to the AICPA Statements on Standards for Accounting and Review Services (SSARS).

COMPLETED CONTRACT METHOD OF ACCOUNTING is a method of revenue recognition for long-term contracts (i.e., contract which span more than one accounting period) whereby the total contract revenue and related cost of performance are recognized in the period in which the contract is completed. This method stands in contrast to the percentage-of-completion method of accounting and is most often used when significant uncertainty exists with respect to the total cost of performing the contract and, accordingly, the ultimate amount of profit to be recognized thereon.

COMPLIANCE AUDIT is the review of financial records to determine whether the entity is complying with specific procedures or rules.

COMPLIANCE PANEL is a multi-member committee chartered to investigate conformance to laws, rules or regulations. On many occasions they may be empowered by government agencies to make rulings as to compliance or non-compliance of any entity under their perusal.

COMP0SITE DEPRECIATION is the grouping of similar assets or dissimilar assets within the same class together for the purpose of computing a single depreciation rate to be applied to all assets within the group.

COMPOSITE FINANCIAL STATEMENT is an average or index of financial statements of multiple accounting periods or companies, e.g., industry averages.

COMPOUND ANNUAL GROWTH RATE (CAGR) is the year over year growth rate applied to an investment or other part of a company's activities over a multiple-year period. The formula for calculating CAGR is (Current Value/Base Value) ^ (1/# of years) - 1.

COMPOUND INTEREST is interest calculated from the total of original principal plus accrued interest.

COMPOUND INTEREST PRINCIPLE is where the interest is computed on principal plus interest earned in previous periods.

COMPOUND JOURNAL ENTRY is a journal entry that involves more than one debit or more than one credit or both.

COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) is the official annual financial report of the entity encompassing all funds and component units of the entity. It includes an introductory section, management's discussion and analysis (MD&A), basic financial statements, required supplementary information other than MD&A, combining and individual fund statements, schedules, and a statistical section.

COMPREHENSIVE INCOME is change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners.

COMPTROLLER is the misspelling of the word CONTROLLER caused by confusion in the root of the word in French and Latin. Comptroller is sometimes used within titles in the government, e.g. Comptroller of the Currency.

COMPULSORY LIQUIDATION is the winding-up of a company by a court. A petition must be presented both at the court and the registered office of the company. Those by whom it may be presented include: the company, the directors, a creditor, an official receiver, and the Secretary of State for Trade and Industry. The grounds on which a company may be wound up by the court include: a special resolution of the company that it be wound up by the court; that the company is unable to pay its debts; that the number of members is reduced below two; or that the court is of the opinion that it would be just and equitable for the company to be wound up. The court may appoint a provisional liquidator after the winding-up petition has been presented; it may also appoint a special manager to manage the company's property. On the grant of the order for winding-up, the official receiver becomes the liquidator and continues in office until some other person is appointed, either by the creditors or the members.

CONCESSIONARY LOANS, normally, are loans made by a government or other controlling authority in return for stipulated services or a promise that the funds will be used for a specific purpose.

CONDITIONAL SALES CONTRACT is a credit contract used for the purchase of equipment where the purchaser doesn't receive title of the equipment until the amount specified in the contract has been paid in full.

CONDUCIVE is tending to bring about or being partly responsible for, e.g. current working conditions may not be conducive to productivity.

CONDUIT is a primary means by which something is transmitted,

CONDUIT DEBT is issued by a state agency or public corporation on behalf of borrowers which include businesses, health care institutions, private higher education institutions, local governments, and qualified individuals (loans for higher education and housing purposes). No State credit support is provided.

CONGLOMERATE is a group of diverse companies under common ownership and run as a single organization.

CONQ see COST OF NON-QUALITY.

CONSERVATISM PRINCIPLE provides that accounting for a business should be fair and reasonable. Accountants are required in their work to make evaluations and estimates, to deliver opinions, and to select procedures. They should do so in a way that neither overstates nor understates the affairs of the business or the results of operation.

CONSERVATIVE INVESTOR, dependent upon the degree of conservatism, is one that protects and preserves their principal above consideration of capital gains to the point that in the extreme they can be described as being risk averse.

CONSIGNMENT is when goods are offered for sale on behalf of another without the seller actually purchasing or taking title to the goods. Only when there is a subsequent sale does the owner receive any payment.

CONSIGNMENT STOCK is vendor supplied stock that is only paid for when it is used. Consignment stock should change nothing except cash flow. Holding any more stock than is necessary is always inefficient whether it is consignment stock or not.

CONSISTENCY is using the same accounting procedures by an accounting entity from period to period. That means using similar measurement concepts and procedures for related items within the company’s financial statements for one period.

CONSISTENCY PRINCIPLE requires accountants to apply the same methods and procedures from period to period. When they change a method from one period to another they must explain the change clearly on the financial statements.

CONSOLIDATED CAPITAL is the value of all money and other assets, on a consolidated basis, used directly in business operations.

CONSOLIDATED ENTITY is a user-defined combination of several consolidation units, grouped together for consolidation and reporting purposes.

CONSOLIDATED FINANCIAL STATEMENTS is the end financial statement that accounts for all assets, liabilities and operating accounts of a parent and all subsidiaries.

CONSOLIDATED NEXUS is a consolidation of a connected series or group (usually contracts).

CONSOLIDATION is similar to refinancing, but there is no loan fee. It simplifies loan repayment by combining several types of federal education loans into one new loan. (In the case of Direct Loan consolidation, the interest rate may be lower than one or more of the underlying loans.).

CONSORTIA see CONSORTIUM.

CONSORTIUM is an association of companies for some definite purpose.

CONSTANT DOLLAR is when the dollar amount is adjusted for inflation.

CONSTRAINT is a limiting factor to business activity.

CONSTRUCTION IN PROGRESS is capital assets under construction or development that have not yet been placed into service, such as a building or parking lot. Capital assets are not subject to depreciation while in a construction in progress status.

CONSTRUCTIVE FRAUD is an act, statement, or omission which operates as a fraud, although perhaps it was not intended to be such.

CONSTRUCT OF UTILITY THEORY is a scientific calculation that has an underlying concept of utility in that it is used to rank a series of alternatives and, in the case of a simple choice, identify the single alternative, which has higher utility, or out ranks, all other alternatives. The primary implication of this ranking or ordering of alternatives is that there is no absolute reference, zero point, for utility values. Thus, the only valuation that is important is the difference in utility between pairs of alternatives; particularly whether that difference is positive or negative. Any function that produces the same preference orderings can serve as a utility function and will give the same predictions of choice, regardless of the numerical values of the utilities assigned to individual alternatives. It also follows that utility functions, which result in the same order among alternatives, are equivalent.

CONSULAR DECLARATION is a formal statement to the consul of a foreign country declaring the merchandise to be shipped.

CONSUMABLE is a resource attribute representing a type of capacity. A resource with consumable capacity can have its capacity value permanently altered as a result of being tasked, e.g. chemicals in a manufacturing process or office supplies.

CONSUMER is an individual who purchases, uses, maintains, and disposes of products and services.

CONSUMER PRICE INDEX (CPI) is the measure of change in consumer prices as determined by a monthly survey by the U.S. Bureau of Labor Statistics. Among the CPI components are the costs of food, housing, transportation, and electricity (i.e., the average cost of a "basket" of goods and services). Also known as the cost-of-living index.

CONSUMMATE is to bring to completion or fruition; conclude, e.g., consummate a business transaction.

CONSUMPTION SMOOTHING is aimed at protecting consumption patterns from the impact of shocks, and can take effect either before or after their occurrence. Post-shock responses include modifying consumption, raising income by mobilizing labor or selling assets, drawing on informal or formal sources of savings, or activating claims on informal insurance mechanisms.

CONTINENTAL MODEL is an accounting model. There are other accounting systems which differ from the U.S. accounting model. U.S. GAAP and FASB standards are not the only accounting principles used internationally; for example, many countries reverse the U.S. debit and credit system. Many countries with high rates of inflation account for inflation in financial reports much more than the U.S. does. Also, for any company operating internationally there is the currency exchange translation problem when consolidating financial statements.

CONTINGENCY BUDGET is the amount of money required to implement a contingency plan. If an authorized entity approves a contingency plan, it would normally set aside a contingency budget, which would only be called upon if the contingency plan had to be implemented.

CONTINGENCY PLAN is a plan that provides an outline of decisions and measures to be taken if defined circumstances, outside the control of the affected organization, should occur.

CONTINGENT is a result that is determined by conditions or circumstances not yet established.

CONTINGENT ASSET is a possible asset from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise.

CONTINGENT CONSIDERATION is a payment that is contingent on a particular factor or factors occurring.

CONTINGENT LIABILITY is: (a) A possible obligation from past events that will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; or (b) A present obligation from past events but is not recognized because (i) it is not probable that an outflow of resources will be required to settle the obligation; or (ii) the obligation cannot be measured reliably. Some examples: in corporate reports are pending lawsuits, judgments under appeal, disputed claims, and the like, representing potential financial liability.

CONTINUITY is the property of a continuous and connected period of time, e.g. the continuity or viability of a business entity to remain in business. Also see GOING CONCERN CONCEPT.

CONTINUITY ASSUMPTION see GOING CONCERN CONCEPT.

CONTINUOUS BUDGET is a budget that rolls ahead each time period (e.g., month) without regard to the fiscal year, i.e., a twelve-month or other periodic forecast is always available; also called a ROLL FORWARD BUDGET.

CONTINUOUS INVENTORY see PERPETUAL INVENTORY.

CONTRA ACCOUNT 1. is the reduction to the gross cost of an asset to arrive at the net cost; also known as a valuation allowance; e.g., accumulated depreciation is a contra account to the original cost of a fixed asset to arrive at the book value; or, 2. reduction of a liability to arrive at its carrying value; e.g., bond discount, which is a reduction of bonds payable.

CONTRA REVENUE ACCOUNT is an account that is offset against a revenue account on the income statement.

CONTRACT ALLOWANCE is the limit set within an agreement as to what is the maximum allowed of any given item covered under contract, e.g., home construction with a builder may have allowances or "limits" set in your contract that tell you how much the price of your house "allows" for things such as floor coverings, countertops, and cabinets.

CONTRACT COSTING is mainly associated with civil engineering works, although sometimes also with the manufacture of a major engineering structure over a considerable time (for example, a contract to manufacture a turbine generator).

CONTRACTEE is the person or entity who will receive the goods or services under the provisions of the contract.

CONTRACT FOR DIFFERENCE (CFD) is an agreement to exchange the difference between the opening and closing price of the position under the contract on various financial instruments. CFD trading is an effective and convenient speculative instrument for trading shares, indices, futures and commodities. Contracts for differences allow investors to take long or short positions, and unlike futures contracts have no fixed expiry date or contract size. Trades are conducted on a leveraged basis with margins typically ranging from 1% to 30% of the notional value for CFDs on leading equities.

CONTRACT LAW is that body of law which regulates the enforcement of contracts. Contract law has its origins thousands of years ago as the early civilizations began to trade with each other, a legal system was created to support and to facilitate that trade. The English and French developed similar contract law systems, both referring extensively to old Roman contract law principles such as consensus ad idem or caveat emptor. There are some minor differences on points of detail such as the English law requirement that every contract contain consideration. More and more states are changing their laws to eliminate consideration as a prerequisite to a valid contract thus contributing to the uniformity of law. Contract law is the basis of all commercial dealings from buying a bus ticket to trading on the stock market.

CONTRACTOR is the person or entity who will provide the goods or services under the provisions of the contract.

CONTRACT RATE OF INTEREST is the interest rate specified in a contract.

CONTRACT REVENUES are the revenues recognized under % of completion method.

CONTRACTUAL ALLOWANCE, in healthcare, is the difference between what hospitals bill and what they receive in payment from third party payers, most commonly government programs; also known as contractual adjustment.

CONTRA ENTRY, in accounting, is a ledger entry which is offset by an opposite entry, either a debit or credit.

CONTRIBUTED ASSETS are those assets, including real property assets, that are owned, leased or licensed by the contributing entity. Such contributions are normally associated with the contributing entity receiving equity interest (in a commercial exchange) or tax relief (in a charitable donation) in recognition of the value for those contributed assets.

CONTRIBUTED CAPITAL see PAID-IN-CAPITAL.

CONTRIBUTED SURPLUS is money a company receives by selling shares above par value or their stated value, or from government donation of land to the company, etc. Contributed Surplus is a balance sheet item that is part of the shareholders’ equity.

CONTRIBUTION see CONTRIBUTION MARGIN.

CONTRIBUTION MARGIN (CM) is the difference between sales and the variable costs of the product or service, also called marginal income. It is the amount of money available to cover fixed costs and generate profits.

CONTRIBUTION MARGIN ANALYSIS is a technique used in brand marketing and product management to help a company decide what product(s) to add to its product portfolio. The manager asks what will happen to profits if a new product is added or an existing product is discontinued. Calculations take into account additional revenues, additional costs, effects on other products in the portfolio (referred to as cannibalization), and competitors' reactions.

CONTRIBUTION MARGIN RATIO is the computation showing CONTRIBUTION MARGIN as a percentage of sales.

CONTRIBUTION/SALES RATIO (C/S RATIO) is a tool used in profit management. It is important to establish the C/S RATIO: C/S ratio = (Sales revenue – Variable cost of sales)/Sales revenue x 100. If a company achieves a high average marginal profit ratio of say, 40%, it does not mean that it will achieve high profits. The eventual profit will be dependent on the level of fixed costs within the organization.

CONTROL is the process of directing operations to achieve a goal.

CONTROLLABILITY, COST is the financial policy of controlling, limiting or curbing the cost of materials, labor, and overhead.

CONTROL ACCOUNT is a summary account in the General Ledger that is supported by detailed individual accounts in a subsidiary ledger. See CREDITORS CONTROL ACCOUNT, DEBTORS CONTROL ACCOUNT, and STOCK CONTROL ACCOUNT.

CONTROLLABLE COST see CONTROLLABLE EXPENSE.

CONTROLLABLE EXPENSE expenses that can be controlled or restrained by management. Some of the costs of doing business can be postponed or spread out over a longer period of time (e.g., personnel costs, travel & entertainment, marketing expense).

CONTROLLABLE MARGIN technically is the excess of contribution margin over controllable fixed costs. Managerially it is that margin that you can reasonably expect from a process that is balanced and controlled. Controllable margin is considered to be the best measure of a manager's performance in efforts to control revenues and costs.

CONTROLLER is usually an experienced accountant who directs internal accounting processes and procedures, including cost accounting.

CONTROLLERSHIP is the position of controller. See CONTROLLER.

CONVENTION is an agreement, principle or statement expressed or implied that is used to solve given types of problems. Conventions allow a standardized approach to problem solving and behavior in certain situations. For example, placing debits on the right and credits on the left of an account is termed an accounting convention.

CONVERSION COSTS is Direct Labor + Manufacturing Overhead.

CONVERSION DATE, dependent upon usage, there are likely many definitions varying within the industries in which the term is being used. Basically, it is a date on which an asset is converted into a similarly valued but different asset.

CONVERTIBLE is a corporate security (usually bonds, notes or preferred stock) that can be exchanged for another form of security (usually common stock).

CONVERTIBLE BOND is a bond that can be converted to other securities under certain conditions.

CONVERTIBLE CURRENCY is any national currency that can be easily exchanged for that of another country.

CONVERTIBLE DEBENTURE is any type of debenture that can be converted into some other security, e.g. conversion of a convertible bond into stock.

CONVERTIBLE DEBT is a debt instrument which can be exercised into the security of the debtor in accordance with the conditions set forth in the debt instrument.

CONVERTIBLE NOTE see CONVERTIBLE DEBT.

CONVERTIBLE PREFERRED STOCK is preferred stock which can be converted into common stock at the option of the holder of the preferred stock.

COO is an acronym for Chief Operating Officer. The COO is responsible for the day-to-day management of a company. The COO usually reports to the CEO.

COOKIE JAR RESERVES is an overly aggressive accrual of operating expenses and the creation of liability accounts done in an effort to reduce future year operating expenses.

COOKING THE BOOKS is when a company fraudulently misrepresents the financial condition of a company by providing false or misleading information.

COOPERATIVE ADVERTISING is a joint advertising strategy under which costs are shared; e.g. by a manufacturer and another firm that distributes its products.

COPYRIGHT is a form of legal protection used to safeguard original literary works, performing arts, sound recordings, visual arts, original software code and renewals.

CORE BUSINESS is the sector(s) of business activity that is the reason or purpose for being, e.g. providing communications services within a telephone company would be considered core, while real estate holdings and the securities investment portfolio will likely be considered non-core business activities.

CORE CAPITAL is one of three capital standards established for savings institutions in 1989. The minimum amount of core capital for the soundest institutions is 3 percent of assets. See TANGIBLE CAPITAL and RISK-BASED CAPITAL.

CORE PROCESS - A process is a set of related and interdependent activities that transform an input to a system to an output with added value to a customer. It is the transformation of people, money, materials or information that is the value-added work of the organization. The CORE PROCESSES are those by which the organization creates its most value-added and essential transformations for the customers.

CORPORATE GOVERNANCE is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.

CORPORATE STRUCTURE is the layout of the various departments, divisions, and job positions that interact to conduct the business of the company. Generally, a corporate structure is necessary in order to ensure that all important tasks are conducted according to the guidelines of the corporation, as well as providing lines of communication and authority for the overall function of the company. Even the smallest of businesses have a corporate structure, although the exact format for the structure may be extremely simplistic. A simple corporate structure usually allows for a much flatter managerial organization with enhanced communication and decision making processes. A complex corporate structure normally has a heavy layer of management and defined silos of responsibility. A complex corporate structure will in most cases tend to be bureaucratic, e.g. government agencies or institutes of higher learning.

CORPORATION is a type of business organization chartered by a state and given many of the legal rights as a separate entity.

CORPORATION TAX refers to direct taxes charged by various jurisdictions on the profits made by companies or associations. As a general principle, this varies substantially between jurisdictions. In particular allowances for capital expenditure and the amount of interest payments that can be deducted from gross profits when working out the tax liability vary substantially. Also, tax rates may vary depending on whether profits have been distributed to shareholders or not.

CORPUS is often confused and misunderstood. The literal meaning of the term corpus is the main part/organ of a body. The term corpus also denotes the sum and substance of an issue/entity.

CORPUS FUND is the capital of the organization; the funds generated and kept for the existence and sustenance of the organization. Normally a corpus fund denotes a permanent fund kept for the basic expenditures needed for the administration and survival of the organization.

CORRECTING ENTRY, a type of ADJUSTING ENTRY, is required at the end of an accounting period if a mistake was made in the accounting records during the period. See REVERSING ENTRY.

CORRESPONDENT BANK is a bank having communications and business links with the seller's bank.

CORRIDOR RULE, 10%, in pension accounts, is a ruling by the FASB to where only that portion of the aggregate gains and losses that exceed the greater of 10% of the present value of the obligations or 10% of the fair value of plan assets are recognized in profit or loss over the remaining expected average service period of the plan participants. Actuarial gains and losses are otherwise not recognized.

COST is the amount of money that must be paid to take ownership of something; expense or purchase price.

COST ACCOUNTING is a managerial accounting activity designed to help managers identify, measure, and control operating costs.

COST ACCUMULATION METHODS are the various ways in which the entries in a set of cost accounts may be aggregated to provide different perspectives on the information.

COST ALLOCATION is the assignment to each of several particular cost-centers of an equitable proportion of the costs of activities that serve all of them, i.e. shared cost pools.

COST ASSIGNMENT involves assigning costs of an account to the accounts that are responsible or accountable for incurring the cost. For example, the cost of issuing purchase orders is allocated to the various objects procured. The cost assignment is done through assignment paths and cost drivers. The assignment path identifies the source account (the account whose cost is being assigned—"Issue Purchase Orders" in the above example) and destination accounts (the accounts to which the costs are being allocated—the various cost objects procured by issuing purchase orders in the above example). The cost driver identifies the measure or rationale on the basis of which the assignment needs to be done—that is, whether the costs of issuing purchase orders need to be assigned to various cost objects evenly, based on some defined percentage values, or based on some criterion, like the number of purchase orders of each cost object issued. Defining the cost drivers and assignment paths (i.e., source and destination accounts) enable proper assignment and accounting of the various costs incurred in the organization.

COST AVOIDANCE is an action taken in the present designed to decrease costs in the future.

COST BASIS, in securities, is the purchase price after commissions or other expenses. It is used to calculate capital gains or losses when the security is eventually sold.

COST-BENEFIT ANALYSIS is the method of measuring the benefits anticipated from a decision by determining the cost of the decision, then deciding whether the benefit outweighs the cost of that decision.

COST CEILING, in project management, is the sum of the Project Cost Target plus the project's Contingencies cost allowances.

COST CENTER is a non-revenue-producing element of an organization, where costs are separately figured and allocated, and for which someone has formal organizational responsibility.

COST CONTROL is the process of controlling the cost of a project within a predetermined sum throughout its various stages from inception to completion.

COST DRIVER is any activity or series of activities that takes place within an organization and causes costs to be incurred. Cost drivers are used in a system of activity-based costing to charge costs to products or services. Cost drivers are applied to cost pools, which relate to common activities. Cost drivers are not restricted to departments or sections, as more than one activity may be identified within a department.

COST EFFECTIVE is when a judgement is made that something is economical in terms of the goods or services received for the money spent.

COST ELEMENT, in cost accounting, is the lowest level component of a resource activity, or cost object.

COST IMPLOSION is a cost rollup using the quantities and costs of low-level items through a where used chain to determine total cost of the finished item. See COST ROLLUP.

COST/INCOME RATIO is total expenses divided by the sum of total income.

COST IN EXCESS OF BILLINGS, in percentage of completion method, is when the billings on uncompleted contracts are less than the income earned to date. These underbillings result in increased assets. Conversely, where billings are greater than the income earned on uncompleted contracts, a liability, billings in excess of costs, results.

COST MANAGEMENT INDEX (CMI) is a method for determining cost management benchmarks for public companies using published financial data. It is used to establish realistic cost reduction goals by conducting a definitive comparison of single company performance against others in that industry combined with a thorough internal expenditure analysis. This provides realistic parameters for cost cutting objectives as well as insight into which categories of products and services to target. The CMI equals cost of goods sold plus sales, general and administrative expenses, divided by your operating revenue (CMI = (COGS+SG&A)/Revenue). It is expressed as a percentage.

COST OBJECT is anything for which cost data is desired, e.g., products, product lines, customers, jobs, and organizational sub-units such as departments or divisions of a company.

COST OF CAPITAL/FUNDS is the rate of return that a business could earn if it so chose other investments with the equivalent risks. Also can be stated as opportunity cost of the funds used due to the investment decision.

COST OF CONTROL (COC) is the amount paid by a holding company, sometimes at a premium, for shares in its subsidiary company over and above the value they would command as an investment, in recognition of the particular benefit, which the company gains through control.

COST OF DEBT is interest rate times 1 minus the marginal tax rate (because interest is a tax deduction). An increase in the tax rate decreases the cost of debt.

COST OF EQUITY (COE) is the minimum rate of return a firm must offer owners to compensate for waiting for their returns, and for bearing risk. It is calculated: COE = Dividends per Share (for next year) / Current Market Value of Stock + Growth Rate of Dividends.

COST OF GOODS SOLD (COGS) is a figure representing the cost of buying raw material and producing finished goods. Included are precise factors, i.e. material and factory labor; as well as others that are variable, such as factory overhead.

COST OF GOODS SOLD BUDGET decomposes, or breaks down, the components of a business’s cost of goods sold (in some cases referred to as the cost of revenues). This budget breaks out each separate factor underlying the cost of goods sold for a business. See OPERATING BUDGET.

COST-OF-LIVING LEASE is a lease where yearly increases are tied to the cost of living index.

COST OF MONEY is a form of indirect cost incurred by investing capital in facilities employed on government contracts.

COST OF NON-QUALITY (CONQ) is the CONQ technique (measure of costs specifically associated with the achievement or non-achievement of product or service quality). It is a tool used by quality management in its pursuit of quality improvement and profit contributions.

COST OF REVENUE see COST OF GOODS SOLD.

COST OF SALES see COST OF GOODS SOLD.

COST OVERRUN is the amount by which an entity exceeds or expects to exceed the estimated cost to completion of: a. a product; b. a process; or, c. the final limitations of costs stipulated in a contract.

COST PER OUTCOME links the unit-level economics of an operation with the impact that the organization wishes to have. For example, a nonprofit that delivers meals to the elderly might measure its impact by the number of meals served. To arrive at its cost per outcome, therefore, it would divide the full cost of its meals program by the number of meals it serves.

COST PER OUTPUT see OBJECT COST.

COST PER THOUSAND (CPM) is advertising terminology used in buying media. CPM refers to the cost it takes to reach a thousand people within your target market.

COST-PLUS is determining payment based on the actual cost of production or service provisioning plus an agreed-upon fee or rate of profit; for example, a cost-plus government contract.

COST PRINCIPLE is the principle where a company is obliged to record its fixed assets at their actual purchase price or production cost.

COST REDUCTION is actions taken in the present designed to decrease costs in the present. See COST AVOIDANCE.

COST ROLLUP is a determination of all cost elements within total cost. A cost rollup will normally but not always allow for the dissection of cost by material by a where used chain to the individual component, labor by operation and overheads applied. See COST IMPLOSION.

COST SPLIT is the breakdown of the costs associated with producing a product, providing a service, ... The makeup is dependent upon what costs are being analyzed, e.g. in manufacturing a company would track the cost split between materials, direct labor, and production overhead.

COST SYNERGY is the savings in operating costs expected after two companies, who compliment each other's strengths, join.

COST-TO-COST METHOD, in construction contracts, is an estimate of completion in which the state of completion is the ratio of costs incurred as of a given date divided by the estimated total project cost. See also PERCENTAGE OF COMPLETION METHOD OF ACCOUNTING.

COST UNIT is a functional cost unit which establishes standard cost per workload element of activity, based on calculated activity ratios converted to cost ratios.

COST-VOLUME-PROFIT ANALYSIS (CVPA) examines the behavior of total revenue, total costs and profit as changes occur in the output level, selling price and variable costs per unit or fixed costs.

COUNTERBALANCE is a compensating equivalent or to oppose and mitigate the effects of something by contrary actions.

COUNTERCLAIM is a claim filed in opposition to another claim in a legal action.

COUNTING HOUSE is a British 19th century term meaning the building, room, office or suite in which a business firm carries on operations, particularly accounting.

COUPON BOND pays the holder of the bond a fixed interest payment (a coupon payment) every year until the bond reaches maturity. It is named a coupon payment, because a bondholder had to obtain their interest payment by clipping a coupon off of a bond and send it to the bond issuer, the bond issuer then sent the bondholder the payment. This process is no longer necessary for most coupon bonds. Examples of coupon bonds: Treasury bonds, Treasury notes and corporate bonds.

COUPON RATE is the annual interest rate of a bond.

COVENANT is a clause in a contract that requires one party to do, or refrain from doing, certain things. It is usually a restriction on a borrower imposed by a lender.

COVERAGE OF FIXED CHARGES is computed by taking your net income, before taxes and fixed charges (debt repayment, long-term leases, preferred stock dividends etc.), and dividing by the amount of fixed charges. The resulting number shows your ability to meet your fixed obligations of all types — the higher the number, the better.

COVERAGE RATIO is a measure of a corporation's ability to meet a certain type of expense. In general, a high coverage ratio indicates a better ability to meet the expense in question. Examples: dividend coverage, fixed-charge coverage, interest coverage, preferred dividend coverage.

CP is an acronym with many possible meanings, e.g., Capacity Planning, Central Procurement, Change of Plan (insurance), Claims Procedure (insurance), Commercial Paper, Community Property, Consumer Products, Contingency Plan, Contract Price, Change Proposal, etc.

CPA is Certified Public Accountant, Cost Per Action, or Critical Path Analysis.

CPFF is Cost Plus Fixed Fee.

CPI see CONSUMER PRICE INDEX.

CPLTD is Current Portion of Long-Term Debt.

CPT is Cost Per Thousand.

CR, in accounting, is an acronym for Credit Record. See CREDIT RECORD.

CRAR see CAPITAL TO RISK ASSET RATIO.

CRAT is an acronym for Charitable Remainder Annuity Trust.

CREATIVE ACCOUNTING is slang for the concept of maintaining accounts giving possibly illegal or dubious benefits to the entity for which the accounts are maintained.

CREDIT, in accounting, is an accounting entry system that either decreases assets or increases liabilities; in general, it is an arrangement for deferred payment for goods and services.

CREDIT CARD is a card authorizing purchases on credit at a predetermined interest rate and payment conditions.

CREDIT CARD RECEIPTS is sales revenue where payment has been made through the use of recognized/authorized credit cards versus cash or check receipts/payments.

CREDIT CONTROL is policies and procedures aimed at controlling the granting of credit.

CREDIT DEFAULT SWAP (CDS) is a credit derivative contract between two counterparties. The buyer makes periodic payments (premium leg) to the seller, and in return receives a payoff (protection or default leg) if an underlying financial instrument defaults. CDS contracts have been compared to insurance, because the buyer pays a premium and, in return, receives a sum of money if a specified event occurs. However, there are a number of differences between CDS and insurance; the buyer of a CDS does not need to own the underlying security; in fact the buyer does not even have to suffer a loss from the default event.

CREDIT LINE is the maximum credit that a customer is allowed.

CREDIT LOSSES PROVISION see PROVISION FOR CREDIT LOSSES.

CREDIT MEMO is a document used to issue a vendor credit.

CREDIT NOTES are issued to indicate a positive action within an account. Credit notes are issued for reasons such as overpayment, duplicate payment, damaged goods, returned merchandise, etc.

CREDITOR DAYS is the number of days it takes the company to pay trade creditors. This ratio provides an indication of the amount of credit given to the business by its suppliers. The formula is trade creditors divided by sales multiplied by 365 days.

CREDITORS are the entities to which a debt is owed by another entity.

CREDITORS CONTROL ACCOUNT reflects the total amount owed to all the individual creditors. The balance of the creditor s control account must equal the total of the creditors list, which represents the amounts owed by the individual creditors obtained from the individual balances in the various subsidiary ledger accounts for each creditor. This subsidiary ledger is known as the creditors' ledger.

CREDITORS LEDGER see LEDGER.

CREDITORS TURNOVER = Average creditors / (Credit Sales / 365).

CREDIT RATING is an assessment of the credit worthiness of individuals and corporations. It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities.

CREDIT RECORD (CR) is an entry in a double-entry bookkeeping system recording an increase in a liability; an owner's equity item or revenue; or a decrease in an asset or an expense. Credit entries are conventionally made on the right-hand side of T accounts.

CREDIT RISK is the risk of loss from an unfulfilled payment or delivery, i.e. the possibility that a borrower will default on any monies that are owed.

CREDIT SALES are merchandise or services sold on the promise to pay later.

CRITICAL ACCOUNTING ESTIMATE is when a company must make assumptions about matters that are “ highly uncertain” when the company makes the accounting estimate and either of the following conditions would have a material effect on the company’s financial condition, changes in financial condition or results of operations: 1. the company could reasonably have used a different estimate for the current period; or, 2.changes in the estimate are reasonably likely to occur from period to period in the future.

CRITICAL FEW see 80 - 20 RULE.

CROSS-ACCOUNTING is non-cash payment through the delivery of goods or services to satisfy a liability; a very common practice between subsidiaries of a company. See IN-KIND.

CROSS-AGED RECEIVABLE means all accounts receivable due from a Customer if more than 50% of the aggregate amount of all accounts receivable due from such Customer are aged more than 90 days.

CROSS-FOOTING is the addition of columns of figures in different ways to check the accuracy of the totals, e.g. vertically and horizontally deriving the same total in a spreadsheet.

CROWN CORPORATION is a corporation that has been established by a nation’s government.

CRR see CASH RESERVE RATIO.

CRUT is an acronym for Charitable Remainder Unitrust.

C/S RATIO see CONTRIBUTION/SALES RATIO.

CTP is Certified Treasury Professional.

CUMULATIVE EARNINGS is the sum of all earnings over the time periods in question.

CUMULATIVE PREFERRED STOCK is preferred stock which gives holder a right to dividends if they have not been paid in a given year.

CURRENCY DENOMINATION see DENOMINATION.

CURRENCY MEASUREMENT is part of determining the "functional currency" that mainly influences sales prices for goods / services. It will often be the currency in which denominated and settled: a. of country whose competitive forces and regulations mainly determine sales prices for goods / services; b. that mainly influences labor, material and other costs of providing goods / services; or, as stated, c. will often be the currency in which transactions are denominated and settled.

CURRENCY TRANSLATION see FOREIGN CURRENCY TRANSLATION.

CURRENT ACCOUNT in a national economy it is a category in the balance of payments account that includes all transactions that either contribute to national income or involve the spending of national income.

CURRENT ASSETS are those assets of a company that are reasonably expected to be realized in cash, or sold, or consumed during the normal operating cycle of the business (usually one year). Such assets include cash, accounts receivable and money due usually within one year, short-term investments, US government bonds, inventories, and prepaid expenses.

CURRENT CAPITAL see WORKING CAPITAL.

CURRENT CASH DEBT RATIO measures ability to pay current liabilities in given year with cash derived from operating activities. Calculated using net cash from operating activities divided by average current liabilities.

CURRENT COST is the cost which would be incurred for replacement of an asset.

CURRENT COST ACCOUNTING is a system of accounting which adjusts for changing pricing.

CURRENT DEBT TO TOTAL DEBT shows Current Liabilities as a percent of Total Debt. Smaller firms carry proportionally higher level of current debt to total debt than larger firms. Formula: Total Current Liabilities / Total Liabilities

CURRENT LIABILITIES are liabilities to be paid within one year of the balance sheet date.

CURRENT MATURITIES-L/T/D is that portion of long term obligations which is due within the next fiscal year.

CURRENT PORTION OF LONG-TERM DEBT is only that portion of long-term obligations (payable in more than one year) which are owed and payable in the current year; e.g. the portion of a five-year loan or lease that is due in the current calendar/fiscal year.

CURRENT RATIO, a comparison of current assets to current liabilities, is a commonly used measure of short-run solvency, i.e., the immediate ability of a firm to pay its current debts as they come due. Current Ratio is particularly important to a company thinking of borrowing money or getting credit from their suppliers. Potential creditors use this ratio to measure a company's liquidity or ability to pay off short-term debts. Though acceptable ratios may vary from industry to industry below 1.00 is not atypical for high quality companies with easy access to capital markets to finance unexpected cash requirements. Smaller companies, however, should have higher current ratios to meet unexpected cash requirements. The rule of thumb Current Ratio for small companies is 2:1, indicating the need for a level of safety in the ability to cover unforeseen cash needs from current assets. Current Ratio is best compared to the industry. Formula: Current Assets / Total Liabilities

CURTAIL is to terminate or abbreviate before an intended or proper end or its full extent, e.g. the national product launch was curtailed due to lack of acceptance in the rural market place.

CUSTODIAN is an entity entrusted with guarding and keeping property or records.

CUSTODIAN BANK is the bank that acts a custodian to a mutual fund. Does not manage anything, just holds the cash and securities and does the clerical.

CUSTOMER ACQUISITION COST is calculated by dividing total acquisition expenses by total new customers. However, there are different opinions on what constitutes an acquisition expense, e.g. rebates and special discounts do not represent an actual cash outlay, yet they have an impact on cash (and, presumably, on the customer). There is no set standard, i.e. acquisition costs vary across industries. When acquisition data is available, it is best to try to determine if you are comparing apples to apples. This is not easy, as customer acquisition data is usually scarce and the methodology is often questionable.

CUSTOMER DEPOSIT if you have just signed a contract and received payments from a customer and have not actually done any work on that, you have not yet earned that sale. You're just holding the person's money for them. It is not yet truly a sale - it's a CUSTOMER DEPOSIT. The entry will be debit to CASH and credit CUSTOMER DEPOSIT, which is a liability account (you would have to refund the money if you don't do the job). CUSTOMER DEPOSITS turn into CASH as you earn them - through the purchase of materials or labor performed.

CUSTOMER MARGIN, within the futures industry, is the financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfilling of contract obligations. Margins are determined on the basis of market risk and contract value.

CUSTOMS are the authorities charged with collecting duty and controlling the entry of merchandise into a country.

CUSTOMS BROKER is an individual or firm licensed to process entry and clear goods into the country for another.

CUT-OFF RATE is the predetermined maximum rate and/or minimum rate at which the subject is still acceptable, but where a rate above the proscribed higher or below the proscribed lower rate is no longer acceptable.

CUT-OFF YIELD, in securities, is the yield at which or below which the bids are accepted.

CUT SCORE is a point on a score scale in which scores at or above the point are in a different category or classification than scores below the point (e.g. pass versus fail).

CVP see COST-VOLUME-PROFIT ANALYSIS.

CVPA see COST-VOLUME-PROFIT ANALYSIS.

CYCLE COUNT is a partial count of a single inventory location as opposed to a Complete Count, i.e., a complete count of a single inventory location. An organization should not wait to do a complete count; usually once a year. The best way to ensure that a minimum of 97% accuracy is maintained in inventory on an ongoing basis is to continually count your products. That is, count part of your inventory every day, and count each item several times per year. This process is called "cycle counting."

Categories

Popular Posts