Accounting Terminology Guide: Over 1000 Accounting & Finance Terms

A Misstatement is Inconsequential

If a reasonable person would conclude after considering the possibility of further undetected
misstatements that the misstatement either individually or when aggregated with other misstatements
would clearly be immaterial to the FINANCIAL STATEMENTS. If a reasonable person could not reach such
a conclusion regarding a particular misstatement, that misstatement is more than inconsequential.

Abatement

Complete removal of an amount due, (usually referring to a tax ABATEMENT a penalty abatement or an
INTEREST abatement within a governing agency).

Absorption Costing

An approach to product costing that assigns a representative portion of all types of manufacturing
costs--direct materials, direct labor, variable factory overhead, and fixed factory overhead--to individual
products.

Accelerated Depreciation

Method that records greater DEPRECIATION than STRAIGHT-LINE DEPRECIATION in the early years and
less depreciation than straight-line in the later years of an ASSET'S HOLDING PERIOD.

Account

Formal record that represents, in words, money or other unit of measurement, certain resources, claims
to such resources, transactions or other events that result in changes to those resources and claims.

Account Payable
Amount owed to a CREDITOR for delivered goods or completed services.

Account Receivable

Claim against a DEBTOR for an uncollected amount, generally from a completed transaction of sales or
services rendered.

Accountable Plan

Any reimbursement or other expense allowance arrangement of an employer that meets all of the
following requirements (therefore excluding it from gross w-2 EARNED INCOME and tax): (1) it provides
reimbursements advances or allowances including per diem and meals, to employees for any job related
deductible business expense; (2) employees must be able to substantiate expenses covered in the plan;
(3) employee must return any excess advances or payments.

Accountant

Person skilled in the recording and reporting of financial transactions.

Accountants' Report

Formal document that communicates an independent accountant's: (1) expression of limited assurance
on FINANCIAL STATEMENTS as a result of performing inquiry and analytic procedures (REVIEW REPORT);
(2) results of procedures performed (AGREED-UPON PROCEDURES REPORT); (3) non-expression of
opinion or any form of assurance on a presentation in the form of financial statements information that
is the representation of management (COMPILATION REPORT); or (4) an opinion on an assertion made
by management in accordance with the Statements on Standards for Attestation Engagements
(ATTESTATION REPORT). An accountants' report does not result from the performance of an AUDIT.

Accounting

Recording and reporting of financial transactions, including the origination of the transaction, its
recognition, processing, and summarization in the FINANCIAL STATEMENTS.
Accounting Change

Change in (1) an accounting principle; (2) an accounting estimate; or (3) the reporting entity that
necessitates DISCLOSURE and explanation in published financial reports.

Accounting Cycle

The sequence of steps followed in the accounting process to measure business transactions and
transform the measurements into FINANCIAL STATEMENTS for a specific period.

Accounting Principles Board (APB)

Senior technical committee of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
which issued pronouncements on accounting principles from 1959-1973. The APB was replaced by the
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Accounts Payable Subsidiary Ledger

A financial record of an individual ACCOUNT PAYABLE in which entries can be made daily.

Accounts Receivable Turnover

Used to measure a company’s ability to collect cash from credit customers. Found by dividing net sales
by average net ACCOUNT RECEIVABLE.

Accrual

The recognition of an expense or revenue that has occurred but has not yet been recorded.
Accrual Accounting

The attempt to record the financial effects of transactions and other events in the periods in which those
transactions or events occur rather than only in the periods in which cash is received or paid by the
business, using all the techniques developed by accountants to apply the MATCHING PRINCIPLE.

Accrual Basis

Method of ACCOUNTING that recognizes REVENUE when earned, rather than when collected. Expenses
are recognized when incurred rather than when paid.

Accrued Expense

An expense that has occurred but is not recognized in the accounts.

Accrued Interest

INTEREST that has accumulated between the most recent payment and the sale of a BOND or other
fixed-income security.

Accumulated Depreciation

Total DEPRECIATION pertaining to an ASSET or group of assets from the time the assets were placed in
services until the date of the FINANCIAL STATEMENT or tax return. This total is the CONTRA ACCOUNT to
the related asset account.

Accumulation

Profits that are not paid out as DIVIDENDS but are instead added to the company’s capital base.
Acid-Test Ratio

The relationship of a company’s current assets that can be converted into cash to its current liabilities. It
is determined by dividing QUICK ASSETS by current liabilities.

Acquisition

One company taking over controlling interest in another company.

Actuary

Mathematician employed by an insurance company to calculate PREMIUMS, RESERVES, DIVIDENDS, and

insurance, PENSION, and ANNUITY rates, using risk factors obtained from experience tables.

Additional Paid in Capital

Amounts paid for stock in excess of its PAR VALUE or STATED VALUE. Also, other amounts paid by
stockholders and charged to EQUITY ACCOUNTS other than CAPITAL STOCK.

Adjusted Basis

After a taxpayer's basis in property is determined, it must be adjusted upward to include any additions of
capital to the property and reduced by any returns of capital to the taxpayer. Additions might include
improvements to the property and subtractions may include depreciation or depletion. A taxpayer's
adjusted basis in property is deducted from the amount realized to find the gain or loss on sale or
disposition.

Adjusted Gross Income

Gross income reduced by business and other specified expenses of individual taxpayers. The amount of
adjusted gross income affects the extent to which medical expenses, non business casualty and theft
losses and charitable contributions may be deductible. It is also an important figure in the basis of many
other individual planning issues as well as a key line item on the IRS form 1040 and required state forms.
Adjusted Trial Balance

A trial balance prepared after all adjusting entries have been recorded and posted to the accounts.
Should have equal credit and debit totals.

Adjusting Journal Entry

An accounting entry made into a subsidiary ledger called the General journal to account for a periods
changes, omissions or other financial data required to be reported "in the books" but not usually posted
to the journals used for typical period transactions (the cash receipts journal, cash disbursements
journal, the payroll journal, sales journal and so on) the entry is posted to the general ledger accounts
directly and usually will be numbered itself, dated and have an explanation. Example: AJE# 1 12-31-2003,
debit Cash in bank $1,000. Credit interest income $1,000, to record interest income on business bank
account at year end, not recorded in cash receipts journal but credited by the bank. (Cross-reference
bank reconciliation and account where it was found)

ADR

Receipts for shares of foreign company stock maintained by an intermediary indicating ownership.

Adverse Opinion

Expression of an opinion in an AUDITORS' REPORT which states that FINANCIAL STATEMENTS do not
fairly present the financial position, results of operations and cash flows in conformity with GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

Affiliated Company

Company, or other organization related through common ownership, common control of management
or owners, or through some other control mechanism, such as a long-term LEASE.
Agency Fund

Fund consisting of ASSETS where the holder agrees to remit the assets, income from the assets, or both,
to a specified beneficiary in due course or at a specified time.

AICPA

National professional membership organization that represents practicing CERTIFIED PUBLIC

ACCOUNTANTS (CPAs). The AICPA establishes ethical and auditing standards as well as standards for
other services performed by its members. Through committees, it develops guidance for specialized
industries. It participates with the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and the
GOVERNMENT ACCOUNTING STANDARDS BOARD (GASB) in establishing accounting principles.

Allocate

To set aside for a specific reason.

Allowance for Doubtful Accounts

A contra-asset account used to reduce ACCOUNTS RECEIVABLE to the amount that is expected to be
collected in cash.

Alternative Dispute Resolution

An alternative to formal litigation which includes techniques such as arbitration, mediation, and a non-
binding summary jury trial.

Alternative Minimum Tax (AMT)

Tax imposed to back up the regular income tax imposed on CORPORATION and individuals to assure that
taxpayers with economically measured income exceeding certain thresholds pay at least some income
tax.
American Depository Receipt (ADR)

Receipts for shares of foreign company stock maintained by an intermediary indicating ownership.

American Institute of Certified Public Accountants (AICPA)

National professional membership organization that represents practicing CERTIFIED PUBLIC

ACCOUNTANTS (CPAs). The AICPA establishes ethical and auditing standards as well as standards for
other services performed by its members. Through committees, it develops guidance for specialized
industries. It participates with the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and the
GOVERNMENT ACCOUNTING STANDARDS BOARD (GASB) in establishing accounting principles.

Amortization

Gradual and periodic reduction of any amount, such as the periodic writedown of a BOND premium, the
cost of an intangible ASSET or periodic payment Of MORTGAGES or other DEBT.

AMT

Tax imposed to back up the regular income tax imposed on CORPORATION and individuals to assure that
taxpayers with economically measured income exceeding certain thresholds pay at least some income
tax.

Analyst

Person in a brokerage house, bank trust dept., or mutual fund group who studies a number of companies
and makes buy or sell recommendations on the securities of particular companies and industry groups.

Analytical Procedures

Substantive tests of financial information which examine relationships among data as a means of
obtaining evidence. Such procedures include: (1) comparison of financial information with information of
comparable prior periods; (2) comparison of financial information with anticipated results (e.g.,
forecasts); (3) study of relationships between elements of financial information that should conform to
predictable patterns based on the entity's experience; (4) comparison of financial information with
industry norms.

Annual Report

Report to the stockholders of a company which includes the company's annual, audited BALANCE SHEET
and related statements of earnings, stockholders' or owners' equity and cash flows, as well as other
financial and business information.

Annuity

Series of payments, usually payable at specified time intervals.

Anti-Dilution

Condition that may increase the computation of EARNINGS PER SHARE (EPS) or decrease loss per share
solely because of the inclusion of COMMON STOCK equivalents, such as STOCK OPTIONS, WARRANTS,
convertible DEBT or convertible PREFERRED STOCK, nomination or selection of the independent
AUDITORs.

APB

Senior technical committee of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
which issued pronouncements on accounting principles from 1959-1973. The APB was replaced by the
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Appreciation

Increase in the value of an ASSET such as a stock, BOND, commodity, or real estate.
Assembly of Financial Statements

The providing of various accounting or data-processing services by an accountant, the output of which is
in the form of financial statements ostensibly to be used solely for internal management purposes.

Assertion

Explicit or implicit representations by an entity's management that are embodied in financial statement
components and for which the AUDITOR obtains and evaluates evidential matter when forming his or
her opinion on the entity's financial statements.

Asset

An economic resource that is expected to be of benefit in the future. Probable future economic benefits
obtained as a result of past transactions or events. Anything of value to which the firm has a legal claim.
Any owned tangible or intangible object having economic value useful to the owner.

Asset Turnover

A way of measuring how profitably and efficiently assets are being used to produce sales. This is
determined by dividing net sales by average total assets.

At Par

At a price equal to the face, or nominal, value of a security.

Audit

A professional examination of a company’s financial statement by a professional accountant or group to

determine that the statement has been presented fairly and prepared using GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP).
Audit Documentation

The written record of the basis for the AUDITOR's conclusions that provides the support for the auditor's
representations, whether those representations are contained in the auditor's report or otherwise. (May
be referred to as work papers or working papers).

Audit Engagement

Agreement between a CPA firm and its client to perform an AUDIT.

Audit Risk

The risk that the AUDITOR may unknowingly fail to modify appropriately his or her opinion on financial
statements that are materially misstated.

Audit Sampling

Application of an AUDIT procedure to less than 100% of the items within an account BALANCE or class of
transactions for the purpose of evaluating some characteristic of the balance or class.

Auditing Standards

Guidelines to which an AUDITOR adheres. Auditing standards encompass the auditor's professional
qualities, as well as his or her judgment in performing an AUDIT and in preparing the AUDITORS' REPORT.
Audits conducted by independent CERTIFIED PUBLIC ACCOUNTANT (CPA) usually in accordance with
GENERALLY ACCEPTED AUDITING STANDARDS (GAAS), which consist of standards approved and adopted
by the membership of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA).

Auditor

Person who AUDITS financial accounts and records kept by others. Includes both public accounting firms
registered with the PCAOB and associated persons thereof.
Auditors' Report

Written communication issued by an independent CERTIFIED PUBLIC ACCOUNTANT (CPA) describing the
character of his or her work and the degree of responsibility taken. An auditors' report includes a
statement that the AUDIT was conducted in accordance with GENERALLY ACCEPTED AUDITING
STANDARDS (GAAS), which require that the AUDITOR plan and perform the audit to obtain reasonable
assurance about whether the FINANCIAL STATEMENTS are free of material misstatement, as well as a
statement that the auditor believes the audit provides a reasonable basis for his or her opinion.

Authorized Shares

Maximum number of shares of any class a company may legally create under the terms of its articles of
incorporation.

Average Days’ Inventory On-Hand

The average number of days required to sell the current inventory of products available for sale. It is
found by dividing the number of days in a year by inventory turnover.

Average Days’ Sales Uncollected

A ratio that shows the average length of time it takes a company to receive payment for credit sales.

Average-Cost Method

A way of arriving at the cost of inventory that computes the average cost of all goods available for sale
during a fixed period in order to determine the value of inventory.

Backup Withholding
Payors of interest, dividends and other reportable payments must withhold income tax equal at a rate
equal to the fourth lowest rate applicable to single filers if they fail to supply a federal id # or if they fail
to certify that they are not subject to it.

Bad Debt

All or portion of an ACCOUNT, loan, or note receivable considered to be uncollectible.

Balance

Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis
of ACCOUNTING used in its preparation and presentation of a specified date the entity's ASSETS,
LIABILITIES and the EQUITY of its owners. Also known as a STATEMENT OF FINANCIAL CONDITION.

Bank Reconciliation

A process by which an accountant determines whether and why there is a difference between the
balance shown on the bank statement and the balance of the cash account in the firm’s GENERAL
LEDGER.

Bank Statement

A periodic statement, usually monthly, that a bank sends to the holder of a checking account showing
the balance in the account at the beginning of the month, during, and at the end of the month.

Bankruptcy

Legal process, governed by federal statute, whereby the DEBTS of an insolvent person are liquidated
after being satisfied to the greatest extent possible by the DEBTOR'S ASSETS. During bankruptcy, the
debtor's assets are held and managed by a court appointed TRUSTEE.

Base Market Value

Average market price of a group of securities at a given time.

Beginning Inventory

The quantity of merchandise available for sale at the beginning of an ACCOUNTING period.

Bequest

Legal process, governed by federal statute, whereby the DEBTS of an insolvent person are liquidated
after being satisfied to the greatest extent possible by the DEBTOR'S ASSETS. During bankruptcy, the
debtor's assets are held and managed by a court appointed TRUSTEE.

Beta Coefficient

Measure of a stock’s relative volatility. The beta is the covariance of a stock in relation to the rest of the
stock market.

Bid and Asked

Bid is the highest price a prospective buyer is prepared to pay at a particular time for a trading unit of a
given SECURITY; asked is the lowest price acceptable to a prospective seller of the same security. The
difference between the prices is the SPREAD.

Blue Sky Laws

State laws that regulate the ISSUANCE of SECURITIES. These laws are coordinated with federal acts.

Board of Directors

Individuals responsible for overseeing the affairs of an entity, including the election of its officers. The
board of a CORPORATION that issues stock is elected by stockholders.
Bond

One type of long-term PROMISSORY NOTE, frequently issued to the public as a SECURITY regulated
under federal securities laws or state BLUE SKY LAWS. Bonds can either be registered in the owner's
name or are issued as bearer instruments.

Bond Discount

The amount below PAR VALUE that a BOND sells for.

Bond Indenture

An additional agreement to a BOND issue that defines the rights, privileges, and limitations of
BONDHOLDERS.

Bondholder

A person who owns a BOND certificate issued by a government or CORPORATION.

Book Value

Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE SHEET of
acompany. Also known as CARRYING VALUE.

Bookkeeping

The process of recording financial transactions and keeping financial records.

Boot
The non technical term used by some to describe any cash or other property that is received in exchange
of property that would be otherwise nontaxable.

Bottom Line

The line in a FINANCIAL STATEMENT that shows NET INCOME or LOSS.

Break-Even Point

The point at which TOTAL REVENUES equals TOTAL COSTS.

Break-Even Units

The number of units of a product that must be sold before a company makes enough money to pay for
direct and indirect costs of making the product.

Budget

Financial plan that serves as an estimate of future cost, REVENUES or both.

Burden Rate

Standard rate multiplied by a level of activity to determine the OVERHEAD cost of that activity. Activity
measures include LABOR or machine hours.

Business Combinations

Combining of two entities. Under the PURCHASE METHOD OF ACCOUNTING, one entity is deemed to
acquire another and there is a new basis of accounting for the ASSETS and LIABILITIES of the acquired
company. In a POOLING OF INTERESTS, two entities merge through an exchange of COMMON STOCK and
there is no change in the CARRYING VALUE of the assets or liabilities.
Business Segment

Any division of an organization authorized to operate, within prescribed or otherwise established

limitations, under substantial control by its own management.

Buyout

Purchase of at least a controlling percentage of a company’s stock to take over its ASSETS and
operations.

Bylaws

Collection of formal, written rules governing the conduct of a CORPORATION'S affairs (such as what
officers it will have, what their responsibilities are, and how they are to be chosen). Bylaws are approved
by a corporation's stockholders, if a stock corporation, or other owners, if a non-stock corporation.

Cafeteria Plan

A benefit plan maintained by an employer for the benefit of the employees under which each participant
has the opportunity to select the benefits they desire. Certain minimum choices and nondiscriminatory
rules apply.

Call Loan

Loan repayable on demand. Also known as DEMAND LOAN.

Call Price
A specified price, usually above face value, at which a CORPORATION may, at its option, buy back and
retire BONDS before maturity.

Callable

Redeemable by the issuer before the scheduled maturity.

Callable Instrument

BOND which accords an issuer the right to redemption before it is due.

Capital Asset Pricing Model (CAPM)

Sophisticated model of the relationship between expected risk and expected return.

Capital Expenditure

Outlay of money to acquire or improve capital assets such as buildings and machinery.

Capital Gain

Portion of the total GAIN recognized on the sale or exchange of a noninventory asset which is not taxed
as ORDINARY INCOME. Capital gains have historically been taxed at a lower rate than ordinary income.

Capital Projects Funds

Funds used by a not-for-profit organization to account for all resources used for the development of a
land improvement or building addition or renovation.
Capital Stock

Ownership shares of a CORPORATION authorized by its ARTICLES OF INCORPORATION. The money

valueassigned to a corporation's issued shares. The BALANCE SHEET account with the aggregate amount
of the PAR VALUE or STATED VALUE of all stock issued by a corporation.

Capitalize

Convert a schedule of INCOME into a principal amount, called capitalized value, by dividing by a rate of
INTEREST.

Capitalized Cost

Expenditure identified with goods or services acquired and measured by the amount of cash paid or the
market value of other property, CAPITAL STOCK, or services surrendered. Expenditures that are written
off during two or more accounting periods.

Capitalized Interest

INTEREST cost incurred during the time necessary to bring an ASSET to the condition and location for its
intended use and included as part of the HISTORICAL COST of acquiring the asset.

Capitalized Lease

LEASE recorded as an ASSET acquisition accompanied by a corresponding LIABILITY by the LESSEE.

CAPM

Sophisticated model of the relationship between expected risk and expected return.

Carrying Value
Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE SHEET of
a company. Also known as BOOK VALUE.

Carryovers

Provision of tax law that allows current losses or certain tax credits to be utilized in the tax returns of
future periods..

Cash

ASSET account on a balance sheet representing paper currency and coins, negotiable money orders and
checks, bank balances, and certain short-term government securities.

Cash Account

Brokerage firm account whose transactions are settled on a cash basis.

Cash Basis

Method of bookkeeping by which REVENUES and EXPENDITURES are recorded when they are received
and paid.

Cash Dividend

Distribution of a CORPORATION’s earnings to stockholders in the form of CASH.

Cash Equivalents

Short-term (generally less than three months), highly liquid INVESTMENTS that are convertible to known
amounts of cash.
Cash Flow to Assets

Used to measure the ability of ASSETS to generate operating CASH FLOWS.

Cash Flow to Sales

A way of measuring the ability of sales to generate operating CASH FLOWS.

Cash Flows

Net of cash receipts and cash disbursements relating to a particular activity during a specified accounting
period.

Cash Payments Journal

A multicolumn journal used to record sums of cash paid out for expenses.

Cash Ratio

Ratio of CASH and MARKETABLE SECURITIES to CURRENT LIABILITIES.

Cash Receipts Journal

A multicolumn journal used to record business transactions involving the receipt of CASH from other
individuals or businesses.

Casualty Loss
Any loss of an asset due to fire storm act of nature causing asset damage from unexpected or accidental
force. Generally it is deductible regardless of whether it is business or personal.

CD

Formal instrument issued by a bank upon the deposit of funds which may not be withdrawn for a
specified time period. Typically, an early withdrawal will incur a penalty.

CEO

Officer of a firm principally responsible for the activities of a COMPANY.

Certificate of Deposit (CD)

Formal instrument issued by a bank upon the deposit of funds which may not be withdrawn for a
specified time period. Typically, an early withdrawal will incur a penalty.

Certified Financial Planner (CFP)

Individual who is trained to develop and implement financial plans for individuals, businesses, and
organizations, utilizing knowledge of income and estate tax, investments, risk management analysis and
retirement planning. CFPs are certified after completing a series of requirements that include education,
experience, ethics and an exam. CFPs are not regulated by a governmental authority.

Certified Internal Auditor (CIA)

Internal AUDITOR who has satisfied the examination requirements of the Institute of Internal Auditors.

Certified Management Accountant (CMA)

An accreditation conferred by the Institute of Management Accountants that indicates the designee has
passed an examination and attained certain levels of education and experience in the practice of
accounting in the private sector.

Certified Public Accountant (CPA)

ACCOUNTANT who has satisfied the education, experience, and examination requirements of his or her
jurisdiction necessary to be certified as a public accountant.

CFO

Executive officer who is responsible for handling funds, signing CHECKS, keeping financial records, and
financial planning for a CORPORATION.

CFP

Individual who is trained to develop and implement financial plans for individuals, businesses, and
organizations, utilizing knowledge of income and estate tax, investments, risk management analysis and
retirement planning. CFPs are certified after completing a series of requirements that include education,
experience, ethics and an exam. CFPs are not regulated by a governmental authority.

Chief Executive Officer (CEO)

Officer of a firm principally responsible for the activities of a COMPANY.

Chief Financial Officer (CFO)

Executive officer who is responsible for handling funds, signing CHECKS, keeping financial records, and
financial planning for a CORPORATION.

CIA
Internal AUDITOR who has satisfied the examination requirements of the Institute of Internal Auditors.

Claim for Refund

A refund is not automatically mailed if one is due. A taxpayer, whether business or individual, must file a
request on a form. It must also be filed within the timeframe allotted or the refund may be lost. An
individual can claim a refund back to whatever year it was due but it will only be paid three years back or
less.

Clean Opinion

AUDIT opinion not qualified for any material scope restrictions nor departures from GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (GAAP). Also known as UNQUALIFIED OPINION.

Close

To clear the BALANCES of temporary accounts in order to be ready for the next accounting period.

Closed-End Mutual Fund

MUTUAL FUND with a fixed number of shares outstanding that may be bought or sold. CMO - See
COLLATERALIZED MORTGAGE OBLIGATION.

Closing Entry

A journal entry made at the end of an accounting period in order to prepare for the next accounting
period by clearing the BALANCES of temporary accounts and summarizing the period’s REVENUES and
expenses.

CMA
An accreditation conferred by the Institute of Management Accountants that indicates the designee has
passed an examination and attained certain levels of education and experience in the practice of
accounting in the private sector.

CMO

SECURITY whose cash flows equal the difference between the cash flows of the collateralizing ASSETS
and the collateralized obligations of a securitized TRUST. Characteristics of CMO residuals vary greatly
and can be extremely complex in nature.

Co-Mingling

Mixing ASSETS, e.g. customer-owned SECURITIES, with those owned by a firm in its proprietary accounts.

Collateral

ASSET provided to a CREDITOR as security for a loan.

Collateralized Mortgage Obligation (CMO)

SECURITY whose cash flows equal the difference between the cash flows of the collateralizing ASSETS
and the collateralized obligations of a securitized TRUST. Characteristics of CMO residuals vary greatly
and can be extremely complex in nature.

Combined Financial Statement

FINANCIAL STATEMENT comprising the accounts of two or more entities.

Comfort Letter
Letter provided by a company's independent public accountant to an underwriter when the underwriter
has a DUE DILIGENCE responsibility under Section 11 of the Securities Act of 1933 regarding financial
information included in an offering statement.

Commercial Paper

A way of borrowing money by using unsecured short-term loans sold directly to the public, usually
through professionally managed investments firms.

Commission

Percentage of the selling price of the property, paid by the seller.

Committee of Sponsoring Organizations of the Treadway Commission (COSO)

An alliance of five professional organizations dedicated to disseminating appropriate internal control

standards.

Commodities

Bulk goods such as grains, metals, and foods traded on a commodities exchange or on the SPOT MARKET.

Common Stock

CAPITAL STOCK having no preferences generally in terms of dividends, voting rights or distributions.

Company

Organization engaged in business as a PROPRIETORSHIP, PARTNERSHIP, CORPORATION, or other form of

enterprise.
Company Level Controls

Controls that exist at the company level that have an impact on controls at the process, transaction, or
application level.

Comparative Financial Statement

FINANCIAL STATEMENT presentation in which the current amounts and the corresponding amounts for
previous periods or dates also are shown.

Compensate

To pay or make payment for something.

Compensatory Balance

Funds that a borrower must keep on deposit as required by a bank.

Compilation

Presentation of financial statement data without the ACCOUNTANT'S assurance as to conformity with
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

Compilation Engagement

Agreement between a CPA firm and its client to issue a COMPILATION REPORT.

Compilation Report
See ACCOUNTANTS' REPORT.

Complex Trust

A trust that is to be distinguished from a simple trust in the fact that it permits accumulation or
distribution of current income during the tax year and provides for charitable contributions.

Compliance Audit

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

Compound Interest Principles

Interest computed on principal plus interest earned in previous periods.

Comprehensive Income

Change in EQUITY of a business enterprise during a period from transactions and other events and
circumstances from sources not shown in the income statement. The period includes all changes in
equity except those resulting from INVESTMENTS by owners and distributions to owners.

Condensed Financial Statement

A FINANCIAL STATEMENT for external reporting that presents only the major categories of information.

Confirmation

AUDITOR'S receipt of a written or oral response from an independent third party verifying the accuracy
of information requested.
Conservatism

An investment strategy aimed at long-term capital appreciation with low risk; moderate; cautious;
opposite of aggressive behavior; show possible losses but wait for actual profits. Concept which directs
the least favorable effect on net income.

Consistency

ACCOUNTING postulate which stipulates that, except as otherwise noted in the FINANCIAL STATEMENT,
the same accounting policies and procedures have been followed from period to period by an
organization in the preparation and presentation of its financial statements.

Consolidated Financial Statements

Combined FINANCIAL STATEMENTS of a parent company and one or more of its subsidiaries as one
economic unit

Consolidation

BUSINESS COMBINATION of two or more entities that occurs when the entities transfer all of their NET
ASSETS to a new entity created for that purpose.

Constructive Receipt

A taxpayer is considered to have received the income even though the monies are not in hand, it may
have been set aside or otherwise made available. An example is interest on a bank account.

Consumer Goods

Goods bought for personal or household use, as distinguished from capital goods or producer’s goods,
which are used to produce other goods.
Contingency

An event that might happen but that is not likely or planned.

Contingent Liability

Potential LIABILITY arising from a past transaction or a subsequent event.

Continuing Operations

Portion of a business entity expected to remain active.

Continuing Professional Education (CPE)

Educational programs for CERTIFIED PUBLIC ACCOUNTANTS (CPAs) to keep informed on changes that
occur within the profession. State Boards for Public Accountancy and the AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS (AICPA) each have separate CPE requirements.

Contra Account

ACCOUNT considered to be an offset to another account. Generally established to reduce the other
account to amounts that can be realized or collected.

Contra-Liability Account

A deduction from a LIABILITY, such as discounts on notes payable, which is a deduction from the balance
of notes payable.

Contract
In general, agreement by which rights or acts are exchanged for lawful consideration.

Contributed Capital

The stockholders’ investment in a CORPORATION.

Contribution Margin

The excess of REVENUES over all variable costs related to a particular sales volume.

Control Deficiency

This exists when the design or operation of a control does not allow management or employees, in the
normal course of performing their assigned functions, to prevent or detect misstatements on a timely
basis.

Control Risk

Measure of risk that errors exceeding a tolerable amount will not be prevented or detected by an entity's
internal controls.

Controls Tests

Tests directed toward the design or operation of an internal control structure policy or procedure to
assess its effectiveness in preventing or detecting material misstatements in a financial report.

Conversion

Exchange of a convertible security such as a BOND into another security such as a fixed number of shares
of the issuing CORPORATION’s COMMON STOCK.
Convertible Stock

Stock that may be exchanged for other SECURITIES of the issuer.

Copyright

An exclusive right granted by the federal government to the possessor to publish and sell literary,
musical, or other artistic materials for a period of the author’s life plus 50 years, including computer
programs.

Corporate Bond

DEBT instrument issued by a private CORPORATION, as distinct from one issued by a government agency
or a municipality.

Corporate Income Tax

The TAX that an incorporated business must pay to the federal government and, often, to state and city
governments as well.

Corporation

Form of doing business pursuant to a charter granted by a state or federal government. Corporations
typically are characterized by the issuance of freely transferable CAPITAL STOCK, perpetual life,
centralized MANAGEMENT, and limitation of owners' LIABILITY to the amount they INVEST in the
business.

COSO

An alliance of five professional organizations dedicated to disseminating appropriate internal control

standards.
Cost Accounting

Procedures used for rationally classifying, recording, and allocating current or predicted costs that relate
to a certain product or production process.

Cost Basis

Original price of an ASSET, used in determining CAPITAL GAIN.

Cost of Capital

Rate of return that a business could earn if it chose another investment with equivalent risk.

Cost of Goods Sold

Figure representing the cost of buying raw materials and producing finished goods.

Cost Recovery Method

METHOD OF REVENUE RECOGNITION which recognizes profits after costs are completely recovered.
Generally used only when the total amount of collections is highly uncertain. In tax, the ACCOUNTING
METHOD used to depreciate ASSETS.

Coupon

INTEREST rate on a DEBT SECURITY the ISSUER promises to pay to the holder until maturity, expressed as
an annual percentage of FACE VALUE.
Coupon Bond

A BOND that is usually not registered with the issuing CORPORATION but instead bears interest coupons
stating the amount of INTEREST due and the payment date.

Coverdell Education Savings Account (Education IRA)

A tax exempt trust exclusively for the purpose of paying qualified higher education costs of the trusts
designated beneficiary.

CPA

ACCOUNTANT who has satisfied the education, experience, and examination requirements of his or her
jurisdiction necessary to be certified as a public accountant.

CPE

Educational programs for CERTIFIED PUBLIC ACCOUNTANTS (CPAs) to keep informed on changes that
occur within the profession. State Boards for Public Accountancy and the AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS (AICPA) each have separate CPE requirements.

Credit

Entry on the right side of a DOUBLE-ENTRY BOOKKEEPING system that represents the reduction of an
ASSETor expense or the addition to a LIABILITY or RVENUE.

Credit Agreement

Arrangement in which one party borrows or takes possession in the present by promising to pay in the
future.
Credit Balance

BALANCE remaining after one of a series of bookkeeping entries. This amount represents a LIABILITY or
incometo the entity.

Creditor

Party that loans money or other ASSETS to another party.

Current Asset

ASSET that one can reasonably expect to convert into cash, sell, or consume in operations within a single
operating cycle, or within a year if more than one cycle is completed each year.

Current Liability

Obligation whose LIQUIDATION is expected to require the use of existing resources classified as
CURRENT ASSETS, or the creation of other current liabilities.

Current Ratio

Used as an indicator of a COMPANY’s liquidity and ability to pay short-term debts. This is found by
dividing CURRENT ASSETS by CURRENT LIABILITIES.

Current Value

1) Value of an ASSET at the present time as compared with the asset's HISTORICAL COST. (2) In finance,
the amount determined by discounting the future revenue stream of an asset using COMPOUND
INTEREST PRINCIPLES.
Current Yield

Annual INTEREST on a BOND divided by the market price.

Date of Auditors'/Accountants' Report

Last day the AUDITORS perform fieldwork and the last day of responsibility relating to significant events
subsequent to the financial statement date.

DDB

Method of ACCELERATED DEPRECIATION, approved by the INTERNAL REVENUE SERVICE (IRS), permitting
twice the rate of annual DEPRECIATION as the STRAIGHT-LINE DEPRECIATION method.

Dealer

Individual or firm acting as a principal in a securities transaction.

Death Benefit

Amounts received under a life insurance contract and paid by reason of the death of the insured.
(Although most death benefits are paid at termination of life, certain plans now pay accelerated death
benefits while the insured is still alive, i.e.: an AIDS patient might possibly receive accelerated death
benefit)

Debenture

General DEBT obligation backed only by the integrity of the borrower and documented by an agreement
called and INDENTURE.
Debenture Stock

Stock issued under a contract providing for fixed payments at scheduled intervals and more like
preferred stock than a DEBENTURE, since their status in liquidation is EQUITY and not DEBT.

Debit

Entry on the left side of a DOUBLE-ENTRY BOOKKEEPING system that represents the addition of an ASSET
or expense or the reduction to a LIABILITY or REVENUE.

Debit Balance

BALANCE remaining after one or a series of bookkeeping entries. This amount represents an ASSET or an
expense of the entity.

Debt

General name for money, notes, BONDS, goods or services which represent amounts owed.

Debt Instrument

Written promise to repay a DEBT.

Debt Retirement

Repayment of DEBT.

Debt Security

Document which is evidence of an obligation or LIABILITY.

Debt Service Fund

Fund whose PRINCIPAL or INTEREST is set aside and accumulated to retire DEBT.

Debt-to-Equity Ratio

A way of measuring the relationship of DEBT financing to EQUITY FINANCING, or the extent to which a
companyis leveraged.

Debtor

Party owing money or other ASSETS to a CREDITOR.

Decedent

Individual who has died.

Declare

Authorize the payment of DIVIDEND on a specified date, an act of the BOARD OF DIRECTORS of a
CORPORATION.

Declining-Balance Method

An accelerated method of depreciating a tangible long-lived ASSET by applying a fixed-rate based on

some multiple of the STRAIGHT-LINE DEPRECIATION rate to its CARRYING VALUE.

Defalcation

To misuse or embezzle funds.

Default

Failure to meet any financial obligation. Default triggers a CREDITOR'S rights and remedies identified in
the agreement and under the law.

Defeasance

Annulment of a contract or deed; a clause within a contract or deed that provides for annulment.

Deferral

The postponement of the date that an expense already paid or incurred, or of a REVENUE already
received, is entered in the LEDGER.

Deferred Charge

Income received but not earned until all events have occurred. Deferred income is reflected as a
LIABILITY.

Deferred Income Taxes

ASSETS or LIABILITIES that arise from timing or measurement differences between tax and accounting
principles.

Deferred Interest Bond

BOND that pays INTEREST at a later date.

Deferred Payment Annuity

ANNUITY whose contract provides that payments to the annuitant be postponed until a number of
periods have elapsed.

Deficiency in Design

This exists when a control necessary to meet the control objective is missing or an existing control is not
properly designed so that even if the control operates as designed, the control objective is not always
met.

Deficiency in Operation

This exists when a properly designed control does not operate as designed, or when the person
performing the control does not possess the necessary authority or qualifications to perform the control
effectively.

Deficit

Financial shortage that occurs when LIABILITIES exceed ASSETS.

Defined Benefit Plan

See EMPLOYEE BENEFIT PLAN.

Defined Contribution Plan

See EMPLOYEE BENEFIT PLAN.

Deflation
Decline in the prices of goods and services.

Demand Loan

Loan repayable on demand. Also known as a CALL LOAN.

Dependent Care Expenses

Qualified child care expenses will allow a taxpayer this computed credit against tax. The amounts can be
found on the individual forms as the limitations and computation may change each tax year.

Depletion

Method of computing a deduction to ACCOUNT for a reduction in value of extractable natural resources.

Deposit Method

Expense allowance made for wear and tear on an ASSET over its estimated useful life.

Depreciation

Expense allowance made for wear and tear on an ASSET over its estimated useful life.

Derivatives

Financial instruments whose value varies with the value of an underlying asset (such as a stock, BOND,
commodity or currency) or index such as interest rates. Financial instruments whose characteristics and
value depend on the characterization of an underlying instrument or asset.
Detailed Income Statement

A complete and explicit statement of an economic entity’s financial activities and holdings.

Detection Risk

Risk that the AUDITOR will not detect a material misstatement.

Detective Controls

These have the objective of detecting errors or fraud that have already occurred that could result in a
misstatement of the financial statements.

Direct Labor Costs

The labor cost is for specific work that can be easily and economically traced to an end product.

Direct Material

A material that will become part of a finished product and can be easily and economically traced to
specific product units.

Direct Overhead

Portion of OVERHEAD costs allocated to manufacturing, by the application of a standard factor termed a
BURDEN RATE or OVERHEAD APPLICATION RATE.

Disbursement

Payment by cash or check.

Disclaimer of Opinion

Statement by an AUDITOR indicating inability to express an opinion on the fairness of the FINANCIAL
STATEMENTS provided and the reason for the inability. The auditor is required to disclaim depending on
the limitation in scope.

Disclosure

Process of divulging accounting information so that the content of FINANCIAL STATEMENTS is

understood.

Discontinued Operations

Portion of a business that is planned to be or is discontinued.

Discount

Reduction from the full amount of a price or DEBT.

Discount Bond

BOND selling below its REDEMPTION VALUE.

Discount Rate

Rate at which INTEREST is deducted in advance of the issuance, purchasing, selling, or lending of a
financial instrument. Also, the rate used to determine the CURRENT VALUE, or present value, of an
ASSET or incomestream.
Discount Yield

Yield on a SECURITY sold at a DISCOUNT.

Discounted Cash Flow

Present value of future cash estimated to be generated.

Discretionary Trust

Arrangement in which the TRUSTEE has the authority to make INVESTMENT decisions and has control
over investments within the framework of the TRUST instrument.

Disposable Income

Personal INCOME remaining after personal taxes and noncommercial government fees have been paid.

Dissolution

Termination of a CORPORATION.

Distribution Expense

Expense of selling, advertising, and delivery of goods and services.

Distributions

Payment by a business entity to its owners of items such as cash ASSETS, stocks, or earnings.
Dividend Payout Ratio

Percentage of earnings paid to shareholders in CASH.

Dividends

Distribution of earnings to owners of a CORPORATION in CASH, other ASSETS of the corporation, or the
corporation's CAPITAL STOCK.

Dividends in Arrears

DIVIDENDS on cumulative PREFERRED STOCK that remain unpaid in the year they are due.

Dividends Payable

A LIABILITY for payment of a COMPANY’s earnings to its shareholders.

Dividends Yield

Used to measure the current return to an investor in a stock.

Documentation Completion Date

A complete and final set of audit documentation should be assembled for retention as of a date not
more than 45 days after the report release date.

Double Taxation

The act of taxing corporate earnings twice, once as the NET INCOME of the CORPORATION and once as
the DIVIDENDS distributed to stockholders.
Double-Declining-Balance Depreciation Method (DDB)

Method of ACCELERATED DEPRECIATION, approved by the INTERNAL REVENUE SERVICE (IRS), permitting
twice the rate of annual DEPRECIATION as the STRAIGHT-LINE DEPRECIATION method.

Double-Entry Bookkeeping

Method of recording financial transactions in which each transaction is entered in two or more accounts
and involves two-way, self-balancing posting. Total DEBITS must equal total CREDITS.

Draft

Signed, written order by which one party (drawer) instructs another party (drawee) to pay a specified
sum to a third party (payee).

Dual Dating

Dating of the ACCCOUNTANTS' or AUDITORS' REPORT when a subsequent event disclosed in the
FINANCIAL STATEMENTS occurs after completion of the field work but before issuance of the report. For
example, "January 3, 19xx, except for Note x, as to which the date is March 10, 19xx."

Due Date

Each governing agency and its forms scheduled reporting and most importantly payments have a
required due date. It is this date that if most files timely may result in a penalty, fine, and commence
interest charges.

Due Diligence

(1) Procedures performed by underwriters in connection with the issuance of a SECURITIES EXCHANGE
COMMISSION (SEC) registration statement. These procedures involve questions concerning the company
and its business, products, competitive position, recent financial and other developments and prospects.
Also performed by others in connection with acquisitions and other transactions. (2) Requirement found
in ethical codes that the person governed by the ethical rules exercise professional care in conducting his
or her activities.

Dutch Auction

Auction system in which the price of an item is gradually lowered until it meets a responsive bid and is
sold.

Earned Income

Wages, salaries, professional fees, and other amounts received as compensation for services rendered.

Earned Income Tax Credit (EITC)

A refundable tax credit for eligible low income workers, subject to computations based on qualifying
children and phase in and phase out income levels.

Earnings Per Share (EPS)

Measure of performance calculated by dividing the net earnings of a company by the average number of
shares outstanding during a period.

Earnings Price Ratio

Relationship of EARNINGS PER SHARE (EPS) to current stock price.

Econometrics
Use of computer analysis and modeling techniques to describe in mathematical terms the relationship
between key economic forces such as labor, capital, interest rates, and government policies, the test the
effects of changes in economic scenarios.

Economic Growth Rate

Rate of change in the gross national product, as expressed in an annual percentage.

Economics

The study of the ways goods and services are produced, transported, sold, and used.

Effective Interest Method

A way of AMORTIZING BOND DISCOUNTS or PREMIUMS by applying a constant interest rate to the
CARRYING VALUE of the BONDS at the beginning of each interest period.

Effective Interest Rate

The rate of INTEREST actually paid or earned.

Effective Tax Rate

Total income taxes expressed as a percentage of NET INCOME before taxes.

EITC

A refundable tax credit for eligible low income workers, subject to computations based on qualifying
children and phase in and phase out income levels.
EITF

Assists the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and provides guidance on early
identification of emerging issues affecting financial reporting and problems in implementing
authoritative pronouncements.

Emerging Issues Task Force (EITF)

Assists the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and provides guidance on early
identification of emerging issues affecting financial reporting and problems in implementing
authoritative pronouncements.

Employee Benefit Plan

Compensation arrangement, generally in writing, used by employers in addition to salary or wages.

Some plans such as group term life insurance, medical insurance and qualified retirement plans are
treated favorably under the tax law. Most common qualified retirement plans are: (1) defined benefit
plans - a promise to pay participants specified benefits that are determinable and based on such factors
as age, years of service, and compensation; or (2) defined contribution plans - provide an individual
account for each participant and benefits based on items such as amounts contributed to the account by
the employer and employee and investment experience. This type includes PROFIT-SHARING PLANS,
EMPLOYEE STOCK OWNERSHIP PLANS and 401(k) PLANS.

Employee Stock Ownership Plan (ESOP)

Stock bonus plan of an employer that acquires SECURITIES issued by the plan sponsor.

Encumbrance

(1) MORTGAGE or other lien on the entity's ASSETS; (2) Anticipated EXPENDITURE; (3) Uncompleted or
undelivered portion of a purchase commitment.
Ending Inventory

Merchandise on hand at the end of an accounting period

Endorsement

The process by which the payee transfers ownership of a CHECK to a bank or another party by writing his
or her name on the back of it.

Engagement Completion Document

A document whereby the AUDITOR identifies all significant findings or issues. The document should be
as specific as necessary in the circumstances for a reviewer to gain a thorough understanding of the
significant findings or issues.

Entrepreneur

Person who takes on the risks of starting a new business.

EPS

Measure of performance calculated by dividing the net earnings of a company by the average number of
shares outstanding during a period.

Equilibrium Price

Price when the supply of goods in a particular market matches demand.

Equity
Residual INTEREST in the ASSETS of an entity that remains after deducting its LIABILITIES. Also, the
amount of a business' total assets less total liabilities. Also, the third section of a BALANCE SHEET, the
other two being assets and liabilities.

Equity Account

ACCOUNT in the EQUITY section of the BALANCE SHEET. Includes CAPITAL STOCK, ADDITIONAL PAID IN
CAPITAL and RETAINED EARNINGS.

Equity Financing

Raising the money by issuing shares of COMMON STOCK or PREFERRED STOCK.

Equity Method of Accounting

Investors cost basis is adjusted up or down (in proportion to the % of stock ownership) as the investee's
retained earnings fluctuation; used for long-term investments in equity securities of affiliate where
holder can exert significant influence; 20% ownership or greater is arbitrarily presumed to have
significant influence over the investee.

Equity Securities

CAPITAL STOCK and other SECURITIES that represent ownership shares, or the legal rights to purchase or
acquire CAPITAL STOCK.

Error

Act that departs from what should be done; imprudent deviation, unintentional mistake or omission.

Escrow

Money or property put into the custody of a third party for delivery to a GRANTEE, only after fulfillment
of specified conditions.
ESOP

Stock bonus plan of an employer that acquires SECURITIES issued by the plan sponsor.

Estate Tax

Tax on the value of a DECENDENT'S taxable estate, typically defined as the decedent's ASSETS less
LIABILITIES and certain expenses which may include funeral and administrative expenses.

Estimated Tax

Amount of tax LIABILITY a taxpayer may expect to pay for the current tax period. Usually paid through
quarterly installments.

Estimation Transactions

Activities that involve management judgments or assumptions in formulating account balances in the
absence of a precise means of measurement.

Evidential Matter

Underlying ACCOUNTING data and other corroborating information that support the FINANCIAL
STATEMENTS.

Exchanges

Transfer of money, property or services in exchange for any combination of these items.
Excise Tax

Tax or duty on the manufacture, sale, or consumption of commodities.

Excluded Income

See EXCLUSIONS.

Exclusions

Income item which is excluded from a taxpayer's gross income by the INTERNAL REVENUE CODE or an
administrative action. Common exclusions include gifts, inheritances, and death proceeds paid under a
life insurance contract. Also known as excluded income.

Executor

Person appointed by a will to manage a DECENDENT'S estate.

Exempt Organization

Organization which is generally exempt from paying federal income tax. Exempt organizations include
religious organizations, charitable organizations, social clubs, and others.

Exemption

Amount of a taxpayer's income that is not subject to tax. All individuals, TRUSTS, and estates qualify for
an exemption unless they are claimed as a dependent on another individual's tax return. Exemptions
also are granted to taxpayers for their dependents.

Expatriation Tax
Individuals that loose or terminate their residency within the 10 year period immediately preceding the
close of a tax year, if the termination or loss is for the sole purpose of avoiding tax.

Expectation Gap

The difference in perception between the public and the CPA as a result of accounting and audit service.

Expenditure

Payment, either in CASH, by assuming a LIABILITY, or by surrendering ASSET.

Expense

Something spent on a specific item or for a particular purpose.

Expense Ratio

Amount, expressed as a percentage of total investment, that shareholders pay for MUTUAL FUND
operating expenses and management fees.

Experienced Auditor

An AUDITOR that has a reasonable understanding of audit activities and has studied the company's
industry as well as the accounting and auditing issues relevant to the industry.

Exploration Expenditures

An AUDITOR that has a reasonable understanding of audit activities and has studied the company's
industry as well as the accounting and auditing issues relevant to the industry.
Exposure Draft

Document issued by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA), FINANCIAL
ACCOUNTING STANDARDS BOARD (FASB), GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB)or
other standards setting authorities to invite public comment before a final pronouncement is issued.

Extension

Time granted by a taxing authority, such as the INTERNAL REVENUE SERVICE (IRS), a state or city, which
allows the taxpayer to file tax returns later than the original due date.

Extent of Tests of Control

Each year the AUDITOR must obtain sufficient evidence about whether the company's internal control
over financial reporting, including the controls for all internal control components, is operating
effectively.

External Reporting

Reporting to stockholders and the public, as opposed to internal reporting for management's benefit.

Extinguishment of Debt

To get rid of the liability by payment; to bring to an end.

Extraordinary Items

Events and transactions distinguished by their unusual nature and by the infrequency of their
occurrence.Extraordinary items are reported separately, less applicable income taxes, in the entity's
statement of income or operations.
F

Face Value

Amount due at maturity from a BOND or note.

Factoring

Selling a RECEIVABLE at a discounted value to a third party for cash.

Factoring: Over-Advances

Circumstance where a business receives more money from a factor than the value of the RECEIVABLES,
which is a loan against inventory in anticipation of future sales.

Factory Overhead Costs

Various production-related costs that cannot be practically or conveniently traced to an end product.

Fair Credit Reporting Act

Federal law enacted in 1971 giving persons the right to see their credit records at credit reporting
bureaus.

Fair Market Value

Price at which property would change hands between a buyer and a seller without any compulsion to
buy or sell, and both having reasonable knowledge of the relevant facts.
FASB

Independent, private, non-governmental authority for the establishment of ACCOUNTING principles in

the United States.

Favorable Variance

Excess of actual REVENUE over projected revenue, or actual costs over projected costs.

Federal Income Taxes

Taxes on NET INCOME that must be paid to the federal government by individuals and businesses.

Federal Reserve Bank

One of the 12 banks that, with their branches, make up the FEDERAL RESERVE SYSTEM.

Federal Reserve System

System established by the Federal Reserve Act of 1913 to regulate the U.S. monetary and banking
system.

Fiduciary

Person who is responsible for the administration of property owned by others. Corporate management is
a FIDUCIARY with respect to corporate ASSETS which are beneficially owned by the stockholders and
CREDITORS. Similarly, a TRUSTEE is the fiduciary of a TRUST and partners owe fiduciary responsibility to
each other and to their creditors.

FIFO
ACCOUNTING method of valuing INVENTORY under which the costs of the first goods acquired are the
first costs charged to expense. Commonly known as FIFO.

Filing of Returns

Taxpayers meeting statutory requirements MUST file various returns on the prescribed forms. And they
must be filed timely or the y may not be considered as filed.

Finance

The science of the management of money and other financial ASSETS.

Financial Accounting Standards

Official promulgations, known as STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS, by the

FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) which are part of GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP) in the United States.

Financial Accounting Standards Board (FASB)

Independent, private, non-governmental authority for the establishment of ACCOUNTING principles in

the United States.

Financial Institution

Organization engaged in any of the many aspects of finance including commercial banks, thrift
institutions, investment banks, securities brokers and dealers, credit unions, investment companies,
insurance companies, and REAL ESTATE INVESTMENT TRUSTS.

Financial Leverage
The ability to increase earnings for stockholders by earning more on ASSETS than is paid in INTEREST on
DEBTincurred to finance the assets.

Financial Statements

Presentation of financial data including BALANCE SHEETS, INCOME STATEMENTS and STATEMENTS
OFCASH FLOW, or any supporting statement that is intended to communicate an entity's financial
position at a point in time and its results of operations for a period then ended.

Finished Goods

The products that have been made and are ready for sale.

Finished Goods Inventory

An inventory account unique to manufacturing operations.

Firm

A business partnership, especially when it is unincorporated.

First In, First Out (FIFO)

ACCOUNTING method of valuing INVENTORY under which the costs of the first goods acquired are the
first costs charged to expense. Commonly known as FIFO.

Fiscal Year

Period of 12 consecutive months chosen by an entity as its ACCOUNTING period which may or may not
be a calendar year. Fixed Asset - Any tangible ASSET with a life of more than one year used in an entity's
operations.
Fixed Annuity

Investment contract sold by an insurance company that guarantees fixed payments, either for life or for a
specified period, to an annuitant.

Fixed Assets

Tangible LONG TERM ASSETS used in the continuing operation of a business that are unlikely to change
for a long time.

Fixed Costs

Costs that remain constant within a defined range of activity, volume, or time period.

Fixed Price

In a public offering of new SECURITIES, price at which investment bankers in the underwriting syndicate
agree to sell the issue to the public.

Fixture

Attachment to real property that is not intended to be moved and would create damage to the property
if it were moved.

Floor

Term used when discussing INVENTORIES. Inventory cannot be valued lower than the "floor" which is the
netrealizable value of the inventory less an allowance for a normal profit margin.

Flotation Cost
Cost of issuing new stocks or BONDS.

FOB

Indicates the point at which title to goods passes.

FOB Destination

A shipping term that means that the seller bears transportation costs to the place of delivery.

FOB Shipping Point

A shipping term that means that the buyer bears transportation costs from the point of origin.

Forecast

Prospective FINANCIAL STATEMENTS that are an entity's expected financial position, results of
operations, and cash flows.

Forecasted Balance Sheet

A balance sheet that projects the financial position of a business for a future period.

Forecasted Income Statement

An INCOME STATEMENT that projects the NET INCOME of a business for a future period.

Forecasting of Cash Flow

Projecting the cash receipts and the cash payments for a future period.

Foreclosure

Seizure of COLLATERAL by a CREDITOR when DEFAULT under a loan agreement occurs.

Foreign Corporation

A corporation which is not organized under the laws of ones territories or states. Taxing of foreign
corporations depends on whether the corporation has Nexus or effectively connected income in that
state.

Foreign Currency Translation

Restating foreign currency in equivalent dollars; unrealized gains or losses are postponed and carried in
Stockholder's Equity until the foreign operation is substantially liquidated.

Foreign Exchange

Instruments employed in making payments between countries.

Foreign Tax Credit

A U.S. taxpayer that pays or accrues income tax to a foreign country may elect to credit or deduct these
taxes in a determinable us dollar amount. This is usually done on the annual individual tax return and
there is s specific form provided for this.

Form 10-K

SEC filing which is the ANNUAL REPORT due 90 days after the registrant's BALANCE SHEET date.
Form 10-Q

SEC filing which is the quarterly report due 45 days after each of the first three quarter.ends of each
fiscal year.

Form 8-K

SEC filing which is a filing that must be made on the occurrence of an event that is deemed to be of
significant importance to SECURITY holders.

Form W-4

A form that specifies the number of EXEMPTIONS claimed by each employee and that gives the
employer the authority to withhold money for an employee’s FEDERAL INCOME TAXES and Federal
Insurance Contributions Act (FICA) taxes.

Franchise

Legal arrangement whereby the owner of a trade name, franchisor, contracts with a party that wants to
use the name on a non-exclusive basis to sell goods or services, franchisee. Frequently, the franchise
agreement grants strict supervisory powers to the franchisor over the franchisee which, nevertheless, is
an independent business.

Franchise Tax

State tax which is imposed on a state-chartered CORPORATION for the right to do business under its
corporate name.

Fraud

Willful misrepresentation by one person of a fact inflicting damage on another person.

Free Cash Flow

The amount of cash that remains after deducting the funds a COMPANY must commit to continue
operating at its planned level.

Free On Board (FOB)

Indicates the point at which title to goods passes.

Freight In

Transportation charges on merchandise purchased for resale.

Freight Out

Transportation charges on merchandise sold; an operating expense.

Full Disclosure

Requirement to disclose all material facts relevant to a transaction.

Fund Accounting

Method of ACCOUNTING and presentation whereby ASSETS and LIABILITIES are grouped according to
the purpose for which they are to be used. Generally used by government entities and not-for-profits.

Fundamental Analysis

Research of such factors as interest rates, gross national product, inflation, unemployment, and
inventories as tools to predict the direction of the economy.
Funding

Refinancing a DEBT on or before its MATURITY; also called REFUNDING and, in certain instances, pre-
refunding.

Future Contract

Transferable agreement to deliver or receive during a specific future month a standardized amount of a
commodity.

Future Value

The amount that an investment will be worth at a future date if it is invested at compound interest.

GAAP

Conventions, rules, and procedures necessary to define accepted accounting practice at a particular
time. The highest level of such principles are set by the FINANCIAL ACCOUNTING STANDARDS BOARD
(FASB).

GAAS

See GENERALLY ACCEPTED AUDITING STANDARDS.

Gain

Excess of REVENUES received over costs relating to a specific transaction.

GAO

Accounting and auditing office of the United States government. An independent agency that reviews
federal financial transactions and reports directly to Congress.

GASB

Group that has authority to establish standards of financial reporting for all units of state and local
government.

General Journal

The simple and most flexible type of journal.

General Ledger

Collection of all ASSET, LIABILITY, owners EQUITY, REVENUE, and expense accounts.

General Partnership

PARTNERSHIP with no limited partners.

Generally Accepted Accounting Principles (GAAP)

Conventions, rules, and procedures necessary to define accepted accounting practice at a particular
time. The highest level of such principles are set by the FINANCIAL ACCOUNTING STANDARDS BOARD
(FASB).

Generally Accepted Auditing Standards (GAAS)

Standards set by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) which concern
the AUDITOR'S professional qualities and judgment in the performance of his or her AUDIT and in the
actual report.

Gift

A valid transfer of property from one taxpayer to another without consideration or compensation. A gift
may be subject to the unified estate and gift transfer tax.

Going Concern

Assumption that a business can remain in operation long enough for all of its current plans to be carried
out.

Going Private

Movement from public ownership to private ownership of a COMPANY’s shares either by the company’s
repurchase of shares or through purchases by an outside private investor.

Going Public

Activities that relate to offering a private company's shares to the general investing public including
registering with the SEC.

Goods Available for Sale

The sum of beginning inventory and the net cost of purchases during a period; the total goods available
for sale to customers during an accounting period.

Goodwill
Premium paid in the acquisition of an entity over the fair value of its identifiable tangible and intangible
ASSETS less LIABILITIES assumed.

Governing Documents

Official legal documents that dictate how an entity is operated. The governing documents of a
CORPORATIONinclude ARTICLES OF INCORPORATION and BYLAWS; a PARTNERSHIP includes the
partnership agreement; a TRUST includes the trust agreement or trust indenture; and an LLC includes
the ARTICLES OF ORGANIZATIONand OPERATING AGREEMENT.

Government Accountability Office (GAO)

Accounting and auditing office of the United States government. An independent agency that reviews
federal financial transactions and reports directly to Congress.

Governmental Accounting Standards Board (GASB)

Group that has authority to establish standards of financial reporting for all units of state and local
government.

Grantee

Person to whom property is transferred.

Grantor

(1) Person who transfers property. (2) Person who creates a trust.

Greenmail

Any amount a corporation pays to a shareholder to directly or indirectly buy back its stock.
Gross Income

The beginning point for the determination of income, including income from whatever sources derived.

Gross Margin

The difference between NET SALES and COST OF GOODS SOLD.

Gross Sales

The total amount of sales for cash and on credit accumulated during a specific accounting period.

Guaranty

Legal arrangement involving a promise by one person to perform the obligations of a second person to a
third person, in the event the second person fails to perform.

Half-Life

Point in time at which half the PRINCIPAL has been repaid in a mortgage-backed security guaranteed or
issued by the Government National Mortgage Association, the Federal National Mortgage Association, or
the Federal Home Loan Mortgage Corporation.

Head of Household

An individual entitled to special tax rates that fall midway between single rates and married filing joint
rates, if they fit the qualifying profile.
Hedge

A financial term for a specific type of commodities planning and trading.

Held-to-Maturity Security

A DEBT SECURITY that management intends to hold to its MATURITY or payment date and whose cash
value is not needed until that date.

High-Low Method

A common, simple way of separating VARIABLE COSTS from FIXED COSTS.

High-Premium Convertible Debenture

BOND with a long-term, high-premium, COMMON STOCK conversion feature and also offering a fairly
competitive interest rate.

Historical Cost

Original cost of an asset to an entity.

Holding Period

The time in which a taxpayer acquires property and the date on which it is sold.

Hope Scholarship Credit

A maximum allowable credit of $1,500 per student for each of the first 2 years of post-secondary
education. It is allowable after all additional requirements are met.
Horizontal Analysis

A technique for analyzing FINANCIAL STATEMENTS that involves the computation of changes in both
dollar amounts and percentages from the previous year to the current year.

IASC

An independent private sector body, formed in 1973, with the objective of harmonizing the accounting
principles which are used in businesses and other organizations for financial reporting around the world.
Its members are 143 professional accounting bodies in 104 countries.

IMA

A professional organization made up primarily of management accountants.

Improvement

EXPENDITURE directed to a particular ASSET to improve its performance or useful life.

Imputed Interest

If no interest or an unrealistic amount of interest is charged in a salve involving certain kinds of deferred
payments, then the transaction will be treated as if the realistic rate of interest had been used. The
difference between the realistic interest and the interest actually used is referred to as imputed interest.

In Arrears

Not paid at the time originally agreed to and overdue.

Income

Inflow of REVENUE during a period of time.

Income from Operation

Gross margin with operating expenses subtracted.

Income Statement

Summary of the effect of REVENUES and expenses over a period of time.

Income Summary

A temporary account used during the closing process that holds a summary of all REVENUES and
EXPENSES before the NET INCOME or loss is transferred to the capital account.

Income Tax Basis

(1) For tax purposes, the concept of basis determines the proper amount of gain to report when an
ASSET is sold. Basis is generally the cost paid for an asset plus the amounts paid to improve the asset less
deductions taken against the asset, such as DEPRECIATION and AMORTIZATION. (2) For accounting
purposes, a consistent basis of accounting that uses income tax accounting rules while GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (GAAP) does not.

Incorporation

Process by which a COMPANY receives a state charter allowing it to operate as a CORPORATION.

Incremental Cash Flow

Net of cash outflows and inflows attributable to a corporate investment project.

Indenture

Formal agreement, also called a deed of trust, between an issuer of bonds and the BONDHOLDER
covering certain considerations such as form of the BOND for example.

Independence Standard Board (ISB)

This is the private sector standard-setting body governing the independence of AUDITORs from their
public company clients. It came about from discussions between the AICPA, other accounting
representatives and the SEC.

Independent Broker

New York Stock Exchange member who executes orders for other floor brokers who have more volume
than they can handle, or for firms whose exchange members are not on the floor.

Index

Statistical composite that measures changes in the economy or in financial markets, often expressed in
percentage changes from a base year or from the previous month.

Indirect Cost

Any cost that cannot be conveniently and economically traced to a specific department; a manufacturing
cost that is not easily traced to a specific product and must be assigned using an allocation method.
Indirect Labor Costs

Labor costs for production-related activities that cannot be connected with or conveniently and
economically traced to a specific end product.

Indirect Manufacturing Costs

Various production-related costs that cannot be practically or conveniently traced to an end product.

Indirect Materials

Minor materials and other production supplies that cannot be conveniently and economically traced to
specific products.

Indirect Method

The procedure for converting the INCOME STATEMENT from an ACCRUAL to a CASH BASIS.

Individual Retirement Account (IRA)

A personal savings plan that allows an individual to make cash contributions per year dependent on the
individual'sadjusted gross income and participation in an employer's retirement plan. Under a traditional
IRA these earnings are not taxable until the time of withdrawal from the plan.

Inflation

Rise in the prices of goods and services, as happens when spending increases relative to the supply of
goods on the market.

Inflation Rate
Rate of change in prices.

Inheritance

As distinguished from a BEQUEST or devise, an inheritance is property acquired through laws of descent
and distribution from a person who dies without leaving a will. The value of property inherited id
excluded from a taxpayers gross income, but if the property inherited produces income it is included in
gross income. A taxpayer's basis in inherited property is the fair market value at the time of death.

Initial Public Offering (IPO)

When a private company goes public for the first time.

Inquiry

A procedure that consists of seeking information, both financial and non financial, of knowledgeable
persons throughout the company. It is used extensively throughout the audit and often is
complementary to performing other procedures. Inquiries may range from formal written inquiries to
informal oral inquiries.

Inside Information

Corporate affairs that have not yet been made public.

Insolvency

Inability to pay DEBTS when due.

Insolvent

When an entity's LIABILITIES exceed its ASSETS.

Installment Method

Tax ACCOUNTING method of reporting GAIN on the sale of an ASSET exchanged for a RECEIVABLE. In
general, the gain is reported as the note is paid off.

Institute of Management Accounts (IMA)

A professional organization made up primarily of management accountants.

Instrument

A legal document used for a specific purpose, such as paying for goods received.

Insurance

System whereby individuals and companies that are concerned about potential hazards pay premiums to
an insurance company, which reimburses them in the event of loss.

Insured Account

Account at a bank, savings and loan association, credit union, or brokerage firm that belongs to a federal
or private insurance organization.

Intangible Asset

Asset having no physical existence such as trademarks and patents.

Interest
Payment for the use or forbearance of money.

Interest Coverage Ratio

A way of measuring the degree of protection that a CREDITOR has from a DEBTOR’s DEFAULT on
interestpayments.

Interest Rate

An amount of money charged for borrowing money or paid for the use of somebody else’s money.

Interim Dividend

DIVIDEND declared and paid before annual earnings have been determined, generally quarterly.

Interim Financial Statements

FINANCIAL STATEMENTS that report the operations of an entity for less than one year.

Internal Audit

AUDIT performed within an entity by its staff rather than an independent certified public accountant.

Internal Control

Process designed to provide reasonable assurance regarding achievement of various management

objectives such as the reliability of financial reports.
Internal Control Over Financial Reporting

A process designed by, or under the supervision of the company's principal executive and principal
financial officers or persons performing similar functions and effected by the company's board of
directors, management, and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES and includes those policies and procedures that:

1. Pertain to the maintenance of records that accurately and fairly reflect the transactions and
dispositions of the assets of the company.

2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP and that receipts and expenditures are being made only in
accordance with authorizations of management and directors of the company.

3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,

use or disposition of the company's assets that could have a material effect on the financial statements.

Internal Rate of Return

Method that determines the discount rate at which the present value of the future CASH FLOWS will
exactly equal investment outlay.

Internal Revenue Code

Collection of tax rules of the federal government. Also referred to as Title 26 of the United States Code.

Internal Revenue Service (IRS)

Federal agency that administers the INTERNAL REVENUE CODE. The IRS is part of the United States
TreasuryDepartment.

International Accounting Standards Committee (IASC)

An independent private sector body, formed in 1973, with the objective of harmonizing the accounting
principles which are used in businesses and other organizations for financial reporting around the world.
Its members are 143 professional accounting bodies in 104 countries.
International Mutual Fund

MUTUAL FUND that invests in SECURITIES markets throughout the world so that if one market is in a
slump, money can still be made in others.

Intrinsic Value

Valuation determined by applying data inputs to a valuation theory or model.

Inventory

Tangible property held for sale, or materials used in a production process to make a product.

Inventory Financing

Circumstance where loans in excess of ACCOUNTS RECEIVABLE are made against inventory in
anticipation of future sales. Sometimes used as a synonym for OVER-ADVANCES IN FACTORING.

Inventory Turnover

A ratio used to indicate the number of times a COMPANY’s average inventory is sold during an
accounting period.

Invest

To put money into something such as property, stocks, or a business, in order to earn INTEREST or make
a profit.
Investing

The practice of putting money into something, such as property, in order to earn INTEREST or make a
profit.

Investment

EXPENDITURE used to purchase goods or services that could produce a return to the investor.

Investment Banker

Firm, acting as underwriter or agent, that serves as intermediary between an issuer of SECURITIES and
the investing public.

Investment Income

Income from SECURITIES and other non-business investments; such as DIVIDENDS, INTEREST, etc.

Investment Tax Credit

This is a component of the general business credit and consists of the following:

1. The energy credit;

2. The rehabilitation credit; and

3. The reforestation credit.

Invoice

Bill prepared by a seller of goods or services and submitted to the purchaser.

Involuntary Conversions

This is a conversion of property where it is in whole or part destroyed, stolen, seized, requisitioned or
condemned (or where there is a threat or imminence of requisition or condemnation).

IPO

When a private company goes public for the first time.

IRA

A personal savings plan that allows an individual to make cash contributions per year dependent on the
individual's adjusted gross income and participation in an employer's retirement plan. Under a
traditional IRA these earnings are not taxable until the time of withdrawal from the plan.

IRS

Federal agency that administers the INTERNAL REVENUE CODE. The IRS is part of the United States
TreasuryDepartment.

ISB

This is the private sector standard-setting body governing the independence of AUDITORs from their
public company clients. It came about from discussions between the AICPA, other accounting
representatives and the SEC.

Issue

Stock or BONDS sold by a CORPORATION or a government entity at a particular time.

Issued and Outstanding

Shares of a CORPORATION, authorized in the corporate charter, which have been issued and are
outstanding.

Issuer

This term means an issuer, the securities of which are registered under Section 12 of the Securities
Exchange Act of 1934, or that is required to file reports under Section 15(d) of that Act, or that files or
has filed a registration statement with the SEC that has not yet become effective under the Securities Act
of 1933 and that it has not withdrawn.

Jeopardy

If the IRS believes that collection of tax appears to be in jeopardy (danger of being uncollected), it may
immediately assess and collect such tax. The intermediate steps are bypassed.

Job Order

A customer order for a specific number of specially designed, made-to-order products.

Joint Return

A return filed by married taxpayers or surviving spouses.

Joint Venture

When two or more persons or organizations gather CAPITAL to provide a product or service. Often
carried out as a PARTNERSHIP.

Journal
Any book containing original entries of daily financial transactions.

Journal Entry

A notation in the GENERAL JOURNAL. It records a single transaction.

Junk Bonds

DEBT SECURITIES issued by companies with higher than normal credit risk. Considered "non-investment
grade" bonds, these SECURITIES ordinarily yield a higher rate of interest to compensate for the additional
risk.

Just-In-Time

An overall operating philosophy of INVENTORY management in which all resources, including materials,
personnel, and facilities, are used only as needed.

Keogh Plan

Also known as an HR 10, this is a qualified retirement plan for self employed who do not incorporate
their business. If qualifications are met the taxpayer may receive a deduction for contributions made.

Key Employee

For purposes of rules that apply to top heavy plans, a key employee:

1. An officer of the employer earning more than $130,000;

2. An individual who owns more than 5 percent of the employer;

3. An individual who owns more than 1 percent of the employer and compensation greater than
$150,000.
Key Industry

Industry of primary importance to a nation’s economy.

Key Person Insurance

Business-owned life insurance contract typically on the lives of principal officers that normally provides
for guaranteed death benefits to the company and the accumulation of a cash surrender value.

Kiting

Writing checks against a bank account with insufficient funds to cover them, hoping that the bank will
receive deposits before the checks arrive for clearance.

Labor

Physical or mental effort; work.

Laissez-Faire

Doctrine that interference of government in business and economic affairs should be minimal.

Land

Property; real estate.

Last In, First Out (LIFO)

ACCOUNTING method of valuing inventory under which the costs of the last goods acquired are the first
costs charged to expense. Commonly known as LIFO.

Lay Off

Reduce the risk in standby commitment, under which the bankers agree to purchase and resell to the
public any portion of a stock issue not subscribed to by shareowners who hold rights.

Lease

Conveyance of land, buildings, equipment or other ASSETS from one person (LESSOR) to another
(LESSEE) for a specific period of time for monetary or other consideration, usually in the form of rent.

Lease Acquisition Cost

Price paid by a real estate limited partnership, when acquiring a lease, including legal fees and related
expenses.

Lease-Purchase Agreement

Agreement providing that portions of lease payments may be applied toward the purchase of the
property under lease.

Leasehold

Property INTEREST a LESSEE owns in the leased property.

Ledger
Any book of accounts containing the summaries of debit and credit entries.

Ledger Account

A complete record of the transactions recorded in each individual account.

Lender

Individual or firm that extends money to a borrower with the expectation of being repaid, usually with
INTEREST.

Lending Securities

SECURITIES borrowed from a broker’s INVENTORY, other MARGIN accounts, or from other brokers, when
a customer makes a short sale and the securities must be delivered to the buying customer’s broker.

Lessee

Person or entity that has the right to use property under the terms of a LEASE.

Lessor

Owner of property, the temporary use of which is transferred to another (LESSEE) under the terms of a
LEASE.

Letter of Credit

Conditional bank commitment issued on behalf of a customer to pay a third party in accordance with
certain terms and conditions. The two primary types are commercial letters of credit and standby letters
of credit.
Letter of Intent

Any letter expressing an intention to take an action, sometimes subject to other action being taken.

Leverage

The use of borrowed funds to increase the profit from an investment.

Leveraged Buy Out

Acquisition of a controlling INTEREST in a company in a transaction financed by the issuance of DEBT

instruments by the acquired entity.

Leveraged Lease

Transaction under which the LESSOR borrows funds to acquire property which is leased to a third party.
The property and lease rentals are security for the LESSOR'S indebtedness.

Liability

DEBTS or OBLIGATIONS owed by one entity (DEBTOR) to another entity (CREDITOR) payable in money,
goods, or services.

Lien

CREDITOR’s claim against property. For example a MORTGAGE is a lien against a house.

Life Expectancy
Age to which an average person can be expected to live, as calculated by an ACTUARY.

Lifetime Learning Credit

This allows a credit for 20 percent of qualified tuition and fees paid by the taxpayer with respect to one
or more students for any year that the HOPE SHCOLARSHIP CREDIT is not claimed.

LIFO

ACCOUNTING method of valuing inventory under which the costs of the last goods acquired are the first
costs charged to expense.

LIFO Liquidation

The reduction of INVENTORY levels at year’s end below beginning-of-the-year levels for businesses using
the LAST IN, FIRST OUT (LIFO) inventory method.

Limited Company

A COMPANY, usually registered in the United Kingdom, that is organized to protect its owners from
financial responsibility.

Limited Liability

The obligation of owners of a CORPORATION, who are liable only for the amount of their INVESTMENT
and are not liable for the corporation’s DEBTS.

Limited Liability Company (LLC)

Form of doing business combining LIMITED LIABILITY for all owners (called members) with taxation as a
PARTNERSHIP. An LLC is formed by filing ARTICLES OF ORGANIZATION with an appropriate state official.
Rules governing LLCs vary significantly from state to state.

Limited Liability Partnership (LLP)

GENERAL PARTNERSHIP which, via registration with an appropriate state authority, is able to enshroud all
its partners in LIMITED LIABILITY. Rules governing LLPs vary significantly from state to state.

Limited Partnership

PARTNERSHIP in which one or more partners, but not all, have LIMITED LIABILITY to CREDITORS of the
partnership.

Liquid Assets

Cash, cash equivalents, and marketable SECURITIES.

Liquidation

Winding up an activity by distributing its ASSETS to the appropriate parties and settling its DEBTS.

Liquidity

Available money on hand to pay bills when they are due and to take care of unexpected needs for CASH.

Liquidity Ratio

Measure of a firm’s ability to meet maturing SHORT-TERM OBLIGATIONS.

Listed Property

Limits are imposed on the DEPRECIATION deduction a taxpayer may claim on certain listed property as
follows:

1. A passenger car;

2. Other property used as transportation;

3. Property used for purposes of entertainment, recreation, or amusement;

4. A computer and peripheral equipment; and

5. Cellular telephone.

Litigation Support/Dispute Resolution

A service that CPAs often provide to attorneys - e.g., expert testimony about the value of a business or
other asset, forensic accounting (a partner stealing from his other partners, or a spouse understating his
income in a matrimonial action). The lawyer hires the CPA to do the investigation and determine the
amount of money stolen or understated.

LLC

Form of doing business combining LIMITED LIABILITY for all owners (called members) with taxation as a
PARTNERSHIP. An LLC is formed by filing ARTICLES OF ORGANIZATION with an appropriate state official.
Rules governing LLCs vary significantly from state to state.

LLP

GENERAL PARTNERSHIP which, via registration with an appropriate state authority, is able to enshroud all
its partners in LIMITED LIABILITY. Rules governing LLPs vary significantly from state to state.

Loan

Transaction wherein an owner of property, called the LENDER allows another party, the borrower, to use
the property.
Loan Value

Amount a LENDER is willing to LOAN against COLLATERAL.

Long Bond

BOND that matures in more than 10 years.

Long Term

HOLDING PERIOD of six months or longer, according to the Tax Reform Act of 1984 and applicable in
calculating the CAPITAL GAINS tax until 1988.

Long-Term Asset

An ASSET that has the following characteristics: (1) it has a useful life of more than one year; (2) it is
acquired for use in the operation of a business; and (3) it is not intended for resale to customers.

Long-Term Debt

DEBT with a maturity of more than one year from the current date.

Long-Term Gain

Subsequent to the Tax Reform Act of 1984 and prior to provisions of the Tax Reform Act of 1986 effective
in 1988, a gain on the sale of a capital asset where the HOLIDNG PERIOD was six months or more and the
profit was subject to the LONG-TERM CAPITAL GAINS tax.
Long-Term Investment

An INVESTMENT that management plans to hold for more than one year.

Long-Term Liability

A DEBT that falls due more than one year in the future or beyond the normal OPERATING CYCLE, or that
is to be paid out of noncurrent assets.

Long-Term Loss

Negative counterpart to LONG-TERM GAIN as defined by the same legislation.

Loss

Excess of EXPENDITURES over REVENUE for a period or activity. Also, for tax purposes, an excess of basis
over the amount realized in a transaction.

Loss on Disposal of Plant and Equipment

The account in which a LOSS is recorded when a firm sells or trades in an ASSET and receives an amount
less than the BOOK VALUE for that asset.

Lower of Cost or Market

Valuing ASSETS for financial reporting purposes. Ordinarily, "cost" is the purchase price of the asset and
"market" refers to its current replacement cost. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
requires that certain assets (e.g., INVENTORIES) be carried at the lower of cost or market.

Lump-Sum Distribution
Single payment to a beneficiary covering the entire amount of an agreement.

Macroeconomics

Analysis of a nation’s economy as a whole, using such aggregate data as price levels, unemployment,
INFLATION, and industrial production.

Management

Combined fields of policy and administration and the people who provide the decisions and supervision
necessary to implement the owner’s business objectives and achieve stability and growth.

Management Accounting

Reporting designed to assist management in decision-making, planning, and control. Also known as
MANAGERIAL ACCOUNTING.

Management Discussion and Analysis (MD&A)

SEC requirement in financial reporting for an explanation by management of significant changes in

operations, ASSETS, and LIQUIDITY.

Management's Report

Management is required to include in its annual report its assessment of the effectiveness of the
company's internal control over financial reporting in addition to its audited financial statements as of
the end of the most recent fiscal year.

Managerial Accounting
Reporting designed to assist management in decision-making, planning, and control.

Manipulation

Buying or selling a SECURITY to create a false appearance of active trading and thus influence other
investors to buy or sell shares.

Manufacture

To make or process (a product), especially by using machines.

Manufacturing Overhead

Another term for FACTORY OVERHEAD COSTS.

Margin

Excess of selling price over the unit cost.

Margin of Profit

Relationship of gross profits to net sales.

Marginal Cost

Increase or decrease in the TOTAL COSTS of a business firm as the result of one more or one less unit of
output.
Marginal Tax Rate

Amount of tax imposed on an additional dollar of income.

Mark-to-Market

Method of valuing ASSETS that results in adjustment of an asset's carrying amount to its market value.

Markdown

Amount subtracted from the selling price, when a customer sells SECURITIES to a DEALER in the OVER-
THE-COUNTER market.

Market

Public place where products or services are bought and sold, directly or through intermediaries.

Market Capitalization

Value of a CORPORATION as determined by the MARKET PRICE of its ISSUED AND OUTSTANDING
COMMON STOCK.

Market Index

Numbers representing weighted values of the components that make up the INDEX.

Market Interest Rate

The rate of interest paid in the MARKET on BONDS of similar risk.

Market Price

Last reported price at which a SECURITY was sold on an exchange.

Market Share

Percentage of industry sales of a particular COMPANY or product.

Market Value

The price investors are willing to pay for a share of stock on the open market.

Marketable Securities

Stocks and other negotiable instruments which can be easily bought and sold on either listed exchanges
or over-the-counter markets.

Marketing

Moving goods and services from the provider to consumer.

Markup

The amount added to the price of a product by a retailer to arrive at a selling price.

Married Taxpayers

Taxpayers that are married may file a JOINT RETURN, therefore combining their INCOME and expenses.
Individuals will be considered married if:
1. They are living as husband and wife;

2. They are recognized living as common law marriage; or

3. Legally married but separated and living apart but not legally divorced.

Marriage is determined as of the last day of the tax year.

Matching Principle

A fundamental concept of basic accounting. In any one given accounting period, you should try to match
the revenue you are reporting with the expenses it took to generate that revenue in the same time
period, or over the periods in which you will be receiving benefits from that expenditure. A simple
example is depreciation expense. If you buy a building that will last for many years, you don't write off
the cost of that building all at once. Instead, you take depreciation deductions over the building's
estimated useful life. Thus, you've "matched" the expense, or cost, of the building with the benefits it
produces, over the course of the years it will be in service.

Material

The substance or substances from which something is made.

Material Weakness

A significant deficiency or combination of significant deficiencies that results in more than a remote
likelihood that a material misstatement of the annual or interim financial statements will not be
prevented or detected.

Materiality

Magnitude of an omission or misstatements of ACCOUNTING information that, in the light of

surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the
information would change or be influenced.
Materials Inventory Account

An INVENTORY account made up of the balances of materials, parts, and supplies on hand at a given
time.

Maturity

The time at which payment of a loan or BOND becomes due.

Maturity Date

Date on which the principal amount of a NOTE, DRAFT, acceptance, BOND, or other DEBT
INSTRUMENTbecomes due and payable.

MD&A

SEC requirement in financial reporting for an explanation by management of significant changes in

operations, ASSETS, and LIQUIDITY.

Merchandise

Items that can be bought or sold; commercial goods.

Merchandise Inventory

The goods on hand at any one time that are available for sale to customers in the regular course of
business.

Merger
BUSINESS COMBINATION that occurs when one entity directly acquires the ASSETS and LIABILITIES of
one or more entities and no new corporation or entity is created.

Microeconomic Pricing Model

An accounting model that is based on the economic theory that profit will be greater when the
difference between total revenue and TOTAL COST is the greatest.

Microeconomics

Study of the behavior of basic economic units such as companies, industries, or households.

Mixed Costs

Costs that result when both VARIABLE COSTS and FIXED COSTS are charged to the same GENERAL
LEDGER account.

Modeling

Designing and manipulating a mathematical representation of an economic system or corporate financial

application so that the effect of changes can be studied and forecast.

Modified Accelerated Cost Recovery System

A mandatory system of DEPRECIATION for income tax purposes, enacted by Congress in 1986.

Monetary Items

Definite fixed amounts stated in terms of dollars, either by law or by contract agreement.
Money Laundering

The use of an intermediate agent, such as a bank, to disguise the source of money received from illegal
activities.

Money Market

MARKET for SHORT-TERM DEBT instruments.

Monopoly

Control of the production and distribution of a product or service by one firm or a group of firms acting
in concert.

Mortgage

Legal instrument evidencing a security interest in ASSETS, usually real estate. Mortgages serve as
COLLATERAL for PROMISSORY NOTES.

Moving Average

Average of SECURITY or COMMODITY prices constructed on a period as short as a few days or as long as
several years and showing trends for the latest interval.

Moving Average Method

A modified version of the WEIGHTED-AVERAGE-COST METHOD. It is used to compute the average cost of
a PERPETUAL INVENTORY.
Municipal Bond

BOND issued by a government or public body, the INTEREST on which is typically exempt from federal
taxation.

Mutual Agency

The ability of each partner in a COMPANY to act as an agent of the company.

Mutual Fund

Investment company which generally offers its shares to the general public and invests the proceeds in a
diversified portfolio of SECURITIES.

NASBA

Serves as a forum for the 54 State Boards of Accountancy, which administer the uniform CPA
examination, license Certified Public Accountants and regulate the practice of public accountancy in the
United States.

NASDAQ

National Association of Securities Dealers Automated Quotations system, which is owned and operated
by the National Association of Securities Dealers; a computerized system that provides brokers and
dealers with price quotations for securities traded OVER-THE-COUNTER as well as for many NEW YORK
STOCK EXCHANGE (NYSE) listed securities.

National Association of Securities Dealers Automated Quotations (NASDAQ)

National Association of Securities Dealers Automated Quotations system, which is owned and operated
by the National Association of Securities Dealers; a computerized system that provides brokers and
dealers with price quotations for securities traded OVER-THE-COUNTER as well as for many NEW YORK
STOCK EXCHANGE (NYSE) listed securities.
National Association of State Boards of Accountancy (NASBA)

Serves as a forum for the 54 State Boards of Accountancy, which administer the uniform CPA
examination, license Certified Public Accountants and regulate the practice of public accountancy in the
United States.

Nationalization

Takeover of a private company’s assets or operations by a government.

NAV

In mutual funds, the MARKET VALUE of a fund share, synonymous with bid price; BOOK VALUE of a
company’s different classes of securities, usually stated as NET ASSET value per BOND, net asset value
per share of PREFERRED STOCK, and net book value per common share of COMMON STOCK.

Negative Assurance

Report issued by an ACCOUNTANT based on limited procedures that states that nothing has come to the
accountant's attention to indicate that the financial information is not fairly presented.

Negligence

The omission to do something which a reasonable man, guided by those ordinary considerations which
ordinarily regulate human affairs, would do, or the doing of something which a reasonable and prudent
man would not do. Negligence is the failure to use such care as a reasonably prudent and careful person
would use under similar circumstances; it is the doing of some act which a person of ordinary prudence
would not have done under similar circumstances or failure to do what a person of ordinary prudence
would have done under similar circumstances. The term refers only to that legal delinquency which
results whenever a man fails to exhibit the care which he ought to exhibit, whether it be slight, ordinary,
or great. It is characterized chiefly by inadvertence, thoughtlessness, inattention, and the like, while
"wantonness" or "recklessness" is characterized by willfulness. The law of negligence is founded on
reasonable conduct or reasonable care under all circumstances of particular care. Doctrine of negligence
rests on duty of every person to exercise due care in his conduct toward others from which injury may
result.

Negotiable

Something that can be sold or transferred to another party in exchange for money or as settlement of an
obligation.

Net

Figure remaining after all relevant deductions have been made from the gross amount.

Net Asset Value (NAV)

In mutual funds, the MARKET VALUE of a fund share, synonymous with bid price; BOOK VALUE of a
company’s different classes of securities, usually stated as NET ASSET value per BOND, net asset value
per share of PREFERRED STOCK, and net book value per common share of COMMON STOCK.

Net Assets

Excess of the value of SECURITIES owned, cash, receivables, and other ASSETS over the LIABILITIES of the
company.
Net Current Assets

Difference between current assets and current liabilities; another name for WORKING CAPITAL.

Net Income

Excess or DEFICIT of total REVENUES and GAINS compared with total expenses and losses for an
ACCOUNTING period.

Net Leas

In addition to the rental payment, the LESSEE assumes all property charges such as taxes, insurance, and
maintenance.

Net Loss

The difference between expenses and REVENUES when expenses exceed revenues over a period of time.

Net Present Value (NPV)

Method used in evaluating investments whereby the net present value of all CASH outflows and cash
inflows is calculated using a given DISCOUNT RATE, usually required rate of return.
Net Present Value Method

A capital INVESTMENT evaluation method that discounts future CASH FLOWS to their PRESENT VALUE.

Net Proceeds

Amount received from the sale or disposition of property, from a LOAN, or from the sale or issuance of
securities after deduction of all costs incurred in the transaction.

Net Sales

Sales at gross invoice amounts less any adjustments for returns, allowances, or discounts taken.

Net Worth

Similar to EQUITY, the excess of ASSETS over LIABILITIES.

New York Stock Exchange (NYSE)

Oldest and largest stock exchange in the United States, located at 11 Wall Street in New York City; also
known as the Big Board and The Exchange.

No-Par Stock

Stock authorized to be issued but for which no PAR VALUE is set in the ARTICLES OF INCORORATION. A
STATED VALUE is set by the BOARD OF DIRECTORS on the issuance of this type of stock.
No-Par Value

Stock or bond that does not have a specific value indicated.

Non Routine Transactions

Activities that occur only periodically, the data involved are generally not part of the routine flow of
transactions.

Non-Callable

PREFERRED STOCK or BOND that cannot be redeemed at the OPTION of the ISSUER.

Non-for-Profit Organization/Tax-Exempt Organization

An incorporated organization which exists for educational or charitable purposes, and from which its
shareholders or trustees do not benefit financially. Also called NOT-FOR-PROFIT organization.

Non-Sufficient Funds (NSF) Check

A CHECK drawn against an ACCOUNT in which there is not enough money to honor it.
Nonresident Alien

Any citizen that is not a resident or citizen of the United States. Income of such individuals is subject to
taxation if it is effectively connected with a United States trade or business.

Not-for-Profit

Type of incorporated organization in which no stockholder or TRUSTEE shares in profits or losses and
which usually exists to accomplish some charitable, humanitarian, or educational purpose.

Note

Written promise to pay a specified amount to a certain entity on demand or on a specified date.

Notes Payable

Collective term for written promissory notes that are due in less than one year.

Notes Receivable

Collective term for written promissory notes that are due in less than one year and are held by the entity
to whom payment is promised.

Notional
Value assigned to ASSETS or LIABILITIES that is not based on cost or market (e.g., the value of a service
not yet rendered).

NPV

Method used in evaluating investments whereby the net present value of all CASH outflows and cash
inflows is calculated using a given DISCOUNT RATE, usually required rate of return.

NSF Check

A CHECK drawn against an ACCOUNT in which there is not enough money to honor it.

NYSE

Oldest and largest stock exchange in the United States, located at 11 Wall Street in New York City; also
known as the Big Board and The Exchange.

Objectivity

Emphasizing or expressing the nature of reality as it is apart from personal reflection or feelings;
independence of mind.

Obligations

Any amount which may require payment by an entity at a future time.

Obsolescence

The process of becoming out-of-date.

OCBOA

Consistent accounting basis other than GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) used for
financial reporting. Examples include an INCOME TAX BASIS or a CASH BASIS.

Offer

Price at which someone who owns a SECURITY offers to sell it.

Offering Price

Price per share at which a new or secondary distribution of securities is offered for sale to the public.

OPEB

All post-retirement benefits other than pensions, provided by employers to employees.

Open-End Mutual Fund

MUTUAL FUND that does not have a fixed number of shares outstanding, offers new shares to the public,
and buys back outstanding shares at market value.
Operating Agreement

Agreement, usually a written document, that sets out the rules by which a LIMITED LIABILITY COMPANY
(LLC) is to be operated. It is the LLC equivalent of corporate BYLAWS or a PARTNERSHIP agreement.

Operating Cycle

Period of time between the acquisition of goods and services involved in the manufacturing process and
the final cash realization resulting from sales and subsequent collections.

Operating Expense

An EXPENSE other than COST OF GOODS SOLD that is incurred in running a business.

Operating Lease

Type of LEASE, normally involving equipment, whereby the CONTRACT is written for considerably less
than the life of the equipment and the lesser handles all maintenance and servicing.

Operating Profit (or Loss)

The difference between the REVENUES of a business and the related costs and expenses, excluding
INCOME derived from a sources other than its regular activities and before income deductions.
Opportunity Cose

Highest price or rate of return an alternative course of action would provide.

Option

Right to buy or sell something at a specified price during a specified time period.

Ordinary Annuity

A series of equal payments made at the end of equal intervals of time, with compound interest on these
payments.

Ordinary Income

One of two classes of income (the other being CAPITAL GAINS) taxed under the INTERNAL REVENUE
CODE. Historically, ordinary income is taxed at a higher rate than capital gains.

Organization

The act of arranging something in an orderly way.

Organization Expenditures

The costs of organizing a trade or business or for profit activity before it begins active business. A
taxpayer may elect to amortize such expenses for a tern no less than 60 months. If the election is not
made then the expenses are not deductible and may only be recovered when the business ceases
operation or is sold.

Original Cost

In ACCOUNTING, all costs associated with the acquisition of an ASSET.

Other Comprehensive Basis of Accounting (OCBOA)

Consistent accounting basis other than GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) used for
financial reporting. Examples include an INCOME TAX BASIS or a CASH BASIS.

Other Post-Retirement Employee Benefit (OPEB)

All post-retirement benefits other than pensions, provided by employers to employees.

Output

An amount of something produced, especially during a given period of time.

Outsourcing
The act or an instance of purchasing essential products or services from another COMPANY.

Outstanding

Not settled or paid.

Outstanding Check

A CHECK that has been written by the drawer and deducted on his or her records but has not reached
the bank for payment and is not deducted from the bank BALANCE by the time the bank issues its
statement.

Over-the-Counter

Sold to customers at retail and without any special restrictions.

Overhead

Costs of a business that are not directly associated with the production or sale of goods or services.

Overhead Application Rate

Standard rate used to calculate the OVERHEAD cost of a given activity. Activity often measured in LABOR
or machine hours.
Owner’s Equity

The residual INTEREST in the assets of a business entity that remains after deducting the entity’s
liabilities.

P/E Ratio

A ratio that is used as a way of measuring investor confidence in a COMPANY and comparing stocks for
profitability. It is found by dividing MARKET PRICE per share by EARNINGS PER SHARE (EPS).

Paid in Capital

Portion of the stockholders' EQUITY which was paid in by the stockholders, as opposed to CAPITAL
arising from profitable operations.

Par

Equal to the nominal or face value of a SECURITY.

Par Value

Amount per share set in the ARTICLES OF INCORPORATION of a CORPORATION to be entered in the
CAPITAL STOCKS account where it is left permanently and signifies a cushion of EQUITY capital for the
protection of CREDITORS.
Parent Company

Company that has a controlling interest in the COMMON STOCK of another.

Partnership

Relationship between two or more persons based on a written, oral, or implied agreement whereby they
agree to carry on a trade or business for profit and share the resulting profits. Unlike a CORPORATION'S
shareholders, the partnership's general partners are liable for the DEBTS of the partnership.

Passive Activity Loss

LOSS generated from activities involved in the conduct of a trade or business in which the taxpayer does
not materially participate.

Passive Income

Includes income derived from such sources as dividends, interest, royalties, rents, amounts received
from personal service contracts, and income received as a beneficiary of an estate or trust.

Patronage Dividends

These dividends are amounts paid by a cooperative to its members and customers based on the quantity
or value of business conducted with or for the members during the tax year.

Payback Period

In capital budgeting; the length of time needed to recoup the cost of capital investment.

Payback Period Method

A way of judging capital investments that bases the decision to invest in capital equipment on the
minimum length of time it will take to earn back in CASH the amount of the initial INVESTMENT.

Payout Ratio

Percentage of a firm’s profits that is paid out to shareholders in the form of DIVIDENDS.

PCAOB

A private-sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002, to oversee the
AUDITORs of public companies in order to protect the interests of investors and further the public
interest in the preparation of informative, fair, and independent audit reports.

Peer Review

Process by which an accounting firm's practice is evaluated for compliance with professional standards.
The objective is achieved through the performance of an independent review by one's peers.

Penalty

The various government codes contain numerous provisions which impose penalties on a taxpayer (any
type of taxpayer) for failure to perform a specific act or omitting vital information on a return.

Pension

Retirement plan offered by an employer for the benefit of an employee, usually at retirement, through a
TRUSTEEwho controls the plan ASSETS.

Period

An interval of time with a specified length or characterized by certain conditions.

Periodic Inventory System

A system for determining INVENTORY on hand by a physical count that is taken at the end of an
accounting period.

Periodicity

The recognition that NET INCOME for any PERIOD less than the life of the business, although tentative, is
still a useful estimate of net income for that period.

Perpetual Inventory

System that requires a continuous record of all receipts and withdrawals of each item of INVENTORY.

Personal Financial Planning

Process for arriving at a comprehensive plan to solve an individual's personal, business, and financial
problems and concerns.

Personal Financial Specialist (PFS)

CERTIFIED PUBLIC ACCOUNTANT who specializes in PERSONAL FINANCIAL PLANNING and completes a
series of requirements that include education, experience, ethics and an exam.

Personal Financial Statements

FINANCIAL STATEMENTS prepared for an individual or family to show financial status.

Personal Property

Movable property that is not affixed to the land (REAL PROPERTY). Personal property includes tangible
items such as cash, cars and computers, as well as intangible items, such as royalties, patents and
copyrights.

Petty Cash

A small amount of CASH that a company keeps on hand to pay for minor expenses in an office.

PFS

CERTIFIED PUBLIC ACCOUNTANT who specializes in PERSONAL FINANCIAL PLANNING and completes a
series of requirements that include education, experience, ethics and an exam.

Phantom Income

Income reported on a TAX BASIS for which no cash or financial benefit is realized.

Physical Inventory

An actual count of all MERCHANDISE on hand at the end of an accounting period.

Plant

A building or group of buildings where something is made or processed; factory.

Pledged

ASSET placed in a TRUST and used as COLLATERAL for a DEBT.

POB

The POB is an independent oversight board, composed of public members, which monitors and
evaluates peer reviews conducted by the SEC Practice Section (SECPS) of the AICPA's Division for CPA
Firms as well as other activities of the SECPS.

Pooling of Interest

Used to account for the acquisition of another company when the acquiring company exchanges its
voting COMMON STOCK for the voting common stock of the acquired company when certain criteria are
met.

Portfolio

Combined holding of more than one stock, BOND, commodity, real estate investment, cash equivalent,
or other ASSET by an individual or institutional investor

Post-Closing Trial Balance

A trial BALANCE prepared at the end of an accounting period after all adjusting and closing entries have
been posted; a final check on the balance of the LEDGER.

Post-Retirement Benefits

PENSIONS, health care, life insurance and other benefits that are provided by an employer to retirees,
their dependents, or survivors.

Predetermined Overhead Rate

A rate that is used as a way of estimating and assigning OVERHEAD costs to products or jobs for each
department or operating unit before the end of an accounting period.
Preemptive Right

Right giving existing stockholders the opportunity to purchase shares of a new ISSUE before it is offered
to others.

Preferred Stock

Type of CAPITAL STOCK that carries certain preferences over COMMON STOCK, such as a prior claim on
DIVIDENDS and ASSETS.

Premium

(1) Excess amount paid for a BOND over its face amount. (2) In insurance, the cost of specified coverage
for a designated period of time.

Premium Bond

BOND with a selling price above face or REDEMPTION VALUE.

Prenuptial Contract

Agreement between a future husband and wife that details how the couple’s financial affairs are to be
handled both during the marriage and in the event of divorce.

Prepaid Expense

Cost incurred to acquire economically useful goods or services that are expected to be consumed in the
revenue-earning process within the operating cycle.
Present Value

CURRENT VALUE of a given future CASH flow stream, discounted at a given rate.

Preventive Controls

These have the objective of preventing errors or fraud from occurring in the first place that could result
in a misstatement of the financial statements.

Price Range

High/low range in which a stock has traded over a particular period of time.

Price/Earnings (P/E) Ratio

A ratio that is used as a way of measuring investor confidence in a COMPANY and comparing stocks for
profitability. It is found by dividing MARKET PRICE per share by EARNINGS PER SHARE (EPS).

Primary Earnings Per Share

Earnings available to COMMON STOCK divided by the number of common shares OUTSTANDING.

Prime Rate

Rate of INTEREST charged by major U.S. banks on loans made to their preferred customers.

Principal

Face amount of a SECURITY, exclusive of any PREMIUM or INTEREST. The basis for INTEREST
computations.
Private Placement

Sales of SECURITIES not involving a PUBLIC OFFERING and exempt from registration pursuant to certain
EXEMPTIONS.

Privilege

A right or immunity granted as a peculiar benefit advantage.

Privity

An interest in a transaction, contract or legal action to which one is not a party, arising out of a
relationship to one of the parties.

Pro Forma

Presentation of financial information that gives effect to an assumed event (e.g., MERGER).

Pro Rata

Distribution of an expense, fund, or DIVIDEND proportionate with ownership.

Product Line

The place in a factory where products are made.

Production

The act or process of creating something.

Profit

Positive difference that results from selling products and services for more than the cost of producing
these goods.

Profit Margin

Used to measure the percentage of each sales dollar that results in NET INCOME.

Profit Margin Pricing

An approach to cost-based pricing in which price is computed using a percentage of a product’s total
costs and expenses.

Profit Sharing Plan

DEFINED CONTRIBUTION PLAN characterized by the setting aside of a portion of an entity's profits in
participant's accounts.

Profitability

The ability to earn enough INCOME to attract and hold INVESTMENT capital.

Projection

Prospective FINANCIAL STATEMENTS that include one or more hypothetical assumptions.

Promissory Note
Evidence of a DEBT with specific amount due and interest rate. The note may specify a maturity date or
it may be payable on demand. The promissory note may or may not accompany other instruments such
as a MORTGAGEproviding security for the payment thereof.

Property, Plant, and Equipment

Long-term tangible assets used in the continuing operation of a business for a long time.

Proprietorship

Business owned by an individual without the limited liability protection of a CORPORATION or a LIMITED
LIABILITY COMPANY (LLC). Also known as SOLE PROPRIETORSHIP.

Prospective Financial Information (Forecast and Projection)

Forecast: Prospective financial statements that present, to the best of the responsible party's knowledge
and belief, an entity's expected financial position, results of operations, and changes in financial position.
A financial forecast is based on the responsible party's assumptions reflecting conditions it expects to
exist and the course of action it expects to take. Projection: Prospective financial statements that
present, to the best of the responsible party's knowledge and belief, given one or more hypothetical
assumptions, an entity's expected financial position, results of operations, and changes in financial
position.

Prospectus

Major part of the registration statement filed with the SECURITIES AND EXCHANGE COMMISSION (SEC)
for PUBLIC OFFERINGS. A prospectus generally describes SECURITIES or partnership interests to be
issued and sold.

Proxy

Document authorizing someone other than the shareholder to exercise the right to vote the stock
owned by the shareholder.
Public Company Accounting Oversight Board (PCAOB)

A private-sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002, to oversee the
AUDITORs of public companies in order to protect the interests of investors and further the public
interest in the preparation of informative, fair, and independent audit reports.

Public Offering

Offering shares to the public. Generally done through SEC filings.

Public Oversight Board (POB)

The POB is an independent oversight board, composed of public members, which monitors and
evaluates peer reviews conducted by the SEC Practice Section (SECPS) of the AICPA's Division for CPA
Firms as well as other activities of the SECPS.

Purchase Method of Accounting

ACCOUNTING for a MERGER by adding the acquired company's ASSETS at the price paid for them to the
acquiring company's assets.

Purchase Order

Written authorization to a vendor to deliver specified goods or services at a stipulated price.

Purchases

A temporary ACCOUNT used under the PERIODIC INVENTORY SYSTEM to record the TOTAL COST of all
MERCHANDISE purchased for resale during an accounting period.
Purchases Discounts

Discounts taken by merchants in return for prompt payment for MERCHANDISE purchased for resale.

Purchases Returns and Allowances

A CONTRA ACCOUNT used under the PERIODIC INVENTORY SYSTEM to accumulate CASH refunds, credits
on ACCOUNT, and other allowances made by suppliers for unsatisfactory or incorrect MERCHANDISE that
was originally purchased for resale.

Push-Down Accounting

Method of ACCOUNTING in which the values that arise from an acquisition are transferred or "pushed
down" to the accounts of an acquired company.

Puts

A put is an option to sell a certain number of shares of stock at a stated price within a certain period. The
gain or loss on a put is short or long term depending on the holding period of the stock involved.

Qualified Opinion

AUDIT opinion that states, except for the effect of a matter to which a qualification relates, the
FINANCIAL STATEMENTS are fairly presented in accordance with GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP). The AUDITOR is required to qualify when there is a scope limitation.

Qualitative

Relating to quality, especially as distinguished from quantity or amount.

Qualitative Analysis

Analysis that evaluates important factors that cannot be precisely measured.

Quality

An operating environment in which a company’s product or service meets a customer’s specifications

the first time it is produced or delivered.

Quantitative Analysis

Analysis dealing with measurable factors as distinguished from such QUALITATIVE considerations as the
character of management or the state of employee morale.

Quantity

An amount or number.

Quarter

Three-month intervals of the year.

Quarterly Reports

Another term for INTERIM FINANCIAL STATEMENTS.

Quasi-Reorganization

Type of reorganization in which, with shareholder approval, the management revalues ASSETS and
eliminates the DEFICIT (increased by asset devaluations if any) by charging it to other EQUITY accounts
without the creation of a new corporate entity or without court intervention.
Quick Assets

Assets that are or are expected to be converted into CASH in the near term: cash, accounts receivable,
SHORT-TERM INVESTMENTS.

Quick Ratio

The relationship of a company’s QUICK ASSETS to its current liabilities.

R&D

Research is a planned activity aimed at discovery of new knowledge with the hope of developing new or
improved products and services. Development is the translation of research findings into a plan or
design of new or improved products and services.

Rate of Return

The amount of PROFIT or INTEREST earned on an INVESTMENT, usually expressed as a percentage, such
as an interest; the COST OF CAPITAL; the cost of money.

Ratio Analysis

Comparison of actual or projected data for a particular company to other data for that company or
industry in order to analyze trends or relationships.

Raw Material

Something in its natural state that will be used in a manufacturing process.

Raw Materials Inventory Account

Another term for MATERIALS INVENTORY ACCOUNT.

Real Estate

Piece of land and all physical property related to it, including houses, fences, landscaping, and all rights
to the air above and earth below the property.

Real Estate Investment Trust (REIT)

Investor-owned TRUST which invests in real estate and, instead of paying income tax on its income,
reports to each of its owners his or her pro rata share of its income for inclusion on their income tax
returns. This unique trust arrangement is specifically provided for in the INTERNAL REVENUE CODE.

Real Estate Mortgage Investment Conduit (REMIC)

An entity that holds a fixed pool of mortgages and issues multiple classes of interests in itself to
investors. A qualified REMIC is generally taxed like a partnership, unless it takes contributions after its
start up day or engages in a prohibited transaction.

Real Income

Income of an individual, group, or country adjusted for changes in purchasing power caused by
INFLATION.

Real Interest Rate

Current INTEREST RATE minus INFLATION RATE.

Real Property

LAND and improvements, including buildings and PERSONAL PROPERTY, that is permanently attached to
the land or customarily transferred with the land.

Real Rate of Return

RETURN on an INVESTMENT adjusted for INFLATION.

Realization

Conversion into CASH, as happens in the sale of asset.

Realized Profit (or Loss)

PROFIT or LOSS resulting from the sale or other disposal of a SECURITY.

Reasonable Assurance

Management's assessment of the effectiveness of internal control over financial reporting is expressed at
the level of reasonable assurance. It includes the understanding that there is a remote likelihood that
material misstatements will not be prevented or detected on a timely basis. It is a high level of
assurance.

Rebate

In lending, UNEARNED INTEREST refunded to a borrower if the LOAN is paid off before MATURITY.

Recapitalization
An internal reorganization of a corporation including a rearrangement of the capital structure by
changing the kind of stock or the number of shares outstanding or issuing stock instead of bonds. It is
distinguished from most other types of reorganization because it involves only one corporation and is
usually accomplished by the surrender by shareholders of their securities for other stock or securities of
a different type.

Receivable Turnover

A ratio for measuring the relative size of a company’s accounts receivable and the success of its CREDIT
and collection policies during an accounting period.

Receivables

Amounts of money due from customers or other DEBTORS.

Recession

Downturn in economic activity, defined by many economists as at least two consecutive quarters of
decline in a country’s gross national product.

Reconcile

To resolve.

Reconciliation

Comparison of two numbers to demonstrate the basis for the difference between them.

Recovery
Period in a business cycle when economic activity picks up and the gross national product grows, leading
into the expansion phase of the cycle.

Red Herring

"Pre-release" PROSPECTUS offering. An announcement of a future issuance of SECURITIES, given

restricted circulation during the waiting period of 20 days or other specified period between the filing of
a registration statement with the SEC and the effective date of the statement. A red herring is not an
offer to sell or the solicitation of an offer to buy.

Redemption Value

Price to be paid by an ENTITY to retire its BONDS or PREFERRED STOCK.

Refinancing Agreement

Arrangement to provide funding to replace existing financing, the most common being a refinance of a
home MORTGAGE.

Refunding

Replacing an old DEBT with a new one, often in order to lower the INTEREST costs of the issuer.

Registrar

Agency responsible for keeping track of the owners of bonds and the issuance of stock.

Regression Analysis
Statistical technique used to establish the relationship of a dependent variable, such as the sales of a
COMPANY, and one or more independent variables, such as family formations, gross national product,
per capita income, and other economic indicators.

Regressive Rate

Rate that decreases as the calculation base increases. Often used to describe taxes where the TAX rate
paid decreases as the TAXABLE INCOME increases.

Regulated Investment Company (RIC)

Commonly called a MUTUAL FUND, this is a domestic corporation that acts as an investment agent for its
shareholders by typically investing in government and corporate securities and distributing the
DIVIDENDS andINTEREST income earned from such investments. In order to be considered a RIC a
CORPORATION must make an irrevocable election tax election in order to be treated as one.

Reinsurance

Process by which an insurance company obtains insurance on its insurance claims with other insurers in
order to spread the risk.

Reinvestment Rate

RATE OF RETURN resulting from the reinvestment of the INTEREST from a BOND or other fixed-income
SECURITY.

REIT

Investor-owned TRUST which invests in real estate and, instead of paying income tax on its income,
reports to each of its owners his or her pro rata share of its income for inclusion on their income tax
returns. This unique trust arrangement is specifically provided for in the INTERNAL REVENUE CODE.
Related Party Transaction

Business or other transaction between persons who do not have an arm's-length relationship (e.g., a
relationship with independent, competing interests). The most common is between family members or
controlled entities. For tax purposes, these types of transactions are generally subject to a greater level
of scrutiny.

Relevant Assertions

Assertions that have a meaningful bearing on whether the account is fairly stated.

REMIC

An entity that holds a fixed pool of mortgages and issues multiple classes of interests in itself to
investors. A qualified REMIC is generally taxed like a partnership, unless it takes contributions after its
start up day or engages in a prohibited transaction.

Reorganization

This is a change in the businesses capital arrangements. If for a CORPORATION there are seven statutory
options for reorganization that would cause the corporation and shareholders to not recognize any GAIN
or LOSS on the exchange of stock.

Repairs

EXPENDITURES made in order to keep property in good condition but that do not appreciably prolong
the life or increase the value of the property.

Replacements

EXPENDITURES for making good or whole the portions of property that have deteriorated through use or
have been destroyed through accident.
Report

An oral or written description of something, such as a book, event, or situation.

Report Release Date

The date the company's financial statements are issued.

Repos

Agreement whereby an institution purchases SECURITIES under a stipulation that the seller will
repurchase the securities within a certain time period at a certain price.

Repurchase Agreement (Repos)

Agreement whereby an institution purchases SECURITIES under a stipulation that the seller will
repurchase the securities within a certain time period at a certain price.

Required Rate of Return

RETURN required by investors before they will commit money to an INVESTMENT at a given level of risk.

Rescind

Cancel a CONTRACT agreement.

Research and Development (R&D)

Research is a planned activity aimed at discovery of new knowledge with the hope of developing new or
improved products and services. Development is the translation of research findings into a plan or
design of new or improved products and services.

Research and Development Costs

The EXPENSE of FUNDING RESEARCH AND DEVELOPMENT (R&D).

Reserve

ACCOUNT used to earmark a portion of EQUITY or fund balance to indicate that it is not available for
expenditure. An obsolete term in the United States. More commonly used in Europe.

Resident Alien

This is an individual that is not a citizen, but who has a residence in the United States. They are taxed on
all of their INCOME worldwide in the same manner a citizen of the United States is.

Residual Value

The estimated NET scrap, salvage, or trade-in value of a TANGIBLE ASSET at the estimated date of
disposal.

Restricted Assets

Cash or other ASSETS whose use in whole or in part is restricted for specific purposes bound by virtue of
contracted agreements.

Restricted Fund
Fund established to account for assets whose income must be used for purposes established by donors
or grantors of such ASSETS.

Restructuring

Reorganization within an entity. Restructuring may occur in the form of changing the components of
CAPITAL, renegotiating the terms of DEBT agreements, etc.

Retail Method

A way of estimating INVENTORY, used in retail business.

Retained Earnings

Accumulated undistributed earnings of a company retained for future needs or for future distribution to
its owners.

Retained Earnings Account

The ACCOUNT that reflects the stockholders’ claim to the assets earned from operations and reinvested
in corporate operations.

Retire

To take something, such as a BOND, out of circulation.

Return

PROFIT on a securities or capital INVESTMENT, usually expressed as an annual percentage rate.

Return on Assets

A measurement of a company’s PROFITABILITY or overall earning power, that is, how efficiently a
company uses its assets to produce INCOME. It is found by dividing INCOME by average total assets.

Return on Equity

A measurement of PROFITABILITY that relates the amount earned by a business to the stockholders’
investments in the business. It is found by dividing NET INCOME by average OWNER'S EQUITY.

Return on Investment (ROI)

Ratio measure of the profits achieved by a firm through its basic operations. An indicator of
management's general effectiveness and efficiency. The simplest version is the ratio of NET INCOME to
total ASSETS.

Return on Sales

NET pretax profits as a percentage of NET SALES. A useful measure of overall operational efficiency when
compared with the prior periods or with other companies in the same line of business.

Revenue Recognition

Method of determining whether or not income has met the conditions of being earned and realized or is
realizable.

Revenues

Sales of products, merchandise, and services; and earnings from INTEREST, DIVIDEND, rents.
Review

Accounting service that provides some assurance as to the reliability of financial information. In a review,
a CERTIFIED PUBLIC ACCOUNTANT (CPA) does not conduct an examination under GENERALLY ACCEPTED
AUDITING STANDARDS (GAAS).

Review Engagement

Agreement between a CERTIFIED PUBLIC ACCOUNTANT (CPA) and his or her client to perform a review.

Review Report

See Accountants' Report

RIC

Commonly called a MUTUAL FUND, this is a domestic corporation that acts as an investment agent for its
shareholders by typically investing in government and corporate securities and distributing the
DIVIDENDS and INTEREST income earned from such investments. In order to be considered a RIC a
CORPORATION must make an irrevocable election tax election in order to be treated as one.

Right of Rescission

Right granted by the Federal Consumer Credit Protection Act of 1968 to void a CONTRACT within three
business days with full refund of any down payment and without penalty.

Right to Setoff

DEBTOR'S legal right, to discharge all or a portion of the DEBT owed to another party by applying against
the debt an amount that the other party owes to the debtor.
Risk

Measurable possibility of losing or not gaining value.

Risk Averse

Term referring to the assumption that, given the same RETURN and different RISK alternatives, a rational
investor will seek the SECURITY offering the least risk.

Risk Management

Process of identifying and monitoring business risks in a manner that offers a RISK / RETURN relationship
that is acceptable to an entity's operating philosophy.

Risk-Adjusted Discount Rate

In portfolio theory and capital budget analysis, the rate necessary to determine the PRESENT VALUE of
an uncertain or risky stream of INCOME; it is the RISK-free rate plus a risk premium that is based on an
analysis of the risk characteristics of the particular INVESTMENT or project.

ROI

Ratio measure of the profits achieved by a firm through its basic operations. An indicator of
management's general effectiveness and efficiency. The simplest version is the ratio of NET INCOME to
total ASSETS.

Routine Transactions

Recurring financial activities reflected in the accounting records in the normal course of business.

S
S Corporation

A CORPORATION which, under the INTERNAL REVENUE CODE, is generally not subject to federal income
taxes. Instead, taxable income of the corporation is passed through to its stockholders in a manner
similar to that of a PARTNERSHIP.

Safe Harbor Rule

Concept in statutes and regulations whereby a person who meets listed requirements will be preserved
from adverse legal action. Frequently, safe harbors are used where a legal requirement is somewhat
ambiguous and carries a risk of punishment for an unintended violation.

Sale

Any exchange of goods or services for money.

Sale-Leaseback Transaction

Sale of property by a seller who simultaneously leases the property back from the purchaser.

Sales Discount

A discount that is given to a buyer for early payment for a sale made on CREDIT.

Sales Tax

A TAX that is levied by a state or city government on the retail sale of goods and services.

Salvage Value

Selling price assigned to retired FIXED ASSETS or merchandise unsalable through usual channels.
SAS

Statements issued by the Accounting Standards Board of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS (AICPA).

Savings Bond

U.S. government BOND issued in face value denominations ranging from $50 to $10,000.

Seasonality

Variations in business or economic activity that recur with regularity as the result of changes in climate,
holidays, and vacations.

SEC

Agency authorized by the United States Congress to regulate the financial reporting practices of most
public corporations.

SEC Filings

Financial and informational DISCLOSURES required by the SEC in order to comply with certain sections of
the Securities Act of 1933 and the Securities and Exchange Act of 1934. Some of the more common
filings that publicly owned companies must submit are the FORM 10-K, FORM 10-Q and FORM 8-K.

SEC Registration Statement

DISCLOSURE document that must be filed with the SEC in connection with a public offering of
SECURITIES, unless the offering is exempt.
Secondary Market

EXCHANGES and OVER-THE-COUNTER markets where securities are bought and sold subsequent to
original issuance, which took place in the primary MARKET.

Secured Bond

A BOND that gives the bondholders a pledge of certain company assets as a guarantee of repayment.

Secured Debt

DEBT guaranteed by the pledge of assets or other COLLATERAL.

Securities and Commodities Exchanges

Organized, national EXCHANGES where securities, options, and futures contracts are traded by members
for their own accounts and for the accounts of customers.

Securities and Exchange Commission (SEC)

Agency authorized by the United States Congress to regulate the financial reporting practices of most
public corporations.

Securities Industry Association (SIA)

Trade group that represents broker-dealers.

Securitization
Source of financing whereby an entity's ASSETS (typically mortgage loans, lease obligations or other
types of RECEIVABLES) are placed in a special purpose vehicle that issues SECURITIES collateralized by
such assets.

Security

Any kind of transferable certificate of ownership including EQUITY SECURITIES and DEBT SECURITIES.

Security Interest

Legal interest of one person in the property of another to assure performance of a second person under
a contract.

Self Employment Tax

Most individuals that are in business for themselves, such as SOLE PROPRIETORS, PARTNERS or
independent contractor, are subject to self employment taxes. The taxes provide coverage for the self
employed individual for social security (OASDI) and Medicare benefits (HI) similar to the taxes withheld
by employers from wages it pays the employees.

Sell Out

LIQUIDATION of a MARGIN ACCOUNT by a broker after a margin call has failed to produce additional
EQUITY to bring the margin to the required level.

Selling, General, and Administrative (SG&A) Expenses

Grouping of expenses reported on a company’s PROFIT and LOSS statement between COST OF GOODS
SOLDand INCOME deductions.

Sensitivity Analysis
Study measuring the effect of a change in a variable on the RISK or PROFITABILITY of an INVESTMENT.

SEP Plan

PENSION plan in which both the employee and the employer contribute to an INDIVIDUAL RETIREMENT
ACCOUNT (IRA).

Separate Entity

A business that is treated as distinct from its creditors, customers, and owners.

Serial Bond

BOND ISSUE, usually of a municipality, with various maturity dates scheduled at regular intervals until
the entire issue is retired.

Settlement Method

Method of ACCOUNTING for SECURITIES whereby transactions are recorded on the date the securities
settle by the delivery or receipt of securities and the receipt or payment of cash.

SFAS

Statements issued by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Share

Unit of EQUITY in a CORPORATION.

Shareholder

Owner of one or more shares of stock in a CORPORATION.

Shares Authorized

Number of shares of stock provided for in the articles of INCORPORATION of a COMPANY.

Shares Outstanding

The number of shares in a COMPANY that have been issued and remain in circulation.

Short Bond

BOND with a short MATURITY; a somewhat subjective concept, but generally meaning two years or less.

Short Coupon

BOND INTEREST payment covering less than the conventional six-month period.

Short Interest

Total amount of shares of stock that have been sold short and have not yet been repurchased to close
out short positions.

Short Sale

Sale of an item before it is purchased. A person entering into a short sale believes the price of the item
will decline between the date of the short sale and the date he or she must purchase the item to deliver
the item under the terms of the short sale.
Short-Term

Current; ordinarily due within one year.

Short-Term Debt

All DEBT obligations coming due within one year; show on a balance sheet as CURRENT LIABILITIES.

Short-Term Gain or Loss

For TAX purposes, the PROFIT or LOSS realized from the sale of securities or other capital assets held six
months or less.

Short-Term Investment

The temporary INVESTMENT of excess CASH, intended to be held until needed to pay current
OBLIGATIONS.

SIA

Trade group that represents broker-dealers.

Significant Accounts

An account is significant if there is more than a remote likelihood that the account could contain
misstatements that individually or when aggregated with others, could have a material effect on the
financial statements, considering the risks of both overstatement and understatement.

Significant Deficiency
A control deficiency or combination of control deficiencies, that adversely affects the company's ability
to initiate, authorize, record, process or report external financial data reliably in accordance with GAAP
such that there is more than a remote likelihood that a misstatement of the company's annual or interim
financial statements that is more than inconsequential will not be prevented or detected.

Significant Findings or Issues

Substantive matters that are important to the procedures performed, evidence obtained, or conclusions
reached and include but are not limited to:

1. significant matters;

2. results of auditing procedures indicating a need for significant modification of planned auditing
procedures;

3. audit adjustments;

4. disagreements among members of the engagement team;

5. circumstances that cause difficulty in applying auditing procedures;

6. significant changes in the assessed level of AUDIT RISK;

7. matters that could result in modification of the AUDITORS' REPORT.

Simple Interest

INTEREST calculation based only on the original PRINCIPAL amount.

Simple Plans

An employer may adopt a simplified retirement plan called a SIMPLE Plan (Savings incentive match plan
for employees) if it has fewer than 100 employees that received at least $5,000 in compensation in the
preceding year.

Simple Trust

This type of TRUST is required to distribute all its income currently, whether or not the TRUSTEE actually
does so, and it has no provision in the trust instrument for charitable contributions. It is to be
distinguished from a COMPLEX TRUST. A trust may be a simple trust in one year and a complex trust in
another year. In the year in which the trust distributes its corpus, it loses its classification as a simple
trust.

Simplified Employee Pension (SEP) Plan

PENSION plan in which both the employee and the employer contribute to an INDIVIDUAL RETIREMENT
ACCOUNT (IRA).

Single Audit Act

The Single Audit Act of 1984 and the Single Audit Act Amendments of 1996 establish requirements for
audits of states, local governments, and nonprofit organizations that administer federal financial
assistance programs above a certain threshold.

Single-Premium Deferred Annuity (SPDA)

TAX-deferred INVESTMENT similar to an INDIVIDUAL RETIREMENT ACCOUNT (IRA), without many of the
IRA restrictions.

Sinking Fund

Money accumulated on a regular basis in a separate custodial ACCOUNT that is used to redeem DEBT
securities or PREFERRED STOCK issues.

Small Business Stock

Noncorporate investors may exclude up to 50 percent of the GAIN they realize on the disposition of
qualified small business stock issued after Aug. 10, 1993, and held for more than five years. The amount
of gain eligible for the 50 percent exclusion is subject to per-issuer limits. In order to qualify for the
EXCLUSION, the CORPORATIONissuing the stock must be a C Corporation (but excluding certain
investment corporations) and it must use at least 80 percent of its assets in active conduct of one or
more qualified trade or businesses. In addition, its gross assets cannot exceed $50 million.
Sole Proprietorship

See Proprietorship.

Solvency

State of being able to meet maturing OBLIGATIONS as they come due.

Solvent

Capable of paying one’s financial obligations.

SPDA

TAX-deferred INVESTMENT similar to an INDIVIDUAL RETIREMENT ACCOUNT (IRA), without many of the
IRA restrictions.

Special Assessment

Charge made by a local government for the cost of an improvement or service. It is usually levied on
those who will benefit from the service.

Special Report

A term applied to AUDITORS' REPORTS issued in connection with various types of financial presentations,
including: FINANCIAL STATEMENTS that are prepared in conformity with a comprehensive basis of
accountingother than generally accepted accounting principles. Specified elements, accounts or items of
a financial statement. Compliance with aspects of contractual agreements or regulatory requirements
related to audited financial statements. Financial presentations to comply with contractual agreements
or regulatory provisions. Financial information presented in prescribed forms or schedules that require a
prescribed form of auditor's reports.
Specialist

Member of a stock exchange who maintains a fair and orderly MARKET in one or more securities.

Specialized Mutual Fund

Fund that limits its investments to a particular sector of the marketplace.

Specific Identification Method

A way of pricing the cost of INVENTORY as coming from a specific purchase.

Speculation

Assumption of RISK in anticipation of gain but recognizing a higher than average possibility of LOSS.

Spinoff

Transfer of all, or a portion of, a subsidiary's stock or other ASSETS to the stockholders of its PARENT
COMPANYon a PRO RATA basis.

Split Offering

New MUNICIPAL BOND ISSUE, part of which is represented by serial bonds and part by TERM
MATURITYbonds.

Spot Market

MARKET for buying and selling COMMODITIES or financial instruments for immediate delivery and
payment based on the settlement conventions of the particular market.
Spread

Difference between two prices, usually a buying and selling price.

Spreadsheet

An ACCOUNTING or BOOKKEEPING application for use on a computer.

SSARS

Statements issued by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) that
specifically relate to REVIEWS and COMPILATIONS.

Standard

A widely known and accepted measurement or weight used as a basis for a system of measurements.

Standard Cost

Realistic costs for direct materials, direct labor, and factory overhead that have been determined before
they occur.

Standard Deduction

Individual taxpayers who do not itemize their deductions are entitled to a standard deduction amount by
which to reduce ADJUSTED GROSS INCOME in arriving at taxable income. The amount of the standard
deduction varies by the type of the taxpayer and changes each year. A schedule of standard deductions
is easily found in the instructions for the federal form 1040. Each state may also use a standard
deduction format, but the amounts and computations differ from the federal and from state to state.
Certain taxpayers may not be entitled to use the standard deduction. An example of this would be a
married filing separate taxpayer. If one taxpayer itemizes then the other is required to by law even if the
married filing separate taxpayer is unknowing of what is included on the spouses separate return. A
reason for this might be the prevention of pooling and duplication of deductions.

Standard Deviation

Statistical measure of the degree to which an individual value in a probability distribution tends to vary
from the mean of the distribution.

Start-Up Costs

(1) Costs, excluding acquisition costs, incurred to bring a new unit into production. (2) Costs incurred to
begin a business.

Stated Value

Per share amount set by the BOARD OF DIRECTORS to be placed in the CAPITAL STOCK account upon
issuance of NO-PAR VALUE.

Statement

Summary for customers of the transactions that occurred over the preceding month.

Statement of Cash Flows

One of the basic FINANCIAL STATEMENTS that isGENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
required as part of a complete set of financial statements prepared in conformity with . It categorizes net
cash provided or used during a period as operating, investing and financing activities, and reconciles
beginning and ending cash and cash equivalents.

Statement of Cost of Goods Manufactured

A formal STATEMENT summarizing the flow of all manufacturing costs incurred during an accounting
period.

Statement of Financial Accounting Standards (SFAS)

Statements issued by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Statement of Financial Condition

Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis
of ACCOUNTING used in its preparation and presentation as of a specified date, the entity's ASSETS,
LIABILITIES and the EQUITY of its owners. Also known as BALANCE SHEET.

Statement of Owner’s Equity

The financial STATEMENT that shows how and why an OWNER’S EQUITY, or capital, ACCOUNT has
changed over s specific financial PERIOD.

Statements on Auditing Standards (SAS)

Statements issued by the Accounting Standards Board of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS (AICPA).

Statements on Standards for Accounting and Review Services (SSARS)

Statements issued by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) that
specifically relate to REVIEWS and COMPILATIONS.

Statute of Limitations
This sets out the period within which actions may be brought upon claims or within which rights may be
enforced. As it pertains to tax returns, the statute of limitations is generally three years from the date a
return is due or filed.

Stepped Up Basis

Generally, the basis of property acquired by INHERITENCE, BEQUEST or device from a DECENDANT is the
FAIR MARKET VALUE of the property on the date of the decendant's death. Thus if the fair market value
is more than the decedent's basis, a taxpayers basis in the property received is stepped-up.

Stock Compensation Plan

FRINGE BENEFIT that gives employees the option to purchase the employer's stock at a specified price
during a specified period.

Stock Exchange

Organized marketplace in which stocks, COMMON STOCK equivalents, and bonds are traded by members
of the exchange, acting both as agents and principals.

Stock Market

General term referring to the organized trading of securities through the various EXCHANGES and the
OVER-THE-COUNTER MARKET.

Stock Options

Right to purchase or sell a specified number of shares of stock at specified prices and times.

1) Terminology
a) Grant date - The date at which an employer and an employee reach a mutual understanding of the key
terms and conditions of a share-based payment award. The employer becomes contingently obligated
on the grant date to issue equity instruments or transfer assets to an employee who renders the
requisite service. Awards made under an arrangement that is subject to shareholder approval are not
deemed to be granted until that approval is obtained unless approval is essentially a formality (or
perfunctory), for example, if management and the members of the board of directors control enough
votes to approve the arrangement. Similarly, individual awards that are subject to approval by the board
of directors, management, or both are not deemed to be granted until all such approvals are obtained.
The grant date for an award of equity instruments is the date that an employee begins to benefit from,
or be adversely affected by, subsequent changes in the price of the employer’s equity shares.

b) Measurement Date – The date at which the equity share price and other pertinent factors, such as
expectedvolatility, that enter into measurement of the total recognized amount of compensation cost for
an award of share-based payment are fixed

c) Fair value - The amount at which an asset (or liability) could be bought (or incurred) or sold (or settled)
in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

d) In the Money option - Option granted with an exercise price below the market price on the grant date

e) Out of the Money option – Option granted with an exercise price above the market price.

f) Backdating

i) Exercise price is based on a lower share price prior to the option grant date. The practice of marking a
document with a date that precedes the actual date.

ii) Example – Option is approved by the board permits the stock to be priced based upon the lowest
price in the past 30 days- permits options to be in the money when issued. Options are suppose to be
issued at option price that is neutral at time of issuance.

iii) May not be illegal if

(1) Clearly communicated to shareholders

(2) No documents forged

(3) Reflected in earnings of the company

(a) If under A PB 25 –the granting of in the money options resulted in recognition of compensation
expense in earnings. If options were neutral or out of the money then. no compensation would be
recognized

(b) If under 123R expense is based upon fair value at grant date. and compensation is recognized it the
earningsstatement

g) Spring loading - Timing of option grants to take place before good news or after bad news is released

i) Concerns about insider trading

h) Forward loading – Term used for setting the option grant date to occur after predicted fall in stock
price or before predicted stock price increase

i) Terms might involve option to be issued with price to be determined based upon the lowest price as of
the issue date or for the next 30 days after the issuance. Grant date does not occur until the conclusion
of the 30 day periodwhen the price is known. To determine the price the company needs to look back at
the stock price for the last 30 days to determine what the exercise price should be. This is another
version of backdating.

i) Discounted options – options that have an exercise price that is less than fair value on the date of
grant.

2) Accounting and Tax Ramifications

a) Accounting ramifications

i) Restatement

ii) Unable to file on timely basis while go back and determine what periods are effected

iii) Calls into questions company’s internal controls and governance

iv) Will be unable to file shelf registration

v) May be delisted from exchange

b) SEC reporting implications

i) Potentially inaccurate reporting of executive compensation in proxy statements and annual reports

ii) Potential violation of securities and Law for executive oficiers and directors with Section 16 (a) of the
Securities and exchange Act of 1934. required to report on form 4

iii) Potential false or misleading disclosures about the company’s stock option plan in periodic reports
filed with the SEC – Failure to disclose the practice of backdating may violate securities and laws against
false or misleading disclosures

iv) Potential false Section 302 certifications – Principal and financial executives are required to sign
certifications in quarterly and annual reports certifying that among other things that the report filed with
the SEC does not include any false statements of amaterial fact or state material facts necessary in order
to make the disclosures not misleading.

c) Tax Ramifications

i) Exercise price effects capital gains of the individual and effects compensation expense used by
corporation for calculating company’s compensation expense for tax purposes,

ii) Tax ramifications – company

(1) Discounted options that become vested on or after January 1, 2005 are subject to non qualifying
deferred compensation rules -

Holder is required to select a fixed exercise date no later than December 31, 2006 or be subject to
immediate taxation on vesting , a 20 percent penalty and an interest assessment.

(2) May cause the loss of tax deductions under Section 162 (m), the deduction that public companies
take for compensation to chief executive officer and next four highest compensated officers is limited to
$1 million each. The deduction for stock options in not usually limited. However, discounted options do
not qualify as performance based compensation and therefore the deduction that the company would
get may be partially or completely lost. In addition discounted stock options do not qualify for Incentive
Stock option (ISO) treatment. (ISO there is no payroll tax or withholding requirements for ISO’s) – If
company mistakenly treats backdated stock as an ISO the company my fail to meet payroll tax and
income tax withholding requirements.
d) New Rules SEC

i) Effective for years after December 15, 2006

ii) New Disclosures mandated

(1) Fairvalue of options on grant date

(2) Value of grant per 123R

(3) Closing price market price on the date of grant if it is greather than the excericise price of the award

(4) The date the compensation committee or board took action to grant an award if theat date is
different than the actual grant date.

(5) Also if the exercise price of an option grant differs from the closing market price per share on the
grant date companies must include a description of the method for determining the exercise price.

Stock Rights

Stock rights are rights issued to stockholders of a CORPORATION that entitle them to purchase new
shares of stock in the corporation for a stated price that is often substantially less than the FAIR MARKET
VALUE of the stock. These rights may be exercised by paying the stated price, may be sold, or may be
allowed to expire or lapse. Stock rights are generally treated as stock DIVIDENDS.

Stock Split

Increase in the number of shares of a company's COMMON STOCK outstanding that result from the
issuance of additional shares proportionally to existing stockholders without additional capital
investment. The PAR VALUE of each share is reduced proportionally.

Stockholder

A person who owns shares of STOCK in a COMPANY.

Stockholders’ Equity

The OWNER'S EQUITY in a CORPORATION.

Straight-Line Depreciation

ACCOUNTING method that reflects an equal amount of wear and tear during each period of an ASSET'S
useful life. For instance, the annual STRAIGHT-LINE DEPRECIATION of a $2,500 asset expected to last five
years is $500.

Straight-Line Percentage

A percentage used to determine the amount of DEPRECIATION to be recorded each ACCOUNTING period
for the straight-line method.

Strike Price

Price of a financial instrument at which conversion or exercise occurs.

Subsequent Event

Material event that occurs after the end of the accounting period and before the publication of an
entity'sFINANCIAL STATEMENTS. Such events are disclosed in the notes to the financial statements.

Subsidiary

COMPANY of which more than 50% of the voting shares are owned by another CORPORATION, called the
PARENT COMPANY.

Sum-of-the-Years-Digits Method
An accelerated method of DEPRECIATION in which the depreciable value if an ASSET is multiplied by a
decreasing fraction each year of the asset’s useful life.

Surplus

Not needed; extra.

Surviving Spouse

This is a person whose husband or wife died during the tax year. A surviving spouse may file a JOINT
RETURN for the year in which the death occurred. In addition a joint return may be filed for the two
succeeding tax years if during that time the surviving spouse:

1. Remains unmarried; and

2. Maintains as his home a household that is the principal place of abode during the entire TAX YEAR for
a child for whom a dependency exemption may be claimed.

Swap

Financial contract in which two parties agree to exchange net streams of payments over a specified
period. The payments are usually determined by applying different indices (e.g., interest rates, foreign
exchange rates, equityindices) to a NOTIONAL amount. The term notional is used because swap
contracts generally do not involve exchanges of PRINCIPAL.

T Account

The simplest form of an ACCOUNT, shaped like the letter T, in which increases and decreases in the
account can be recorded.

Takeover

The act or an instance of taking control of something, especially by force.

Tangible Asset

ASSETS having a physical existence, such as cash, land, buildings, machinery, or claims on property,
investments or goods in process.

Target Costing

A pricing method that (1) identifies the price at which a product will be competitive in the marketplace,
(2) identifies the minimum desired PROFIT to be made on the product, and (3) computes a target cost for
the product by subtracting the desired profit from the competitive MARKET PRICE.

Tax

Charge levied by a governmental unit on income, consumption, wealth, or other basis.

Tax Basis

Original cost of an ASSET, less ACCUMULATED DEPRECIATION, that goes into the calculation of a GAIN or
LOSS for TAX purposes.

Tax Court

The U.S. Tax Court is a legislative court functioning to adjudicate controversies between taxpayers and
the IRS arising out of deficiencies assessed by the IRS for INCOME, GIFT, ESTATE, windfall profit and
certain EXCISE TAXES. It has no jurisdiction over other taxes such as employment taxes. Various sales
taxes and certain excise taxes.

Tax Credit for the Elderly and Disabled

Taxpayers age 65 or older or those under 65 who are retired with permanent and total disability are
eligible to claim a credit to reduce the amount of their tax liability. It is designed primarily to benefit
those individuals who receive small amounts of retirement INCOME. Each taxpayer is allocated an initial
base amount based on his or her filing status determining the credit. The base amount is then reduced
by the amount of nontaxable income, or is phased out for taxpayers whose ADJUSTED GROSS INCOME
exceeds certain levels.

Tax Lien

ENCUMBRANCE placed on property as security for unpaid taxes.

Tax Shelter

Arrangement in which allowable tax deductions or EXCLUSIONS result in the deferral of tax on INCOME
that would otherwise be payable currently.

Tax Year

The period used to compute a taxpayer's TAXABLE INCOME is tax year. It is an annual period that is either
a calendar year , FISCAL YEAR or fractional part of a year for which the return is made.

Taxable Earnings

The amount of an employee’s earnings subject to a TAX.

Taxable Income

Taxable income is generally equal to a taxpayer's ADJUSTED GROSS INCOME during the TAX YEAR less any
allowable EXEMPTIONS and deductions.

Taxable Municipal Bond

Taxable DEBT obligation of a state or local government entity, an outgrowth of the Tax Reform Act of
1986.

Taxpayer Identification Number (TIN)

Any individual or other taxable entity that is required to file a return, statement or any other document
with the IRSmust indicate his (or its) taxpayer identification number. For an individual, the social security
number is used, and if you do not have a social security number, the IRS will assign you a TIN. A federal
or employer ID number is assigned to other types of entities and will use that as their TIN.

Tenancy-in-Common

Co-ownership of property. In a valid tenancy-in-common, a deceased co-owner's title passes to his or her
heirs without being included in the estate of the deceased co-owner.

Term

Period of time during which the conditions of a CONTRACT will be carried out.

Term Loan

Loan for a specified time period.

Test

Criterion used to measure compliance with financial ratio requirements of indentures and other LOAN
agreements.

Time Value
Price put on the time an investor has to wait until an INVESTMENT matures, as determined by calculating
the PRESENT VALUE of the investment at MATURITY.

Time Value of Money

The concept that CASH FLOWS of equal dollar amounts separated by a time interval have different
present values because of the effect of compound INTEREST.

Timing of Tests of Control

The AUDITOR must perform tests of controls over a period of time that is adequate to determine
whether, as of the date specified in management's report, the controls necessary for achieving the
objectives of the control criteria are operating effectively.

TIN

Any individual or other taxable entity that is required to file a return, statement or any other document
with the IRSmust indicate his (or its) taxpayer identification number. For an individual, the social security
number is used, and if you do not have a social security number, the IRS will assign you a TIN. A federal
or employer ID number is assigned to other types of entities and will use that as their TIN.

Tip

Information passed by one person to another as a basis for buy or sell action in a SECURITY.

Title

The written evidence, such as a deed, that proves legal right of possession or control.

Ton
BOND traders’ jargon for $100 million.

Total Capitalization

Capital structure of a COMPANY, including LONG-TERM DEBT and all forms of EQUITY.

Total Cost

Sum of FIXED COSTS, semi-variable costs, and VARIABLE COSTS.

Total Direct Labor Cost Variance

The difference between the actual LABOR costs incurred and the standard labor costs for the good units
produced.

Total Direct Materials Cost Variance

The difference between the actual materials costs incurred and the standard costs of those items.

Total Gain

Excess of the proceeds realized on the sale of either INVENTORY or noninventory goods.

Total Inventory Method

A lower-of-cost-or-market method of valuing INVENTORY.

Total Quality Management

An organizational environment in which all business functions work together to build quality into the
firm’s products or services.

Trade

Buying or selling goods and services among companies, states, or countries, called commerce.

Trade Date

Date when a SECURITY transaction is entered into, to be settled on at a later date. Transactions involving
financial instruments are generally accounted for on the trade date.

Trademark

Distinctive name, symbol, motto, or emblem that identifies a product, service, or firm.

Trader

Anyone who buys and sells goods or services for PROFIT; a DEALER or merchant.

Transaction

The act of transacting, especially a business agreement or exchange; event or condition recognized by an
entry in the book ACCOUNT.

Transfer

To move or cause to go from one place, person, or thing to another.

Transfer Agent
Agent, usually a commercial bank, appointed by a COPORATION, to maintain records of stock and BOND
owners, to cancel and issue certificates, and to resolve problems arising from lost, destroyed, or stolen
certificates.

Transfer Price

Price charged by individual entities in a multi-entity COPORATION on transactions among themselves;

also termed transfer cost.

Transfer Tax

Combined federal TAX on gifts and estates.

Transferee Liability

A person may be held LIABLE for another taxpayer's delinquent taxes if:

1. The transferee received assets of the transferor-taxpayer; and

2. The transferor was INSOLVENT at the time or was rendered insolvent by that transfer or related series
of transfers.

However the insolvency requirement does not apply to GIFT taxes. The transferee is only liable to the
extent of the value of the property received from the transferor. Thus, transferee liability merely
provides a means for the IRS to recover any assets the transferor-taxpayer attempts to transfer to avoid
paying taxes.

Transferred Basis

A transferred basis is the basis of property in the hands of a transferor, donor or GRANTOR. In this sense
a prior owner's basis in the property is transferred to the taxpayer. Transferred basis occurs in the
following transactions: GIFTS, transfers in trusts, certain transfers to controlled CORPORATIONS,
contributions to PARTNERSHIPS and LIQUIDATING distributions from a corporation.
Treasurer

COMPANY officer responsible for the receipt, custody, INVESTMENT, and DISBURSEMENT of funds, for
borrowings, and, if it is a public company, for the maintenance of a MARKET for its securities.

Treasury

A place where private or public funds are controlled.

Treasury Bill

Short-term obligation that bears no INTEREST and is sold at a discount.

Treasury Bond

Long-term obligation that matures more than five years from issuance and bears INTEREST.

Treasury Instruments

Direct financial obligations of the United States government.

Treasury Note

Intermediate-term obligation that matures one to five years from issuance and bears INTEREST.

Treasury Stock
Stock reacquired by the issuing company. It may be held indefinitely, retired, issued upon exercise of
STOCK OPTIONS or resold.

Trend

Long-term price or trading volume movements either up, down, or sideways, which characterize a
particular MARKET, commodity or SECURITY.

Trend Analysis

A type of horizontal analysis in which percentage changes are calculated for related items for several
successive years instead of for two years.

Trial Balance

A comparison of the total of DEBIT and CREDIT balances in the LEDGER to check that they are equal.

Troubled Debt Restructuring

Agreement between DEBTOR and CREDITOR which amends the terms of a DEBT that has little chance of
being paid in accordance with its contractual terms. The agreement may involve the transfer of ASSETS
in full or partial satisfaction of the debt.

Trust

Ancient legal practice where one person (the GRANTOR) transfers the legal title to an ASSET, called the
principal or corpus, to another person (the TRUSTEE), with specific instructions about how the corpus is
to be managed and disposed.

Trustee
Person who is given legal title to, and management authority over, the property placed in a TRUST.

Turnover

The number of times a particular product is sold and restocked during a fixed period of time.

UAA

The proposal for a new regulatory framework for the public accounting profession which was developed
jointly by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) and the NATIONAL
ASSOCIATION of STATE BOARDS of ACCOUNTANCY (NASBA). The new framework is intended to enhance
interstate reciprocity and practice across state lines by CPAs, meet the future needs of the profession,
respond to the marketplace and protect the public that the profession serves.

Unamortized Bond Discount

Difference between the FACE VALUE of a BOND and the proceeds received from the sale of the bond by
the issuing COMPANY, less whatever portion has been amortized, that is, written off to EXPENSE as
recorded periodically on the PROFIT and LOSS statement.

Unamortized Premiums on Investments

Unexpensed portion of the amount by which the price paid for a SECURITY exceeded its PAR VALUE.

Unaudited Financial Statements

FINANCIAL STATEMENTS which have not undergone a detailed AUDIT examination by an independent
CERTIFIED PUBLIC ACCOUNTANT (CPA).

Underlying Debt
MUNICIPAL BOND term referring to the debt of government entities within the jurisdiction of larger
government entities and for which the larger entity has partial CREDIT responsibility.

Underlying Security

SECURITY that must be delivered if a put OPTIONS or call option contract is exercised.

Undervalued

SECURITY selling below its LIQUIDATION value or the MARKET VALUE analysts believe it deserves.

Underwrite

To assume the RISK of buying a new ISSUE of securities from the issuing CORPORATION or government
entity and reselling them to the public, either directly or through dealers.

Unearned Discount

ACCOUNT on the books of a lending institution recognizing INTEREST deducted in advance and which will
be taken into INCOME as earned over the life of the LOAN.

Unearned Income

Payments received for services which have not yet been performed.

Unearned Interest

INTEREST that has already been collected on a LOAN by a FINANCIAL INSTITUTION, but that cannot yet
be counted as part of earnings because the PRINCIPAL of the loan has not been OUTSTANDING long
enough.
Unequal Cash Flows

Cash flow from an ASSET that may vary from one year to the next.

Uniform Accountancy Act (UAA)

The proposal for a new regulatory framework for the public accounting profession which was developed
jointly by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) and the NATIONAL
ASSOCIATION of STATE BOARDS of ACCOUNTANCY (NASBA). The new framework is intended to enhance
interstate reciprocity and practice across state lines by CPAs, meet the future needs of the profession,
respond to the marketplace and protect the public that the profession serves.

Uniform Capitalization Rules

These are a set of rules intended to be a single comprehensive set of rules to govern the capitalization,
or inclusion in INVENTORY of direct and indirect cost of producing, acquiring and holding property.
Under the rules, taxpayers are required to capitalize the direct costs and an allocable portion of the
indirect costs attributable to real and tangible personal property produced or acquired for resale. The
obvious effect of the uniform capitalization rules is that taxpayers may not take current deductions for
these costs but instead must be recovered through DEPRECIATION or AMORTIZATION.

Unissued Stock

Shares of a corporation’s stock authorized in its charter but not issued.

Unit

Any division of quantity accepted as a standard of measurement or of exchange.

Unlimited Liability
The responsibility of all the partners in a COMPANY for its DEBT.

Unqualified Opinion

AUDIT opinion not qualified for any material scope restrictions nor departures from GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (GAAP). The AUDITOR may issue an unqualified opinion only when
there are no identified material weaknesses and when there have been no restrictions on the scope of
the auditor's work. Also known as CLEAN OPINION.

Unrealized Loss or Gain on Long-Term Investments

A BALANCE sheet ACCOUNT for entering increases or decreases in the value of long-term investments.

Unrealized Profit (or Loss)

PROFIT or LOSS that has not become actual.

Unrestricted Funds

Resources of a not-for-profit entity that have no restrictions as to use or purpose.

Unsecured Bond

A BOND issued on the general CREDIT of a COMPANY.

Use of Professional Skepticism when Evaluating the Results of Testing

The AUDITOR must conduct the audit of internal control over financial reporting and the audit of the
financial statements with professional skepticism, which is an attitude that includes a questioning mind
and a critical assessment of audit evidence.
V

Valuation

The process of determining the PRESENT VALUE of a BOND based on the current MARKET INTEREST
RATE.

Valuation Allowance

Method of lowering or raising an object's CURRENT VALUE by adjusting its acquisition cost to reflect its
market value by use of a CONTRA ACCOUNT.

Value

How much money something is worth.

Value-Added Tax (VAT)

Consumption TAX levied on the VALUE added to a product at each stage of its manufacturing cycle as
well as at the time of purchase by the ultimate consumer

Variable Annuity

Life insurance ANNUITY CONTRACT whose VALUE fluctuates with that of an underlying securities
PORTFOLIO or other INDEXof performance.

Variable Costs

Total costs that change in direct proportion to changes in productive output or any other measure of
volume.
Variable Manufacturing Costs

Costs that increase or decrease in direct proportion to the number of units produced.

Variable Overhead

The portion of mixed or semi-variable overhead costs that changes proportionately with some measure
of activity or output.

Variable Rate Loan

Loan whose interest rate changes over its life in relation to the level of an index.

Variance

Deviation or difference between an estimated value and the actual value.

VAT

Consumption TAX levied on the VALUE added to a product at each stage of its manufacturing cycle as
well as at the time of purchase by the ultimate consumer.

Velocity

Rate of spending, or turnover of money- in other words, how many times a dollar is spent in a given
period of time.

Vendor
Supplier of goods or services of a commercial nature; may be a manufacturer, importer, or wholesale
distributor.

Venture Capital

Investment company whose primary objective is capital growth. New ASSETS invested largely in
companies that are developing new ideas, products, or processes.

Vertical Analysis

A technique for analyzing FINANCIAL STATEMENTS that uses percentages to show the relationships of
each stated item to the total, which is 100 percent of the figure in a single statement.

Vesting

Point at which certain benefits available to an employee are no longer contingent on the employee
continuing to work for the employer.

Voidable

CONTRACT that can be annulled by either party after it is signed because FRAUD, incompetence, or
another illegality exists or because a right of rescission applies.

Volatile

Tending to rapid and extreme fluctuations.

Volatility

Characteristic of a SECURITY, commodity, or MARKET to rise or fall sharply in price within a SHORT-TERM
period.
Volume

Total number of stock shares, bonds, or COMMODITIES futures contracts traded in a particular period.

Wage

Payment for services of employees at an hourly rate.

Walkthroughs

The most effective means for an AUDITOR to confirm his understanding how internal control over
financial reporting is designed and operates to evaluate and test its effectiveness. It includes making
inquiries of and observing the personnel who actually perform the controls; reviewing documents that
are used in, and that result from, the application of the controls; and comparing supporting
documentation to the accounting records. In a walkthrough, the auditor traces a transaction from
origination through the company's information systems to the point where it is reflected in the
company's financial reports. Walkthroughs provide the auditor with evidence to:

1. Confirm the auditor's understanding of the process flow of transactions.

2. Confirm the auditor's understanding of the design of controls identified for all five components of
internal control over financial reporting, including those related to the prevention or detection of fraud.

3. Confirm that the auditor's understanding of the process is complete by determining whether all points
in the process at which misstatements related to each relevant financial statement assertion that could
occur have been identified.

4. Evaluate the effectiveness of the design of controls.

5. Confirm whether controls have been placed in operation.

Warrant

Option to purchase additional SECURITIES from the issuer.

Wash Sale

A wash sale occurs if stock or securities are sold at a LOSS and the seller acquires substantially identical
stock or SECURITIES 30 days before or after the sale. Stock or securities for this purpose includes
contracts or operations to acquire or sell stock or securities. Losses incurred in a wash sale cannot be
deducted. It does not matter if the total 60 day period begins in one tax year and ends in another.
However, the disallowed loss is not permanently lost. Instead, the basis in the newly acquired stock or
securities is the same basis as of the stock or securities sold, adjusted by the difference in price of the
stock or securities.

Weighted-Average-Cost Method

An AVERAGE-COST METHOD procedure for determining the cost of ENDING INVENTORY under the
PERIODIC INVENTORY SYSTEM

Wholesale

The sale of goods in large quantities, especially to a person or COMPANY that plans to sell them at retail.

Wholesaler

Middleman or distributor who sells mainly to retailers, jobbers, other merchants, and industrial,
commercial, and institutional users as distinguished from consumers.

With Recourse

Able to collect losses on uncollectible accounts from the seller.

Withholding
Amount withheld or deducted from employee salaries by the employer and paid by the employer, for
the employee, to the proper authority.

Withholding Allowance

Each taxpayer is allowed to claim a withholding allowance, which exempts a certain amount of wages
from being subject to WITHHOLDING. The allowance is designed to prevent too much taxes being
withheld from a taxpayers wages and a person can compute this by completing form W-4 and submitting
it to their employer.

Without Recourse

Obligated to bear losses from uncollectible accounts.

Work in Progress

INVENTORY account consisting of partially completed goods awaiting completion and transfer to finished
inventory.

Working Capital

Excess of CURRENT ASSETS over CURRENT LIABILITIES.

Working Interest

Direct participation with UNLIMITED LIABILITY, as distinguished from passive LIMITED PARTNERSHIP
shares.

Working Papers
(1) Records kept by the AUDITOR of the procedures applied, the tests performed, the information
obtained, and the pertinent conclusions reached in the course of the AUDIT. (2) Any records developed
by a CERTIFIED PUBLIC ACCOUNTANT (CPA) during an audit.

Worksheet

A type of working paper used as a preliminary step in the preparation of FINANCIAL STATEMENTS.

Wrap-Around Mortgage

Second MORTGAGE which conveniently expands the total amount of borrowing by the mortgagor
without disturbing the original mortgage.

Write Off

Charging an ASSET ACCOUNT to EXPENSE or LOSS.

Yellow Book

Written by the GENERAL ACCOUNTABILITY OFFICE, the yellow book sets forth standards to be followed in
auditing the FINANCIAL STATEMENTS of entities that receive federal financial assistance. "Yellow Book" is
the name given to "Government Auditing Standards" issued by the Comptroller General of the United
States which contains standards for audits of government organizations, programs, activities and
functions, and of government assistance received by contractors, nonprofit organizations and other
nongovernment organizations.

Yield

Return on an INVESTMENT an investor receives from DIVIDENDS or INTEREST expressed as a percentage

of the cost of the SECURITY.
Yield Curve

Graph showing the TERM structure of interest rates by plotting the yields of all bonds of the same quality
with maturities ranging from the shortest to the longest available.

Yield to Call

YIELD on a BOND assuming the bond will be redeemed by the ISSUER at the first call date specified in the
INDENTURE agreement.

Yield to Maturity

Rate of return on a SECURITY to its maturity, giving effect to the stated interest rate, accrual of discount,
or AMORTIZATION of PREMIUM.

Zero-Coupon Bond

BOND on which the holder receives only one payment at maturity which includes both PRINCIPAL and
INTERESTfrom issuance to maturity.

Zero-Coupon Convertible Security

ZERO-COUPON BOND convertible into the COMMON STOCKof the issuing COMPANY when the stock