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.