A
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. (See straight-line depreciation.)
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.
Amount owed to a creditor for delivered goods or completed services.
Claim against a debtor for an uncollected amount, generally from a completed transaction of sales or services rendered.
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 accountant's report does not result from the performance of an audit. (See auditor's report.)
Change in (1) an accounting principle; (2) an accounting estimate; or (3) the reporting entity that necessitates disclosure and explanation in published financial reports.
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).
Method of accounting that recognizes revenue when earned, rather than when collected. Expenses are recognized when incurred rather than when paid.
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.
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.
Expression of an opinion in an auditor's 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).
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.
Person who evaluates and interprets public company financial statements.
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.
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.
Series of payments, usually payable at specified time intervals.
The inspection of a business or other organization’s accounting records and procedures. Done by a trained accountant from within the organization (internal audit) or by an outsider (independent audit) for the purpose of verifying the accuracy and completeness of the records.
Agreement between a CPA firm and its client to perform an audit.
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 auditor's 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. (See accountant's report.)
B
Sum of debit entries minus the sum of credit entries in an account. If positive, the difference is called a debit balance; if negative, a credit 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 statement of financial condition.
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.
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.
C
Assets intended to further production. The amount invested in a proprietorship, partnership, or corporation by its owners.
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.
Ownership shares of a corporation authorized by its articles of incorporation. The money value assigned 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.
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.
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.
Method of bookkeeping by which revenues and expenditures are recorded when they are received and paid. (See other comprehensive basis of accounting.)
Net of cash receipts and cash disbursements relating to a particular activity during a specified accounting period.
Sudden property loss caused by theft, accident, or natural causes.
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.
A specialist who is educated and trained in the detection and deterrence of a wide variety of white-collar crimes such as identity theft, fraud and embezzlement. CFEs gather evidence, take statements, write reports and assist in investigating fraud in its varied forms. CFEs are employed by most major corporations and government agencies, and others provide consulting and investigative services. Certified Fraud Examiners come from various professions, including auditors, CPAs, fraud investigators, loss prevention specialists, attorneys, educators and criminologists. A CPA with the CFE (Certified Fraud Examiner) designation is a certified public accountant who specializes in fraud examination. Having dual certification increases one's credibility, earning potential and career possibilities due to, in part, increased demand in the marketplace and the rise in financial crimes. By earning the CFE credential as a CPA, you'll show prospective employers that you exemplify the highest moral and ethical standards of the profession and you have the ability to conduct complete, efficient, thorough and ethical fraud investigations.
An international certification awarded by the Institute of Internal Auditors (IIA) that reflects competence in the principles and practices of internal auditing.
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.
Financial statement comprising the accounts of two or more entities.
Capital stock having no preferences generally in terms of dividends, voting rights or distributions. (See preferred stock.)
Financial statement presentation in which the current amounts and the corresponding amounts for previous periods or dates also are shown.
Funds that a borrower must keep on deposit as required by a bank.
Presentation of financial statement data without the accountant's assurance as to conformity with generally accepted accounting principles (GAAP).
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.
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.
Combined financial statements of a parent company and one or more of its subsidiaries as one economic unit.
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. (See merger.)
Account considered to be an offset to another account. Generally established to reduce the other account to amounts that can be realized or collected.
Measure of risk that errors exceeding a tolerable amount will not be prevented or detected by an entity's internal controls.
Experienced accountant who directs internal accounting processes and procedures, including cost accounting.
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.
Procedures used for rationally classifying, recording, and allocating current or predicted costs that relate to a certain product or production process.
Arrangement in which one party borrows or takes possession in the present by promising to pay in the future.
Balance remaining after one of a series of bookkeeping entries. This amount represents a liability or income to the entity. (See balance.)
Party that loans money or other assets to another party.
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.
Obligation whose liquidation is expected to require the use of existing resources classified as current assets, or the creation of other current liabilities.
(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.
D
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. (See credit.)
Balance remaining after one or a series of bookkeeping entries. This amount represents an asset or an expense of the entity. (See balance.)
Failure to meet any financial obligation. Default triggers a creditor's rights and remedies identified in the agreement and under the law.
Income received but not earned until all events have occurred. Deferred income is reflected as a liability.
Financial shortage that occurs when liabilities exceed assets.
Method of computing a deduction to account for a reduction in value of extractable natural resources.
Expense allowance made for wear and tear on an asset over its estimated useful life. (See accelerated depreciation and straight-line depreciation.)
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.
People with overall responsibility for a business, who act in accordance with the best interests of the corporation and its shareholders. The Directors elect the Officers (for example, President, Vice President, Secretary, Chief Financial Officer) to handle the corporation’s day-to-day affairs.
Payment by cash or check.
Process of divulging accounting information so that the content of financial statements is understood.
Reduction from the full amount of a price or debt.
Payment by a business entity to its owners of items such as cash assets, stocks, or earnings.
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.
(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.
F
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.
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.
Independent, private, non-government group which is authorized by the accounting profession to establish generally accepted accounting principles in the U.S.
Presentation of financial data including balance sheets, income statements and statements of cash 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.
Period of 12 consecutive months chosen by an entity as its accounting period which may or may not be a calendar year.
Any tangible asset with a life of more than one year used in an entity's operations.
Prospective financial statements that are an entity's expected financial position, results of operations, and cash flows.
Seizure of collateral by a creditor when default under a loan agreement occurs.
Provides for an accounting analysis that is suitable to a court of law which will form the basis for discussion, debate, and ultimately dispute resolution. Forensic accounting encompasses investigative accounting and litigation support. Forensic accountants utilize accounting, auditing, and investigative skills when conducting an investigation. Equally critical is the ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting.
Legal arrangement whereby the owner of a trade name, the franchiser, contracts with a party that wants to use the name on a non-exclusive basis to sell goods or services, the franchisee. Frequently, the franchise agreement grants strict supervisory powers to the franchiser over the franchisee which, nevertheless, is an independent business.
The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of employing an organization's resources or assets. This can include the fraudulent conversion and obtaining of money or property by false pretenses.
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. (See restricted fund and unrestricted fund.)
G
Recognized common set of accounting principles, standards, and procedures. This is a combination of accepted methods of doing accounting and authoritative standards set by policy boards.
Premium paid in the acquisition of an entity over the fair value of its identifiable tangible and intangible assets less liabilities assumed.
I
Inflow of revenue during a period of time. (See net income.)
Summary of the effect of revenues and expenses over a period of time.
(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. (See other comprehensive basis of accounting.)
When an entity's liabilities exceed its assets.
One of the portions, usually equal, into which a debt is divided for payment at specified intervals over a fixed period.
Payment for the use or forbearance of money.
Process designed to provide reasonable assurance regarding achievement of various management objectives such as the reliability of financial reports.
Federal agency that administers the internal revenue code. The IRS is part of the United States Treasury Department.
Tangible property held for sale, or materials used in a production process to make a product.
Expenditure used to purchase goods or services that could produce a return to the investor.
L
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.
Debts or obligations owed by one entity (debtor) to another entity (creditor) payable in money, goods, or services.
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.
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.
Winding up an activity by distributing its assets to the appropriate parties and settling its debts.
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.
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. (See net income.)
N
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 one fails to exhibit the care which one ought to exhibit, whether it be slight, ordinary, or great.
Excess of the value of securities owned, cash, receivables, and other assets over the liabilities of the company.
Excess or deficit of total revenues and gains compared with total expenses and losses for an accounting period. (See income and loss.)
Sales at gross invoice amounts less any adjustments for returns, allowances, or discounts taken.
Similar to equity, the excess of assets over liabilities.
An incorporated organization which exists for educational or charitable purposes, and from which its
T
Assets having a physical existence, such as cash, land, buildings, machinery, or claims on property, investments, or goods in process. (See intangible assets.)
Charge levied by a governmental unit on income, consumption, wealth, or other basis.
Process of instituting a charge against a legal entity's person, property or activity for the support of government. (For example, income taxes, sales taxes, duties and levies.) [See Tax]
Ancient legal practice where one person (the grantor) transfers the legal title to an asset, called the principle or corpus, to another person (the trustee), with specific instructions about how the corpus is to be managed and disposed. shareholders or trustees do not benefit financially. Also called not-for-profit organization.Working Capital
Excess of current assets over current liabilities.
