Accounting helps keep a track of the financial position of the business and forms the basis for good financial planning. While studying accountancy, you may come across several terms that you may not be familiar with. Most glossaries may help you with it, but some definitions may be too elaborately worded for most people to understand, resulting in a confusion. The paragraphs below conjure up a list of basic and advanced accounting terms in a simple language. Glossary of Accounting Terms and Definitions A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z |

A

Above the Line Above the line items are those revenue and expense items that directly affect the calculation of periodic net income. Absolute Change Absolute change is the numeric change in the value of a commodity, expense etc. Absorb/Absorption Absorb indicates that one account or group of accounts combines the amounts from similar or related accounts or groups of accounts. Thus, the combined account is a new entity, while the old ones are removed. For instance, if you have 3 creditors, John, George, and Paul, you can combine them into one creditors' account. Hence, they are called absorption. Absorbed Costs Absorbed Costs are a combination of both variable and fixed costs. Absorption Costing Absorption costing absorbs all costs under two head product costs (manufacturing costs) and period costs (non-manufacturing costs). Absorption Pricing Absorption pricing is setting a price, which is the sum of the absorbed cost plus a marked-up percentage of profit. Absorption Variance Absorption variance is the difference between the predicted and actual absorption costs. Accelerated Depreciation Accelerated depreciation is a form of depreciation where larger amounts of depreciation are calculated in the first few years. Account An account is the physical record of the transactions incurred related to an asset, liability, revenue, expense, etc. Accounts Analysis Accounts analysis can be looked as a method of cost behavior analysis by classifying records under two heads: fixed or variable. Accounts Group Accounts group is a combination of similar accounts, like fixed assets group, long-term liability group, etc. Accounting Accounting is the process of recording all the economic events that affect the business/individual over an accounting period. Accounting is done based on the various accounting principles, concepts, and the Golden Rules. Accounting Concepts There are certain assumptions that are taken for granted while recording the accounts. These assumptions are called accounting concepts. The 4 accounting concepts are Going Concern Concept, Accrual Basis Concept, Consistency Concept, and Prudence Concept. Read on for more about Basic Accounting Concepts and Principles. Accounting Cycle An accounting cycle is the series of steps to be followed while preparing financial statements. The steps in the accounting cycle are budgeting, journal entries, adjusting entries, ledger posting, preparing financial reports, and closing of accounts. Accounting Entity Assumption For legal and tax purposes, a business can be treated as a different entity from the owners. Thus, only the transactions related to the business are recorded and not the ones related to owners. Accounting Equation The accounting equation lays down the relationship between total assets, liabilities and owner's equity. The accounting equation is Total Assets = Total Liabilities + Owner's Equity Accounting Event An accounting event is any event where there is a change (increase/decrease) in value of the assets, liabilities or owner equity. Accounting Income Accounting income is the income earned by the business over the accounting year on an accrual basis. Accounting Measurement and Disclosure Accounting measurement and disclosure is the accounting concept that says that adequate dates should be used and disclosed for the purpose of decision-making. Accounting Periods An accounting period is the frame of time during which the accounts are prepared. An accounting period is usually for a year. Accounting Principles Accounting principles are commonly accepted principles assumed while accounting for the business. For details, refer to GAAP (Generally Accepted Accounting Principles). Accounting Ratios Accounting ratios are mathematical tools, which help in performing the comparative financial analysis for two financial variables. Accounting System An accounting system is a holistic approach to accounting. It may be manual as well as computerized. An accounting system helps identify economic events, record them, and generate reports at the end of the accounting period or even during the period. Accounting Theory An accounting theory develops a framework for the accounting procedure. There are four types of theories of accounting: Classical Inductive, Income, Decision Usefulness, and Information economics. Accounting Timing Difference Accounting time difference is the effect that considering a deferred financial event would have on the financial statements. Accounting Treatment Accounting treatment is the set of rules that lays down how to treat an account and how to handle a particular transaction. Accounts Payable Accounts payable are those accounts wherein the business has an obligation to pay for receiving goods or services. They are classified as a liability. Accounts Payable to Sales Accounts payable to sales represents the time taken between the sales and payment to creditors. Accounts Receivable Accounts receivable are those accounts where the business can owe money for providing goods or services. They are assets. Accounts Receivable Reserve An accounts receivable reserve is a pool of money kept aside by the business to protect itself from default on the accounts receivables. Accounts Receivable Turnover Accounts receivable turnover lets the business measure how quickly the customers are paying out the money receivable. It is calculated by Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable. Accrual Concept Accrual concept is one of the core accounting concepts. Accrual concept states that a economic event should be recorded in the period in which it is incurred rather than when it is paid for or when cash is received in return. Accrued Assets Accrued assets are those assets from which the revenues are earned but not received. Accrued Expenses Accrued expenses are those expenses which have been incurred but not paid. Accrued Income Accrued income is income that is earned but not yet received. Accrued Interest Accrued interest is interest that an asset has earned, but not received. Accrued Inventory Accrued inventory is that which has arrived in the warehouse of the business but hasn't yet been paid for. Accrued Liability Accrued liabilities are those liabilities that have been incurred by the business and haven't been paid off. Accrued Payroll Accrued payroll is employee salaries that remain unpaid at the end of the year. Accrued Revenue Accrued revenue is revenue that has been earned, but not yet received. Accumulated Amortization Accumulated amortization is the accumulated charge against the intangible assets owned by the business. Accumulated Depreciation Accumulated depreciation is the charge incurred for the wear and tear of a fixed asset that is calculated periodically. Acid Test Ratio Acid test ratio is a ratio that analyzes the liquidity position of the business. It is calculated by Acid Test Ratio = Total Liquid Assets / Current Liabilities. Acquisition Acquisition is a situation where one company takes over the controlling stake of another company. Activity-Based Costing Activity based costing is a form of costing that analyzes the cost of a product based on the cost of the various activities performed for it. Activity Ratio Activity ratio is the ability of a business to convert their balance sheet assets into cash or sales. Actual Cash Value Actual cash value is a method for determining the actual loss incurred by the business expressed in monetary terms. It is normally used in context of depreciation. Actual Cost Actual cost is the exact amount you pay to buy a fixed asset as opposed to the market value or production cost. Additional Paid-in Capital Additional paid-in capital is the amount paid by the shareholders over and above the par value of the asset. Adequate Disclosure Adequate disclosure is giving the required amount of information in the form of footnotes to indicate the financial status of the business Adjusted Book Value Adjusted Book Value may be tangible book value or an economic book value. In a tangible book value, the value of intangible assets are deducted from the total assets. In the economic book value, the assets are adjusted to their market value as opposed to the cost of purchase. Adjusting Entries Adjusting entries are the entries done at the end of the accounting period to update certain items that are not recorded as daily transactions. The process of recording adjusting entries are known as adjustment. Administrative Costs Administrative costs are those which are not directly required for the process of production, but are included in the final price of the product as they are incurred. For example, the sales office rent is an administrative cost, as it is not required in the process of production. Advance Advance is an amount of money paid before the business earns it. Agency An Agency is the contractual relationship between the principal and his agent where the agent is empowered by the principal to take certain decisions on his behalf. Aggregate Aggregate means total. Allocation Allocations are amounts distributed to each department for their working expenses. Allowance Allowance is a discount given to customers in the event of provision of unsatisfactory goods or services. Allowance for Bad/Doubtful Debts Allowance for bad debts are amounts of money set aside by the business as a cover for possible defaults on payments. Alternate Payee Endorsement Alternate payee endorsement is when the original payee endorses the draft to another entity, and this other entity endorses it again. Amalgamation Amalgamation is the merger of two or more business entities. Amortization Amortization can mean three things.

1. It is a series of payments that result in gradual reduction of a large debt.
2. It is writing off the value of an intangible asset over the useful life of the asset.
3. It can also mean periodic deduction in the value of a fixed asset by means of depreciation.

Amount Due Amount due is the amount payable by a debtor to a creditor. Read on to know What is Amortization. Ancillary Ancillary refers to something that has lesser importance. Annualized Annualizing is a method by which all the amounts pertaining to less than a year are calculated to their one-year equivalents. Annual Report An annual report is a detailed report of all the financial statements of a business. It is a mandatory requirement for public companies Annuity An annuity is a series of periodical payments of a fixed amount for a fixed period, for instance, insurance premium. Read on for Fixed Annuities Explained and the Annuities Pros and Cons. Appreciation Appreciation is the increase in the value of the asset due to economic conditions or improvements to the asset. Appropriation Appropriation is the allocation of amounts, that are part of the total net profit under various heads, such as the general reserve fund. Arrears Arrears are debt that have not been paid yet. Assessed Value Assessed value is the estimated value that is taken for calculation of tax. Assessment Assessment is the total amount of tax or levy payable. Asset Asset is something that is owned by a business that has commercial value or exchange value. Asset Earning Power Asset earning power is one of the profitability ratios that determine the earning power of assets. It is calculated by Asset Earning Power = Earnings before Taxes / Total Assets. Asset Turnover Ratio Asset turnover ratio helps establish the relationship between the sales and the total assets. It is calculated by Asset Turnover Ratio = Total Revenue / Average Assets. Asset Valuation Asset valuation is the process by which the value of an asset or an asset portfolio is determined. Audit Audit is the process of checking and validating the business records. Audit Committee Audit committee is a special committee appointed in an organization to carry out the audit oversight responsibility of the board of directors. Audit Report Audit report is an official, signed document that provides the details regarding the purpose, scope, and findings of the audit. Authorized Capital Authorized capital is the total money that the company has made by selling the issue of authorized shares. It is calculated by Authorized Capital = Number of Shares which are Issued * Par Value of Shares Average Cost Average cost = Total Cost / Number of Units. Average Inventory Average inventory is the average amount of inventory held over the accounting period. It is calculated by Average Inventory = (Opening Inventory + Closing Inventory) / 2 Average Net Receivables Average net receivables are the average of the accounts receivable over the accounting period. It is calculated by Average Net Receivables = (Opening Net Receivables + Closing Net Receivables) / 2 Average Settlement Period Average Settlement Period is calculated for debtors Average Settlement Period = (Trade Debtors * 365) / Credit Sales for creditors Average Settlement Period = (Trade Debtors * 365) / Credit Purchases Average Tax Rate Average tax rate = Total Taxes Paid / Tax Base. Avoidable Cost Avoidable cost is the cost that can be avoided by taking a particular decision.

B

Bad Debt Bad Debt is the amount owed to us, but which cannot be recovered. It is a loss. Balance Balance is the difference between the credit and the debit sides of an account. Balance Sheet A balance sheet is the list of all the assets and liabilities of the business. Balloon payment Balloon payment is the final payment on a loan. It is called so as it is considerably higher than the regular payments. Bank Balance Bank balance is the amount of money present in the bank account of the business. Bank Overdraft Bank overdraft represents negative balance in the bank account of the company. Bank Reconciliation Bank reconciliation is the verification of all the entries in the bank statement with the bank book of the business. Read on for the Purpose of Bank Reconciliation Process and Steps to Accounts Reconciliation. Bank Statement A bank statement is the financial statement showing the details of all the transactions that the business had made through the particular bank account. Bankruptcy Bankruptcy is a situation where a business/individual does not have enough assets to pay off his liabilities. A person who is bankrupt is called an insolvent. Barter System Barter system is a non-monetary system of exchange where commodities are traded for commodities rather than for money. Base Capital Base capital = Issued and Paid-up Share Capital + Contributed Surplus + Retained Earnings. Basic Earning Power Basic earning power measures the profitability of the assets. It is calculated by the formula Basic Earning Power = EBIT / Total Assets. Basis Basis means the starting point for calculating a variety of variables, such as profit, loss, depreciation, amortization, etc. It can also mean the book value of investments. Batch Batch is a collection of items that needs to be handled together for production. B/D Brought Down. It is the balance from the previous accounting period that is carried forward. Below the Line Below the line items are those that directly affect the balance sheet and not the income statements. Benchmarks A benchmark is a high standard that is set for performance. Big 4 Big 4 refers to the 4 biggest accounting firms: PriceWaterhouseCoopers, KPMG, Delloite and Touche, and Ernst and Young. Billings A billing is a request sent to the debtor asking for payment for a debt. Bill of Exchange Refer: Draft Bills Payable Bills payable is a promise made by the receiver of a benefit to the giver of a benefit, to pay an amount of money in the future. Bills Receivable Bills receivable is a record of all the bills that are receivable by a firm. Bond A bond is a certificate of debt issued either by a corporation or the government to raise money. Bond Discount A bond discount is the difference between the face value of the bond and the issued price. The face value in this case is higher than the issued price. Bond Premium Bond Premium is the difference between the issued price and the face value of the bond. In this case, the issued price is higher. Bond Sinking Fund Bond sinking fund is a provision made by the bond issuing body to pay off the face value of the bond at maturity. Bonus A bonus can be looked upon as the remuneration given to an employee in excess of the stipulated salary. Books Books refers to the journals, ledgers and other subsidiary books such as sales books and purchase books, as maintained by the business. Book Building Book building is a type of share issue where the price of the shares are not fixed, but is determined by investor bidding. Book Costs The book cost is the cost of an asset when it was purchased. It may be a historical cost. Book Income Book income is the revenue earned by a business as reported in the financial statement. Book Inventory Book Inventory = Cost of Acquiring the Inventory - All the Liabilities associated with the Inventory. Book Keeping Book keeping is the process of recording all the economic events and transactions of the business. Books of Accounts Refer Ledger Book to Market Ratio Book to market ratio is a ratio that calculates the book value of the equity of a firm to the market value of the equity. Branch Accounting Branch Accounting is keeping the books of accounts for geographically separated departments or units of the same business. Break Even Analysis Break even analysis can be basically ascertaining how many units of a product sold will cover the costs. The point of the sales volume where the costs are equal to the volume is called break even point. Read on for Break Even Analysis Formulas Brought Forward Refer B/D Budget A budget gives the list of expense heads and the amounts allotted to expense heads. For example, a sales budget lays down the amount to be spent on sales, etc. Budgetary Deficit When there is an excess of expenditure over revenue in a budget, it is known as a budgetary deficit. Budgetary Control Budgetary control is a process where the actual amount incurred and the budgeted amount for each expense head is compared. Budgeting Budgeting is estimating the expenditure needs of the department or each expense head based on historical data and trend analysis. Budget Performance Report Budget performance report represents the comparison between the actual expenditure and the budgeted expenditure. Buffer A buffer is a safety measure over the budgeted amount, in case of contingency. Business Entity A business entity may be a proprietorship, partnership, corporation, or LLC. Every entity has to follow a separate set of rules. Business Valuation Business valuation is the amount that would be realized if the business was sold to a hypothetical buyer. Bylaws Bylaws are the different provisions that govern the corporate policies.

C

CA CA may be short for either Chief Accountant or Chartered Accountant. Call A call may be

1. The process for redeeming a bond or preferred stock before its maturity date.
2. Right to buy 100 shares/asset within a specified period at a specified price.

Callable Bond A callable bond is a type of bond which gives the issuer the right to pay off at his discretion. Capital Capita is the money or the property available for the purpose of production. Capital Account Capital account is the account where all the details regarding the transactions related to the paid-up capital are given. Capital Asset Capital asset is usually used in the context of fixed assets. Assets that are not used in the day-to-day course of business are called capital assets. Capital Budget Capital budget is the amount allocated for the purchase of fixed assets during the accounting period. Capital Charge Capital charge is calculated by the formula Capital Charge = Capital * Weighted Average Cost of Capital. Capital Commitment Capital commitment is a commitment to buy capital assets at a fixed time in the future. Capital Contribution Capital contribution is the cash and assets a corporation acquires through shareholder money. Capital Employed Capital Employed is the actual value of the assets that is contributing to the ability of the business to generate revenue. It is calculated by Capital Employed = Fixed Assets + Current Assets - Current Liabilities. Capital Expenditure Capital Expenditure is the money spent for the improvement and servicing of existing fixed assets or for purchasing new fixed assets. Capital Expenditure Ratio Capital Expenditure Ratio is calculate by the formula Capital Expenditure Ratio = Capital Expenditure / Total assets. Capital Fund Capital funds are calculated by the formula Capital Fund = Total Capital Stock + Capital Debentures + Surpluses + Undivided Profits + Reserves + Guarantee Fund + Guarantee Fund Surplus Capital Gain Capital gain is the positive difference between sale value and the purchase value for an asset. Capital Improvement Capital improvement is any value adding activity to an asset that increases its value. Capital Intensive Capital intensive is a type of industry that relies more on capital to purchase high-end machinery for its production as opposed to labor intensive that relies more on human resources. Capital Investment Refer Capital Expenditure. Capitalization Capitalization refers to the statement of the total capital available with the firm. Capitalization Rate It is the rate of interest that is required to convert the series of future receivable payments into their present value equivalent. Capitalized Cost Capitalized costs are those that are deducted over several accounting periods on account of depreciation or amortization. Capital Loss A situation where there is a negative difference between the purchased price of an asset and selling price of an asset. It is the exact opposite of capital gain. Capital Market Capital market is the market where shares and securities of the listed companies are traded. Capital Profit Capital profit is the distribution of cash due to tax savings on account of depreciation, sale of a fixed asset, or any other sources that are not related to retained earnings. Capital Rationing Capital rationing is to put a restriction or a cap on capital expenditures. Capital Receipts Capital receipt is the amount received on account of the sale of a capital asset. Capital Redemption Reserve A capital redemption reserve is an undistributed reserve created out of the profits of a company. Capital Reduction Capital reduction means to reduce the total capital available with the company. Capital Reserve A capital reserve is one of the reserves that a business creates, out of the yearly profits, for any specific purpose. Capitation Capitation is a fixed charge, tax or payment that is levied as a fixed amount per person. Carried Down Carried down is the year's closing balance for an account that is carried to the next accounting period. Cash Cash refers to the liquid money available with the business in the form of notes and coins for the purpose of payment. Cash Basis The opposite of accrual basis is known as cash basis. It is a type of accounting where the transactions are recorded only when there is an exchange of cash, irrespective of when the transactions occurred. Cash basis accounting is different from the GAAP. Cash Book Cash book is the record of all the cash transactions - receipts and payments, that are made by the business. It may also be expanded to include the bank transactions if the business does not wish to keep a separate bank book. Cash Budget Cash budget is the allocation towards the cash receipts and payments that the business might incur over an accounting period. Cash Deficit Cash deficit means the excess of cash payment obligations over the total cash available. Cash Discount Cash discount is the discount allowed to the debtor to induce him to pay earlier. Cash Dividend Cash dividend is the share of the company profits that is given to the shareholders as dividend. Cash Earnings Cash earnings are defined as the excess of cash revenue over cash expenses in an accounting period. Cash Flow Cash flow is the difference between the cash inflow and the cash outflow in the business. It does not deal with accrued payments and only deals with the inflow and outflow of cash. Cash Flow Analysis A financial management and analysis technique that is used to compare the amount and timing of the inflow and outflow of cash into the business. Cash Flow Statement Cash flow statement is a financial statement that provides details of the inflow and outflow of cash for the business. It is divided into three parts: cash flows from financing, cash flows from investing, and cash flows from operations. Cash Inflow Cash Inflow is the measure of the total cash coming into the business as a result of various financing, investment and operational activities. Cash Outflow Cash outflow is the measure of the total cash going out of the business as a result of the various financing, investment, and operational activities. Cash Management Cash management is a financial management technique that aims to maximize the availability of cash in the business without changing the levels of fixed assets. It aims to secure faster debtor payments to improve the liquidity position of the business. Cash Profit Cash profit is calculated as Cash Profit = Profit after tax + Depreciation. Cash Ratio Cash ratio is calculated by Cash Ratio = (Cash + Marketable Securities) / Current Liabilities. Cash Receipt Refer Receipts Certified Financial Planner A certified financial planner is a financial planner qualified as per the requirements of the Institute of Certified Financial Planners. Certified Public Accountant Certified Public Accountant is a certification that gives an individual the license to practice public accounting. Charge Off Refer Bad Debt Chapter S A special form of incorporated business entity in the United States and is governed by a certain set of rules and is allowed to avoid payment of corporate taxes. Charter A charter is a document of a corporation. Chart of Accounts A chart of accounts is a serial listing of all the ledger accounts of a business. Check A check is a form of payment, through the bank and can be made payable to a specific person or an unspecified bearer at large. Checking Account A checking account is a form of bank account where the amount can be withdrawn by a check, an ATM card or a debit card. Claims A claim is a legally backed demand for money from a debtor, which if not paid, results in a law suit. Claims Outstanding Claims outstanding can be calculated by Claims Outstanding = Claims Against Assets - Claims Settled. Close To close an account is to carry forward the balance to the next year at the end of the accounting period. Closing Accounts Closing an account is passing the closing entry on the last day of the accounting period. Closing Date Closing date is the date where one gets possession of or title to an asset. Closing Entry The closing entry is an accounting entry that is passed to carry forward the balance of an unbalanced account to the next accounting period. Closing Stock Closing stock is the stock of inventory available with the business at the end of the accounting period. Coding Coding means assigning the proper code to the accounts. Collateral Collateral/Security/Mortgage are assets that are given as security for obtaining a loan. In case of a default on the loan, the lender has the right to take up the ownership of the collateral. Collateral Note Collateral Note is a type of note that is secured using a collateral. Collection Period Collection period defines the amount of time it takes to convert your average sales into cash. In other words, it is the time allowed to sales debtors for payment. Combined Financial Statement A combined financial statement is a financial report that combines the financial statements of two or more merged business entities. Commercial Loan Commercial loan is a short term financing given by a lender for a period of around 6 months. Commercial Paper Commercial paper is another form of short term financing issued by businesses to investors for a 2 to 270 day period. Committed Costs Committed costs are a long term fixed costs that the business has an obligation to pay. Commodity Commodities/goods are the main item that the business deals in and is used for commerce. It may be a product or a service based on the nature of the business. Read on for more about Commodity Price Index. Common Size Analysis Common Size analysis is a type of financial analysis where one item/account is taken as the base value and all the others are compared to it. Common Size Statement A common size statement is the financial statement that shows detailed common size analysis. Company A company is an association of persons who bring in capital and undertake a legal business activity. A company may be limited by guarantee or shares. Company Tax Refer Corporation Tax Comparative Statement A comparative statement is a financial statement that compares the results of two or more previous years with the current results. Compensating Errors Compensating errors are those errors that cancel a previous error. Compliance Audit Compliance audit is a watchdog procedure to ensure that the business is complying with the set of rules and procedures that are set for it. It can be compared to the accounts audit which ensures that the true accounting details are disclosed. Compliance Panel A compliance panel is a committee of people in charge of a compliance audit. This can be compared to the financial audit committee. Composite Depreciation Composite depreciation is to combine similar assets in a same class and apply depreciation to all of them at flat rate. Composite Financial Statement A composite financial statement is an average of financial statements of either two or more companies or two or more periods. Compound Annual Growth Rate Compound annual growth rate is the yearly rate applied to an investment over multiple years. Compound Interest Compound interest is the interest calculated on the principal over which the interest continues to accrue over time. Compound Journal Entry Compound general entry is an entry of an economic event that simultaneously affects either two or more debits or two or more credits or both. Comprehensive Annual Financial Report A comprehensive annual financial report is the complete annual financial report of the business. Compulsory Liquidation A compulsory liquidation is the liquidation of the assets of the company by a court order when the company is unable to pay off its outstanding debts. Concessionary Loans Concessionary loans are sanctioned by the government to the companies to fund a particular activity as prescribed by the issuing authority. Conglomerate A conglomerate is a group of different companies run under the same umbrella ownership and run as a single entity. Conservatism Principle Conservatism principle of accounting says that the estimates of the company should be conservative and not understated or overstated. Consistency Principle Consistency principle of accounting says that the same accounting policies and procedures should be followed in every accounting period. Consolidated Capital Consolidated capital includes all the assets and money that is used in day-to-day business operations. Consolidated Financial Statement A consolidated financial statement is a comprehensive statement that gives details regarding all the assets, liabilities and operating accounts of the parent company and subsidiary companies under it, if any. Constraint A constraint is something that limits or restricts a business activity. Contingency Budget Contingency budget is the money set aside for a contingency plan. Contingency Plan A contingency plan is implemented if some unfortunate event takes place. It is a 'plan B'. Contingent A contingent is something that occurs due to a condition that is not yet established. Continuity Assumption The continuity assumption in accounting states that the accounting for the business should be done, assuming that the business will have an unlimited life span. Contra Entry A contra entry is a type of ledger entry that gets offset by an exactly opposite entry. Contributed Assets Contributed assets are those assets that are owned by a contributing entity to the business. Contributed Capital Refer Paid-Up Capital Contributed Surplus A contributed surplus is the money earned through selling the shares of the company over the par value. Contributed Margin Contributed margin is the excess of proceeds from sales over the variable costs. It gives the total revenue available for servicing the fixed costs. Contribution to sales ratio Contribution to sales ratio is calculated by Contribution to Sales Ratio = (Contribution * 100) / Sales Revenue Controllable Expense Controllable expenses are those that can be controlled, restrained, or avoided completely by the business. Conversion Costs Conversion costs are calculated as Conversion Costs = Direct Labor + Manufacturing Overhead. Convertible The word 'Convertible' is generally used to refer to one type of security that can be converted into another type of security. Corporate Governance Corporate Governance is a system, which governs the direction and control of business corporations. Corporation A corporation is a business that has been incorporated and enjoys separate legal rights from its owners. Corporation Tax Corporation tax is the direct tax charged to the profits incorporated in business entities. Correcting Entry A correcting entry is an entry made to nullify the effect of a previously made wrong entry. Cost Cost is the monetary amount that needs to be paid to acquire something. Cost Accounting Cost Accounting/Costing is a procedure to find out, analyze, and control costs. Cost Allocation Cost allocation is the budget allotted to the various cost centers in the business. Cost Assignment Cost Assignment is the assigning of costs of an account to the various accounts that are responsible for incurring the cost. Cost Benefit Analysis Cost benefit analysis is the analysis of the costs and benefits associated with any business decision by first estimating the costs and then the expected return. Cost Ceiling Cost ceiling is the maximum budget that will be allotted for a project. It is calculated as Cost Ceiling = Target Cost + Contingency Cost Cost Center A cost center of an organization is one that does not directly add value to the product, but are indirect costs. For instance, sales and marketing costs are cost centers. Cost Control Cost control is an exercise to control the costs incurred under any head in a business. Cost Driver Cost driver is an event o a series of events and activities that results in costs being incurred Cost/Income Ratio Cost income ratio is a reasonably simple ratio to understand and is calculated as Cost/Income Ratio = Total Expense / Total Income. Cost of Capital Cost of Capital is the rate of return that a business can earn with different investments. It is calculated so that the best investment decision can be taken by the business. Cost of Debt Cost of debt is the amount of money it takes for financing a debt in the form of interest, etc. Cost of Equity Cost of Equity is the compensation that the investors demand for their investment and risk, that the business has an obligation to pay. Cost of Goods Sold Cost of Goods sold is the cost of procuring and processing goods. It includes direct material, labor, and factory overheads. Cost Plus Cost plus is a method of pricing that involves finding out the total cost required to produce a finished good, and then adding a reasonable rate of profit. Cost Principle Cost principle of accounting says that the fixed assets purchase should be recorded at the cost at which they were purchased, as opposed to their economic costs. Cost Reduction Cost reduction is an exercise taken to reduce the total costs incurred by the company by not incurring the avoidable costs. Cost Rollup Cost Rollup is the determination of all the cost elements in the total costs incurred during the course of the business. Cost Split Cost split is one of the most fundamental elements of costing and involves systematic breaking down of all the costs that can be associated with production. Cost Profit Volume Analysis Cost profit volume analysis is a study of the response of the total costs, revenues, and profit due to the changes in the output level, selling price, variable costs per unit, and the fixed costs. Coupon Bond Coupon bond is a financing measure for a business. A coupon bond gives its holder a fixed interest payment on a yearly basis and the proceeds from redemption, at the maturity of the bond Coupon Rate Coupon rate is the fixed interest rate that is provided on a coupon bond. Coverage Ratio Coverage ratio refers to the ability of a business to meet any certain type of expense. Credit Credit is an arrangement between a buyer and a seller for deferred payment on goods and services. A credit entry is an entry, which eventually will reduce assets or increase liabilities. Credit Control Credit Control is a situation, where obtaining credit is discouraged by increasing the cost of credit. Credit Line Credit line is the maximum credit allowed by the business to one customer, a group of customers, or all the customers. Credit Memo Credit memo is the document, which is used while issuing credit to vendors. Credit Note When a customer returns the merchandise to the business, then the business issues a credit note to his name, saying that his account has been credited for the value of the goods returned. Creditor Account Creditor account is a cumulative record of all the creditors to the business. It is a record of the money payable to them. Creditor Turnover Creditor Turnover ratio is calculated as Creditor Turnover = (Average Creditors * 365) / Cost of Sales Credit Risk Credit risk is the chance of loss that a business faces from nonpayment by the borrowers. Credit Sales Credit sales are sales for which cash is not paid immediately, but the customer promises to pay it on a future date. Cumulative Earnings Cumulative Earnings is the sum total of all the earnings over a period of time. Cumulative Preferred Stock Cumulative preferred stock is a type of preferred stock on which if the dividend is not paid in one year, then the dividend will accumulate to the future years. Current Asset Current Assets are those assets in the hands of the company that are usually sold or converted into cash within a year. Current Cost Current cost is the cost that would be incurred if the business decided to replace an asset. Current Cost Accounting Current cost accounting is a type of accounting that records the updated amounts according to the current cost as opposed to the historical cost. Current Debt to Total Debt Ratio Current debt to total debt ratio shows the current liabilities of the company as a percentage of the total liabilities of the business. It is calculated by Current Debt to Total Debt Ratio = Current Debt * 100 / Total Debt Current Liabilities Current liabilities are the liability obligations of the business, which it is expected to pay off within a year. Current Ratio Current ratio is the ratio that compares the current assets to the current liabilities in the company. It is calculated by the formula: Current Ratio = Current Assets / Current Liabilities. Custodian A custodian is the business entity that is in charge of maintaining records or is the caretaker for a property. Customs Customs is the authority who is in charge of collecting duty on the merchandise that comes into the country. The duty that is paid for importing goods into the country is called custom duty.

D

Day Book A day book is a daily written record of transactions. Day's Cash on hand Days cash on hand is the average cash available with the business. Day's Inventory Day's inventory shows the average amount of time that the items are in the inventory. Days Payable Outstanding Days payable outstanding shows the amount of time it takes for the business to pay off its creditors on receipt of inventory from them. Days Sales Outstanding Days sales outstanding is the amount of time it takes for converting debtors/receivables to cash. Dead Assets Dead assets are those assets whose life is restricted to their immediate use. Debentures Debentures are instruments used by the business to raise money. A debenture may be backed by security or unsecured. Debit A debit is an entry on the left side of a ledger account, which eventually increases the amount of assets or expenses or decreases the liabilities, revenue, or the net worth. Debit Note A debit note is a document that informs/reminds a debtor of his outstanding debt. Debit Record Refer Debit Debt A debt is money or goods or services, which one business owes another business. A business that owes money to another is said to have a debt over the other. Debt Coverage ratio Debt coverage ratio is the comparison between the net income of an investment and the amount required to service the debt. Debt Financing Debt financing means to finance the activities of the business by issuing debt instruments, like bonds, debentures, or getting loans. Debt Instrument A debt instrument is a written document that acknowledges debt. Debtor A person or persons who owe money to the business are collectively known as debtors. Debtor Days Debtor days is the average number of days required to convert receivables to sales. Debt ratio Debt ratio measures how much of the total funds of the business are provided by outsiders. It is calculated by: Debt Ratio = Total Liabilities / (Total Liabilities + Shareholder Equity) Debt Security Debt security is the security for debt capital, i.e., debentures, bonds. Debt Service Ratio Debt service ratio is the amount of total revenue that is spent on paying for debts. It is calculated by Debt Service Ratio = (Debt Payment * 100) / Total Income Debt to Equity Ratio Debt to equity ratio measures the part of the total capital that is financed by debt and the part financed by equity. It is calculated by Debt to Equity Ratio = Total Liabilities / Stockholder Equity Debt to Total Assets Ratio Debt to total assets ratio measures the percentage of assets financed by debt. Declining Balance Depreciation Method Declining balance depreciation method is a method of calculation of depreciation at a fixed rate. Under this method, an asset will continuously be depreciated a fixed rate of percentage, and the subsequent depreciation will be on the reduced balance. Deduction Deduction means to subtract. Deductive Accounting Theory Deductive accounting theory works on the assumption that accounting standards and reporting rules can be based on logical and mathematical deduction. Default Default is when a debtor to the business does not pay the amount due to the business, due to inability or unwillingness on his part. It is used more commonly in the context of banking where a default is a situation when a person who has taken a loan does not pay it back. Defeasance Defeasance is to release a debtor from his debt obligation to the business. Deferred Deferred is an asset or a liability that will be realized at a future date. Deferred Annuity Deferred annuity is a series of payments that will start on a future date. Deferred Development Costs Deferred Development Costs are those, which will be recognized after a certain condition/obligation is satisfied. Deferred Expenditure Deferred expenditure is expenditure ,which is carried forward and written off over subsequent periods. Deferred Expenses Refer Prepaid Expenses Deferred Income Deferred income is income earned in advance by the business. Deferred Maintenance Deferred Maintenance is the expense that should have been paid for maintenance but has been delayed. Deferred Payment Credit Deferred payment credit is a letter of credit that states that a payment will be made at the end of the period specified in the letter of credit. Deferred Tax Assets Deferred tax assets are those assets that reduce the tax liability of the business for some years over the validity of those assets. Deferred Tax Liability Deferred tax liabilities are the opposite of deferred tax assets and have the effect of increasing the tax payment of the business in the following years. Deficit A deficit is the excess of expenditure over revenue. Deficit Budget A deficit budget is a budget where the budgeted expenses are more than the budgeted income. Deficit Spending Deficit spending is the external financing required to finance the expenses that are not covered by income. Deflation Deflation is a situation characterized by a decline in prices. Delinquency Ratio Delinquency Ratio is the ratio that compares the past-due loans to the loans that have been serviced completely. Demand Deposit A demand deposit is a deposit kept with a bank from which money may be withdrawn at any time without any notice. Demand Draft Demand draft is an instrument of payment that one person gives to the other and the other person can demand money against it. Demand Note Demand note is a note that is payable on demand from a person who owes the money. Departmental Accounting Departmental accounting is maintaining the account of the expenses and revenue of the various departments of the company that have varying autonomy, but are not geographically separated. Depreciable Cost Depreciable cost is the cost of the fixed asset, which is subject to depreciation. Depreciated Historical Costs Depreciated historical cost is the method of valuing certain assets. Depreciated Historical Costs = Cost of their Acquisition + Enhancement - Reduced Depreciation till that date. Depreciation Depreciation is writing off the book value of a fixed asset every year, due to the reduction in its value caused by wear and tear, obsolescence, etc. Depreciation Allocation Depreciation allocation means that instead of simply writing off depreciation each year, the business could instead make an amortization or a reserve for improving the fixed asset or for buying a new one. Depreciation Convention Depreciation convention is determining the method of depreciation to be used for an asset that is purchased at some time during the accounting period. Depreciation Reserve Depreciation reserve is used to create a systematic account by allocating the depreciated price of a fixed asset over its entire life. Depreciation Schedule A depreciation schedule is a statement showing the details of the amounts and timing of depreciation over its effective life. Derivative A derivative is a transaction or a contract whose value is derived from the value of the underlying assets. Designated Receipts Designated receipts are revenues that are designated for a specific purpose. Devaluation Devaluation is reducing the value of something. It is most commonly used in the context of currency value reduction. Diluted Earnings Per Share Diluted Earnings per share are calculated not only on equity stock but also on preferred stock and convertible debt. Dilution Dilution is weakening or decrease in the value of a balance sheet item. Diminishing Value Method Refer Declining Balance Depreciation Method Direct Cost Direct Cost is a total of the costs that are associated with the actual production of a product. Direct Costs = Direct Material + Direct Labor. Direct Expense Direct Expenses are those expenses, which are directly associated with providing a product for sale. Direct Labor Direct Labor is the remuneration paid to the employees who produce the product. Direct Labor Budget Direct Labor Budget is the planned monetary allocation for paying for the direct labor. Direct Labor Rate Variance Direct Labor Rate Variance is the difference between the standard hours to be worked by an employee and the actual hours worked by the employee. Direct Materials Direct Materials includes the cost of purchasing the raw materials for the process of production. Director's Report The director's report is written by the director of the company in the annual report as to his analysis and comments on the performance of the company in the past year and the director's vision for the next year. Direct Write off Method Direct write off method is to write off all the bad debts at the time that they are adjudged non-collectable. Disbursement Voucher Disbursement voucher is the document used to request disbursement for expenses. Disclosure Note Refer Disclosure Principle Disclosure Principle Disclosure principle in accounting says that any detail regarding the information related to the better understanding of the financial statement should be disclosed by the management. Discount Discount is the decrease in the price of a product. Discount Allowed A discount is said to be allowed when the seller reduces the price to induce the customer to make a purchase. Discounted Cash Flow Discounted cash flow is to discount the cash flow from an investment at the required rate of interest each year. Discounted Earnings Discounted earnings is to reduce the value of future inflows into the company by a specific rate of interest. Discounted Payback Discounted payback period is the period of time it will take to cover your initial cash outflow at the discounted rate of interest. Discounting Rate Discounting rate is the rate of interest at which a series of cash inflows/outflows are discounted. Discrepancy Discrepancy is the difference between two claims or facts. Discretionary Costs Discretionary costs are those costs that can be increased or decreased at the choice of the business. Discretionary Income Discretionary income is the income left with the company after all the primary costs are incurred. Dishonored Note Dishonored note is a note that the debtor defaulted on, creating a bad debt. Disintermediation Disintermediation is the transfer of funds from the low return investment options to the higher return options. Disposable Income Disposable income is the income left with the company after all the primary obligations are met. Dissolution Dissolution is legally winding up the business. Distribution Cost Distribution cost is the cost incurred on distributing the product to its users. Distribution to Owners Distribution to owners is the payment to owners in the form of dividend. DIT DIT is short for Depreciation, Interest and Taxes. Divestiture Divestiture is when a company sells its product line, division, or a subsidiary. Dividend Dividend is a portion of the earnings of the business that is paid to the shareholders of the company. Dividend Capitalization Dividend capitalization is the method for estimating the cost of the firm's common equity. Dividend Payout Ratio Dividend payout ratio gives the percentage of earnings that are given as dividends. Dividend Per Share Dividends per share are calculated by Dividend per share = Total Dividend / Number of Shares. Dividend Yield Ratio Dividend yield ratio = Latest Annual Dividends / Current Share Price Division A division is a unit or a part of the company that is runs its operations independently. Document Control Document control is the department in the company that looks after the documentation in the company and take care of all the documents. Document Reconciliation Document Reconciliation is the synchronization and verification of all the documents. Document Review Document Review is a technique of data collection by examining existing records. Doomsday Ratio Doomsday ratio is calculated by Doomsday Ratio = Cash in Hand / Total Liability Double Accounting Double accounting is a fraudulent or unintentional double counting of assets or liabilities. Double Entry Accounting Double entry accounting is recording the debit as well as the credit effect of the entry. Double Leverage Double Leverage refers to a situation where the holding company raises the debt and dowstreams it to the subsidiary company. Doubtful Debts Doubtful debt is a debt owed to the business the recovery of which, is not certain. Down payment Down payment is a lump sum payment made at the time of purchase. Draft A draft is a note that signifies a contract between a buyer and seller, saying that the buyer will pay the specified sum of money at the end of the specified period. Draw Refer Proprietor's Draw Drawdown Drawdown shows the quantity of value lost, either as a percentage or in currency terms Drawee Drawee is the person in whose favor a check/bill etc. is drawn. Duality Concept Duality concept is an accounting concept, which says that every accounting entry will have two effects, debit and credit. Due Diligence Due diligence is the level of diligence that the internal audit committee is expected to maintain. Duty Duty is the tax which is imposed on imported goods.

E

E & OE E & OE is an abbreviation for Errors and Omissions Excepted. E & P E & P is an abbreviation for Earnings and Profits. Earned Income Earned income is the income earned by selling goods and services. Earning Asset Earning asset is simply an asset, which has a capacity to earn. Earning Capacity Earning Capacity is the net average earnings of an asset at any given point of time. Earning Power Earning Power = EBIT / Total Assets Earnings Earnings is the financial ability of the business to make distributions to its shareholders. Earnings before Taxes Refer Profit Before Taxes Earnings from Operations Earnings from operations = Sales - Operating Costs Earnings per Share Earnings per share = Profit After Tax / Number of Shares EBIT EBIT is the acronym for Earnings Before Interest and Taxes. EBITDA EBITDA is the acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDARM EBITDARM is the acronym for Earnings Before Interest, Taxes, Depreciation, Amortization, Rent and Management fees. Economic Cost Refer Opportunity Cost Economic Entity Economic entity is the accounting concept that provides a context for economic events for recording the transactions. Economic Order Quantity Economic order quantity is that level of inventory to be ordered which minimizes the cost of holding and transporting inventory along with having the required stock all the time so that the production activity does not get hindered. Economic Value Economic value is the value of the asset derived from its earning capacity. Economies of Scale Economies of scale is a theory that the more quantity you buy, the lesser is the average cost of each individual item. Effective Interest Rate Effective interest rate is the cost of credit computed on a yearly basis and expressed as a percentage. Effective Tax Rate Effective tax rate is the net rate of all the taxes that a person/business pays on income. Effective Tax Rate = total taxes paid / total income Efficiency Efficiency is the comparative ratio of output to input. Embezzlement Embezzlement is fraud or misappropriation by an entrusted person, e.g., by employees. EMI EMI is the acronym for Equated Monthly Installments. Employee Compensation Employee compensation is the wages/salaries and all the other benefits provided to the employee by the employer. Endorsement Endorsement is to forward a note/bill/check by the original payee. Engagement Engagement is to pledge, bind, or come together of two or more entities. Engineered Costs Engineered costs are those costs which are directly linked to output. Entity Concept Entity concept of accounting says that the business and its proprietors are different entities, and the personal transactions of the proprietor should not be included in the books of accounts. EOM EOM is the acronym for End of the Month. EOY EOY is the acronym for End of the Year. Equity Equity means the ownership or the percentage of ownership that a person has in a company. Equity Accounting Equity Accounting is the practice of showing the undistributed profits of another company in which one company holds an ownership of below 50%. Equity Capital Equity capital is a way of financing where the company's equity is sold to investors. Equity Financing Equity financing is a way of financing by issuing common stock or preferred stock. Equity Holding Equity holding is holding a share of capital in a company which gives the shareholder the rights to vote, receive dividend etc. Equity Share An equity share is defined as the share of the total equity held by the investor. Equity to Asset Ratio Equity to asset ratio gives the amount of assets that are financed by the shareholders' equity capital. Errors of Commission Errors of commission are those that occur because some incorrect action is taken. Errors of Omission Errors of omission are those that occur because some action is not taken. Errors of Original Entry Errors of original entry are those where a wrong amount is entered on both debit and credit sides in the journal. Errors of Principle Errors of principle are those where the entry is made to a wrong category of account. Estate Estate is all the assets owned by the company at the time of death of the holder of the assets Estate Taxes Estate taxes are the taxes levied on the transfer of property from the deceased to the legal heirs. Ethical Standards Ethical standards are written documents that contain the basic principles and essential procedures along with the related guidance in the form of explanations and other material. Excise Tax Excise tax is the tax that is levied by the federal government or the state government on activities such as manufacture, occupation, privilege, sale, and non-deductible consumption. Executor An executor is a legal entity, specified in the will of the deceased that is vested with the power to execute the will. Exempt Exempt is to be free from a tax liability. Expected Annual Capacity Expected annual capacity is the production capacity planned for the year. Expendable Expendable item is one that can be used and discarded and will not affect the end product. Expenditure Expenditure is the cost incurred in trying to generate revenue. Expenses Expenses are daily costs incurred to run and maintain a business. External Audit External audit is the audit performed by an entity, which is external to the business. Extraordinary Items Extraordinary items are those which occur infrequently and are unusual.

F

Face Value Face value is the value that is printed on the face of a commodity. Factoring Factoring is to buy a debt at a discount. Factory Overhead Factory overheads are those costs incurred within the factory that cannot be directly assigned to direct costs. Fair Market Value Fair market value of a commodity is the value at which the seller is willing to sell the commodity and the buyer is ready to buy it. Fair Value Fair value is the value at which a seller is willing to sell and the buyer is willing to buy an asset. F & A F & A is the commonly used acronym for either Facilities and Administrative costs or Finance and Accounts or Finance and Administration. Favorable Variance A variance is said to be favorable when the actual spending/use of resources by the business is less than the standard spending/use. FBWT FBWT is the acronym for Fund Balance with Treasury. FDI FDI is the acronym for Foreign Direct Investment. Fees Earned Fees earned is an income statement account, which shows the service revenues earned during the period. Fees Simple Fees simple implies absolute ownership over a real property. FF & E FF & E is the acronym for Furniture, Fixtures, and Equipment. Fictitious Asset Fictitious asset is the debit balance on the asset side of the balance sheet. Intentional creation of fictitious assets may amount to fraud. Fiduciary Fiduciary is a business or an individual that is empowered to act for another in good faith and trust. FIFO FIFO is the