MANAGEMENT BY OBJECTIVES

The concept of ‘Management by Objectives’ (MBO) was first given by Peter Drucker in 1954. It can be defined as a process whereby the employees and the superiors come together to identify common goals, the employees set their goals to be achieved, the standards to be taken as the criteria for measurement of their performance and contribution and deciding the course of action to be followed.

The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and the choosing the course of action to

be followed by them, they are more likely to fulfill their responsibilities.

THE MBO PROCESS




UNIQUE FEATURES AND ADVANTAGES OF MBO

The principle behind Management by Objectives (MBO) is to create empowered employees who have clarity of the roles and responsibilities expected from them, understand their objectives to be achieved and thus help in the achievement of organizational as well as personal goals.

Some of the important features and advantages of MBO are:


■Clarity of goals – With MBO, came the concept of SMART goals i.e. goals that are:

Specific
Measurable
Achievable
Realistic, and
Time bound.

The goals thus set are clear, motivating and there is a linkage between organizational goals and performance targets of the employees.



■The focus is on future rather than on past. Goals and standards are set for the performance for the future with periodic reviews and feedback.



■Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment increases employee job satisfaction and commitment.



■Better communication and Coordination – Frequent reviews and interactions between superiors and subordinates helps to maintain harmonious relationships within the enterprise and also solve many problems faced during the period.

ACCOUNTING DEFINITIONS PART 5

IMPORTANT AND USEFUL MATERIAL AVAILABLE AT COST-ACCOUNTANTS
http://finance.groups.yahoo.com/group/cost-accountants/
MAIN CATEGORIES ARE:
MANAGEMENT ACCOUNTING, ACCOUNTING INFORMATION SYSTEM, ACCOUNTS RECEIVABLE, AUDIT, IFRS & IAS, DICTIONARIES, AUDITING STANDARDS AND MUCH MUCH MORE.




EA is Enrolled Agent (IRS designation).

E&O INSURANCE is an errors and omissions, or E&O, liability policy (often called malpractice insurance) covers liability for negligent acts, errors and omissions committed by professionals, including physicians, accountants, lawyers, etc.

E&OE is a British acronym that stands for "Errors and Omissions Excepted". E&OE is a legal disclaimer that notifies the reader that, without prejudice, that the content and/or validity of the subject data may change without notice.

E&P is Earnings and Profits.

EARNED INCOME is that income realized by the provisioning of goods and services.

EARNED SURPLUS see RETAINED EARNINGS.

EARNING ASSET is an asset which provides income (e,g, rental property).

EARNING CAPACITY is the net average earnings at a given moment in time: past, current or future.

EARNING CAPACITY, LOSS OF “Loss of earning capacity” means the difference between the worker’s net average earnings before the incident, and the net average amount of wages the deciding body determines the worker is capable of earning after the incident.

EARNING POWER is earnings before interest and taxes (EBIT) divided by total assets.

EARNING QUALITY is best determined through the inverse relationship between the amount of time elapsed between revenue recognition and cash collection.

EARNINGS is a term that refers to the financial capacity of a corporation to make distributions to shareholders other than return of capital, e.g., dividends. See also RETAINED EARNINGS.

EARNINGS BEFORE TAXES see PROFIT BEFORE TAXES.

EARNINGS FROM OPERATIONS (EFO) represent earnings before other operating items less (i) depreciation and amortization plus (ii) other income less (iii) other expense.

EARNINGS MANAGEMENT occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company, or to influence contractual outcomes that depend on reported accounting numbers.

EARNINGS PER SHARE (EPS) is either: a. Basic EPS is earnings before extraordinary gains and losses, less preferred-share dividends, divided by all common shares outstanding at the most recent fiscal year end. Net income, or earnings, refers to the company's after-tax profits before extraordinary gains or extraordinary losses for the most recent annual period; or, b. Diluted EPS is where the number of shares used in the calculation is increased to account for outstanding dilution such as options, warrants, in-the-money convertibles, etc.

EARNINGS RETENTION is the proportion of net income that is not paid in dividends. A firm earning $80 million after taxes and paying dividends of $20 million has a retention rate of $60 million/$80 million, or 75%. A high retention rate makes it more likely a firm's income and dividends will grow in future years.

EBIT is Earnings Before Interest and Tax. EBIT is an indicator of a company's financial performance calculated as revenue less expenses excluding tax and interest. It is sometimes referred to as operating earnings.

EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization, but after all product / service, sales and overhead (SG&A) costs are accounted for. Sometimes referred to as Operational Cash Flow.

EBITDARM is an acronym for Earnings Before Interest, Taxes, Depreciation, Amortization, Rent and Management fees.

E.C. (EUROPEAN COMMUNITY or EUROPEAN COMMON MARKET) is a trading block of countries in Europe that have agreed on common regulations on cross-border trade.

ECONOMETRICS literally means 'economic measurement'. It is the branch of economics that applies statistical methods to the empirical study of economic theories and relationships. It is a combination of mathematical economics, statistics, economic statistics and economic theory.

ECONOMICALLY FEASIBLE means that the benefit of tracing the cost (greater accuracy) outweighs the cost of doing so.

ECONOMIC BOOK VALUE allows for a book value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.

ECONOMIC COST is a synonym for opportunity cost, i.e. the highest valued alternative given up in the pursuit of an activity. See ACCOUNTING COST and OPPORTUNITY COST.

ECONOMIC DEPRECIATION is the decline in real estate property value caused by external forces, such as neighborhood blight or adverse development.

ECONOMIC ENTITY accounting concept that provides context or “point of view” for the economic events (i.e., transactions) captured by the financial statements. In short, it answers the questions, “Whose asset is it?”; “Whose liability is it?”

ECONOMIC EVENT is the transfer of control of an economic resource from one party to another party.

ECONOMIC EXPOSURE, in foreign exchange, is the extent to which the value of the firm, as measured by the present value of all expected future cash flows, will change when exchange rates change.

ECONOMIC INCOME is the maximum amount that can be distributed to owners during the accounting period and leave the business as well off at the end of the accounting period as it was at the beginning of the period; i.e. cash flow based.

ECONOMIC ORDER QUANTITY is the order quantity that minimizes total inventory costs. A total inventory cost is the sum of ordering, carrying and stock-out costs.

ECONOMIC PROFITS is the difference between the total revenue and the total opportunity costs.

ECONOMIC RESOURCES is the profitable extraction or production, under defined investment assumptions, of returns that are analytically demonstrable or can be assumed with reasonable certainty.

ECONOMIC SUBSTANCE refers to the application of income tax laws, i.e., the substance of the transaction, rather than its form, determines the tax consequences, with few exceptions. The "form" of a transaction is only the label the interested parties attach to their arrangement. For instance, an arrangement might be called a compensation agreement, loan, lease or sale. Documents may support the form, but the courts are not concerned with these labels or papers that purport to govern the transaction -- they focus on its substance. The "substance over form" analysis is used to dissect self-serving transactions between parties, including loans and payments to family members; transactions between related corporations and their shareholders, partnerships and their partners; and between trusts and their beneficiaries. For instance, sale of a home by a parent to a child may be recharacterized by the court as a gift, if the child never pays for it. Related-party transactions provide fertile territory for self-dealing, with the tax benefit as the real motivating purpose, disguised by the form of the transaction. In contrast, arm's-length transactions with independent third parties are far less vulnerable.

ECONOMIC VALUE (EV) is the value of an asset deriving from its ability to generate income.

ECONOMIC VALUE ADDED (EVA) measures the difference between the return on a companies capital and the cost of that capital. A positive EVA indicates that value has been created for shareholders; a negative EVA signifies value destruction.

ECONOMIES OF SCALE is based upon the theory that the more you produce of a good, the less that it costs for each additional unit, i.e., efficiency. Specifically, it is the reduction of the costs of production of goods due to increasing the size of the producing entity and the share of the total market for the good/product.

EDP is Electronic Data Processing.

EEO is Equal Employment Opportunity or Equal Employment Office.

EF&L is Errors, Fines and Losses.

EFFECTIVE DATE OF INTEREST is the market rate at time of a debt issue.

EFFECTIVE INTEREST RATE is the cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the note.

EFFECTIVE TAX RATE is the net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.

EFFICIENCY is the ratio of the output to the input of any system.

EFFICIENT MARKET THEORY is the hypothesis that market prices reflect the knowledge and expectations of all investors. Within this theory, investors who adhere to it believe it to be highly improbable that market movement can be predicted, i.e., using darts to chose stocks are just as effective as stock or market analysis.

EFFORT-EXPENDED METHOD measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract.

EFO see EARNINGS FROM OPERATIONS.

EFT see Electronic Funds Transfer.

EI&DO is Extraordinary Items and Discontinued Operations.

EITF see Emerging Issues Task Force.

ELECTRONIC FUNDS TRANSFER is a payment executed through computers.

ELEMENTARY ACCOUNTING is the basics in financial accounting theory and practice.

ELIMINATION is the the act of removing a mathematical quantity by combining equations. This is common practice in accounting when consolidating financial reports; one example would be inter-company transactions, currency translations, and account balances.

EMBEZZLEMENT is the fraudulent appropriation and personal use of funds or property entrusted to that persons care but actually owned by someone else, e.g. an employee can embezzle money from his or her employer, a civil servant can embezzle funds from the treasury, or a pastor can embezzle funds from a church. See also THEFT and WHITE COLLAR CRIME.

EMC (EXPORT MANAGEMENT COMPANY) is a private company that serves as the export agent for manufacturers, being paid by commission or retainer. Merchandise is not normally purchased by the EMC.

EMERGING ISSUES TASK FORCE (EITF) was formed in 1984 in response to the recommendations of the FASB's task force on timely financial reporting guidance and an FASB Invitation to Comment on those recommendations. The mission of the EITF is to assist the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of existing authoritative literature.

EMI is Equal Monthly Installments (finance/business).

EMPLOYED, generally, is having your services engaged for; or having a job especially one that pays wages or a salary. In a more specific sense employed means: to put to use, e.g. funds employed or ideas employed.

EMPLOYEE BENEFITS is non-wage compensation provided to employees, such as group insurance, retirement benefits, day care, tuition reimbursement, and specialized benefits.

EMPLOYEE COMPENSATION is wage and salary payments as well as benefits including health and life insurance, retirement payments, and any other non-cash compensation.

ENCUMBERED is when an asset is owned by one party subject to the legal claims of another party. One example is a homeowner that owns a home that is subject to (encumbered by) the claims of the mortgage holder.

ENCUMBRANCE is a) a right or interest in land owned by someone other than the owner of the land itself; examples include easements, leases, mortgages, and restrictive covenants; or, b) in accounting, an encumbrance is an anticipated expenditure, or funds restricted for anticipated expenditures, such as for outstanding purchase orders.

ENDING INVENTORY is inventory at the end of the accounting period.

ENDORSE, depending upon usage, can be: a. application of legal signature to documents or checks; b. a guarantee as meeting a certain standard; c. to be behind or approve of; or, d. to give active support or one's approval to.

ENDORSEMENT, dependent upon usage, can be: a. a signature that validates something, e.g. a bank cashier will not cash a check without an endorsement; b. a promotional statement, e.g. as found on the dust jackets of books; or, c. formal and explicit approval.

ENDOWMENT is a permanent fund where gifts to the fund are held in perpetuity and where earnings are used in accordance with the donor’s specified wishes.

ENGAGEMENT is a binding, pledging, or coming together, e.g. a mutual pact, contract, or agreement.

ENGAGEMENT LETTER is a document that defines the legal relationship (or engagement) between a professional firm e.g., law, investment banking, consulting, advisory or accountancy firm and its client(s).

ENGINEERED COSTS are those costs having a clear linkage to output, e.g., direct materials costs.

ENHANCED DISCLOSURE, in securities, is an in-depth open disclosure of any activity taken or proposed by the securities issuer that may have any relevance, positive or negative, to the securities in question.

ENROLLED AGENT is any individual who is enrolled under the provisions of Treasury Department Circular No. 230 to practice before the IRS.

ENTERPRISE is an organization created for business ventures.

ENTERPRISE RESOURCE PLANNING (ERP) is an information system or process that integrates all operational data and related applications for an entire enterprise. ERP systems permit organizations to manage resources across the enterprise.

ENTERPRISE VALUE (EV) is a measure of a company's value. Enterprise value is calculated by: market capitalization plus debt and preferred shares minus cash and cash equivalents. In effect, enterprise value is the theoretical takeover price, i.e., in the event of a buyout an acquirer would have to take on the company's debt but would pocket its cash.

ENTERPRISE ZONE is a depressed neighborhood, usually in an urban area, where businesses are given tax incentives and are not subject to some government regulations. These advantages are designed to attract new business in the zone.

ENTITY, in business, is a separate or self-contained existence that provides goods or services.

ENTITY BOUNDARY is that which is legally included within or excluded from a defined entity.

ENTITY ASSUMPTION is the assumption that financial statements are prepared for an entity that is separate and distinct from its owners.

ENTITY CONCEPT is the concept that financial accounting and reporting relates only to the activities of a specific business entity and not to the activities of the owners of that entity.

ENTITY THEORY is where a legal entity is regarded as having a separate existence from the owners. The financial statements are prepared from the perspective of the entity, not its owners. See PROPRIETARY THEORY.

ENTREPRENEUR is the person who assumes the financial risk of the initiation, operation and management of a given business or undertaking. He/She is primarily a financial and/or professional risk taker almost to the extreme.

EOM is End of Month.

EOY is End Of Year.

EOZ is Environmental Opportunity Zones.

EPS see EARNINGS PER SHARE.

EPU see EQUIVALENT UNIT OF PRODUCTION.

EQUILIBRIUM POINT is one of the fundamental concepts in economics describing the market price of a good or service as being determined by the quantity of both supply and demand for it. In 1890, the English economist Alfred Marshall published his famous work, Principles of Economics. Marshall's graph displays two lines that cross as an "X" with the declining line representing customer demand and the ascending line supply. The intersection of the two lines denotes an EQUILIBRIUM POINT toward which the market price will move to equalize the supply quantity to exactly match the demand quantity. Any higher price above this equilibrium creates a surplus where sellers would inevitably lower their price to sell more of the product. A lower price creates a shortage where sellers would increase price to earn more profit.

EQUIPMENT is generally determined by the meeting of three tests: a. Has an acquisition cost that is equal to or more than the cost hurdle for classifying capitalized assets. Includes: Invoice amount, sales tax, freight costs, installation costs, costs for the initial complement of supplies needed to place the asset into service, accessory and auxiliary apparatus necessary to make it usable for the purpose for which it was acquired; less trade or trade in discounts and/or educational allowances Excludes: Federal Excise tax, duty, insurance, maintenance and warranty costs; and, b. Has a useful life of two or more years If the item will not have a useful life of more than two years it is considered expendable material, even if it costs more than the level for determining a capital asset; and, c. Is a stand alone item. The item is not permanently attached to or integrated into a building or structure.

EQUIPMENT LOAN is a loan used for the purchase of capital equipment.

EQUITY is, normally, ownership or percentage of ownership in a company or items of value.

EQUITY ACCOUNTING is the practice of showing in a company's accounts the share of undistributed profits of another company in which it holds equity ownership (usually below 50%). The share of profit shown is usually equal to its share of the equity in the other company. The profit may not actually be paid over, but the equity holding company has a right to this share of the undistributed profit.

EQUITY CAPITAL is a form of financing where equity in a business is sold to private investors.

EQUITY FINANCING is a method of an entity obtaining funds by issuing either common or preferred stock, or both. Receipts can be through cash, services, or property. It is in the entities best interest to issue shares when the market price for the stock is at its highest.

EQUITY FUND is a mutual fund whose portfolio consists primarily of common stocks.

EQUITY FUNDING see EQUITY CAPITAL.

EQUITY HOLDING is a holding of the nominal share capital in a company where the shareholding entitles the shareholder to a right to votes, to profits available for distribution to shareholders and to assets available for distribution on a winding up of that company. A holding of shares held as trading stock for the purpose of a trade does not constitute a participating holding.

EQUITY INSTRUMENT covers any share (or part thereof) in the equity share capital of a company (or a comparable member’s interest in a close corporation). The term also includes share options and any other financial instrument convertible into a share (such as a convertible debenture).

EQUITY METHOD is a method of accounting for investments in associated companies.

EQUITY MULTIPLIER (EM) shows the amount of assets owned by the firm for each equivalent monetary unit owner claims held by stockholders, i.e., the equity multiplier measures how many dollars of assets an institution supports with each dollar of capital. If a firm is totally financed by equity, the equity multiplier will equal 1.00, while the larger the number the more highly leveraged is the firm. EM compares assets with equity: large values indicate a large amount of debt financing relative to equity. EM, thus, measures financial leverage and represents both profit and risk measurement. EM affects a firm’s profit because it has a multiplier impact on Return on Assets (ROA) to determine the firm’s Return on Equity (ROE). EM is also a risk measure because it reflects how many assets can go into default before a company becomes insolvent. The EM ratio is best compared to industry averages. Formula: Total Assets / Net Worth

EQUITY SHARE is a. a share or class of shares whether or not the share carries voting rights, b. any warrants, options or rights entitling their holders to purchase or acquire the shares referred to under (a), or c. other prescribed securities. An equity share is a perpetual liability because it signifies an owner's legal demand upon the assets of the entity in which the equity share if held. See also COMMON STOCK.

EQUITY SHARE CAPITAL is capital raised by an entity through the sale of common shares.

EQUITY OFFERING see EQUITY CAPITAL.

EQUITY-TO-ASSET RATIO expresses the proportion of total assets financed by the owner’s equity capital. It is the reciprocal of the debt-to-asset ratio.

EQUIVALENT UNIT OF PRODUCTION (EPU) is based on the idea that if 100 units are all 40% complete, then 40 whole units could have been completed.

ERISA, in the U.S., refers to the Employee Retirement Income Security Act of 1974. ERISA is a major U.S. law which guarantees certain categories of employees a pension after some period at their employer; there had been more ambiguity before about what rules an employer could put on which employees could get a pension.

ERP can mean either Enterprise Resource Planning or Early Retirement Program. See ENTERPRISE RESOURCE PLANNING.

ERROR OF COMISSION is an error that occurs as a result of an action taken. In accounting, the error occurs when one or both of the double entries are made in the correct class of account but the wrong account within that class.

ERROR OF OMISSION is an error which occurs as a result of an action not taken. In accounting, the error occurs when both the entries required for a transaction are completely omitted from the books.

ERROR OF ORIGINAL ENTRY, in accounting, occurs when the double entry is made but using an incorrect figure.

ERROR OF PRINCIPLE, in accounting, occurs when one or both of the entries are made in the wrong class or category of account.

ESCHEAT is the reversion of property to the state (government) in the absence of legal heirs or claimants.

ESCROW ACCOUNT see TRUST ACCOUNT.

ESTATE is the entire group of assets owned by an individual at the time of his or her death. The estate includes all funds, personal effects, interests in business enterprises, titles to property-real estate and chattels, and evidences of ownership such as stocks, bonds and mortgages owned, notes receivable, etc. All claims against an estate must be duly filed with the Executor or Administrator of the estate, and approved by the court of law under which the will is being probated or the line of heritage is being determined before the indebtedness may be satisfied.

ESTATE TAXES are the Federal taxes levied on the transfer of property from the deceased to his or her heirs, legatees or devisees.

ETC (EXPORT TRADING COMPANY) is a private company that usually purchases items from domestic manufacturers, then sells them to foreign markets. The difference between an EMC and an ETC is sometimes insignificant, i.e., an EMC may occasionally take title of goods, while an ETC may sometimes work strictly on commission without purchasing the goods. The difference is what the company normally does.

ETHICAL STANDARDS, in accounting, is a written document containing basic principles and essential procedures together with related guidance in the form of explanatory and other material.

ETHICS, in business, are moral and professional principles.

EUROBOND see GLOBAL BOND.

EUROIZATION is the use of the euro by a country as its own currency; the linking of a currency’s value to that of the euro; or, the use of the euro for accounting purposes.

EV (economic value) is the value of an asset deriving from its ability to generate income.

EVA see ECONOMIC VALUE ADDED.

EVENT RISK is the risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.

EX is not including or without, e.g. a stock price ex dividend. In business: free of any transport or handling charges incurred before removal from a given location, e.g., bought the goods ex warehouse.

EXCEPTIONAL COST see EXCEPTIONAL ITEMS.

EXCEPTIONAL ITEMS are material items which derive from events or transactions that fall within the ordinary activities of the reporting entity and which individually or, if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence if the financial statements are to give a true and fair view.

EXCESS OF REVENUE OVER EXPENSES in the not-for-profit sector. There is a common misconception that not-for-profit organizations are not allowed to have a financial cushion as they are “not-for-profit”. In this context it is useful to remember that not-for-profit organizations are also “not-for-loss” organizations. An organization cannot sustain losses over the long term without ceasing to operate or going bankrupt. Excess of revenue over expenses is the planned financial position that there will always be a sufficient amount of funds on hand to continue to run the not-for-profit entity for some period without additional funding; usually 3-4 months.

EXCHANGE is a. a workplace for buying and selling; open only to members, e.g. New York Stock Exchange; or, b. reciprocal transfer of equivalent sums of money especially the currencies of different countries, e.g. foreign exchange markets.

EXCHANGE GAIN (LOSS) is a gain (loss) on the exchange of one currency for another due to appreciation (depreciation) in the home currency (for receivables).

EXCHANGE LOSS (GAIN) see EXCHANGE GAIN (LOSS).

EXCHANGE RATE is the rate at which one currency can be traded for another.

EXCHANGE RATE RISK, in foreign exchange, is the variability of a firm’s value due to uncertain changes in the rate of exchange.

EXCISE TAX is a tax imposed by federal, state, and local governments on an act, occupation, privilege, manufacture, sale, or consumption that is not deductible (e.g., tobacco, gasoline and spirits). This term is in increasing usage to describe almost every tax other than income tax and property tax.

EXECUTOR is a legal entity, frequently an individual, known before death to a testator, who is named in the testator's will to carry out the desires of the deceased after his death as designated in the will. Executors must be approved by the court of law probating the will. An executor pays all indebtedness as claimed by creditors of the estate, with the approval of the court of law, and then carries out or executes the will according to the terms set forth by the testator.

EXEMPT is being freed from or not subject to an obligation, liability, tax, etc.; excused. Examples: exempt gifts or tax-exempt bonus.

EXERCISE, in business or law, to make use of a right available in a legally binding agreement, e.g. to implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.

EX-FACTORY is where a seller's responsibility ends when the buyer at point of origin, i.e., factory, accepts merchandise. This can also be written as Ex-Warehouse, Ex-works, etc.

EXISTING USE VALUE (EUV) is the price at which a property can be sold on the open market assuming that it can only be used for the existing use for the foreseeable future.

EXPECTATION GAP, in accounting, is the gap between an auditors' actual standard of performance and the more rigorous public expectation of what an auditors' performance should be. The users of financial statements should be allowed to expect that the auditors' materiality levels correspond with their own. If this is not the case an expectation gap will arise. Especially if the financial statements contain non-corrected known errors or omissions classified as immaterial by the auditor, but classified as material by the users. The unknown material errors and omissions are still a part of the audit risk.

EXPECTED ANNUAL CAPACITY is the planned activity levels or output for a given year taking into account efficiency and idle capacity.

EXPECTED VALUE OF PERFECT INFORMATION (EVPI) is the difference between the expected value with (additional) perfect information and the expected value with current information. The expected value of perfect information is the maximum amount a decision maker should pay for additional information that gives a perfect signal as to the state of nature.

EXPENDABLE is something that can be used and discarded without hurting the end product or the company's viability.

EXPENDABLE NET ASSETS are those assets not required to be retained in perpetuity, i.e. those assets available for use for operations.

EXPENDABLE TRUST FUND is a governmental fiduciary fund held in a trustee capacity by a governmental agency that accounts for assets and activities restricted to a specific purpose in accordance to formal intent. The principal of the fund can be expended towards only the activity specified, e.g., Unemployment Compensation Fund, Employee Benefits Fund, etc.

EXPENDITURE is a cost incurred in the normal course of business to generate revenues. See expenses.

EXPENSE is the amount of assets or services used during a period.

EXPENSES are the daily costs incurred in running and maintaining a business. See expenditure.

EXPIRATION DATE is the date on which something; e.g. a security or bond offering, warranty or license; is no longer valid or in effect.

EXPIRED EXPENSE is an expense having come to an end or become void after passage of a period of time.

EXPLORATORY RESEARCH is a method used when gathering primary information for a market survey where targeted consumers / customers are asked very general questions geared toward eliciting a lengthy answer.

EXPORT BROKER is an entity that brings together foreign buyers with domestic manufacturers for a fee, generally providing little other services. An EMC, who is also a middleman, often provides extensive services to complete the transaction as well.

EXPORT DECLARATION is the official paperwork required of exporters so trade transactions and goods can be tracked.

EXPORT LICENSE is the governmentally issued legal permit to export merchandise. In the U.S., it is either a general license requiring no additional paperwork or a validated license for certain federally controlled items.

EXPOSURE, generally, is the extent to which a product is kept in the public eye through the press, radio, television, and public appearances. In finance, exposure refers to the amount that a business or person can lose. For example: in foreign exchange, it refers to the degree to which a company is affected by exchange rate changes.

EXPOSURE DRAFT is a proposed statement of financial accounting standards issued by the FASB for public comment. The exposure draft represents the FASB's considered judgment on a specific accounting issue. Subject to comments received and possible additional deliberation, an exposure draft may become a Statement of Position (SOP), mandating a Financial Accounting Standard (FAS).

EXPROPRIATION is the taking of property or rights by governmental authority such as eminent domain, possibly including an emergency situation, such as taking a person's truck or bulldozer to build a levee during a flood. In such a case just compensation eventually must be paid to the owner, who can make a claim against the taker.

EXTERNAL is from or between other countries, e.g. external commerce; or, happening, arising or located outside or beyond a company, e.g. external influences.

EXTERNAL AUDIT is an audit conducted by an individual or firm that is independent of the company being audited. These independent auditors audit the books of a company generally once per year (see INTERIM AUDIT) after the completion of the company's fiscal year. Their role is to give an opinion of the financials statement's reflection of the status and operations of the company being audited. Based on what they witness during the audit they will also produce, for management and board utilization, a management letter. Although a financial statement audit is the most common type of external audit, external auditors may also conduct special purpose audits which might include; performing specific tests and procedures and reporting on the results, a less intensive review, and compilations.

EXTERNAL AUDITOR is an auditor, usually working for an audit firm, that is completely independent of the company it is auditing. External auditors should always be certified by a professional association of accountants, and should be selected by, and report to, the corporation’s board of directors.

EXTERNAL DEBT is the total private and public debt owed by a country to individuals, households, firms, and governments in other countries.

EXTERNAL ENVIRONMENT is factors (conditions, trends, and forces) essentially outside the control of organizational members. External environmental scans are conducted to identify important factors in the external environment. This analysis is often a critical aspect in all business or strategic plans.

EXTINGUISHMENT OF DEBT is the debtor's satisfaction of the obligation to a creditor, either legally or in-substance. A debt shall be accounted for as having been extinguished in a number of circumstances, including when it has been settled through repayment or replacement by another liability.

EXTRAORDINARY EXPENSE see EXTRAORDINARY ITEMS.

EXTRAORDINARY ITEMS are material items that are unusual in nature and occur infrequently. Both characteristics must exist for an item to be classified as an extraordinary item on the income statement.

EXTRATERRITORIAL INCOME EXCLUSION is the amount excluded from a taxpayer's gross income for certain transactions that generate foreign trading gross receipts. In general, foreign trading gross receipts include gross receipts from the sale, exchange, lease, rental, or other disposition of qualifying foreign trade property. Foreign trading gross receipts also include receipts from certain services provided in connection with such property, as well as engineering and architectural services for construction projects outside the United States. Qualifying foreign trade property generally includes property that is held primarily for sale or lease for direct use or consumption outside the United States. Form 8873 is attached to the taxpayer's income tax return. Both corporate and non-corporate taxpayers who have qualifying transactions may now be required to file Form 8873. The exclusion reported on Form 8873 was created by the Foreign Sales Corporation (FSC) Repeal and Extraterritorial Income Exclusion Act of 2000. The new exclusion applies to certain transactions entered into after September 30, 2000, but is subject to transition rules for foreign corporations with a valid FSC election in effect on September 30, 2000.

POL prices surge by 5pc to 9pc

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.

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.

‘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

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.