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TitleAccounting Terminology
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Table of Contents
                            Session 1: Preparation of Income Statement, Balance Sheet and Cash Flow Statements
                        
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Page 1

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.)

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. (See STRAIGHT-LINE DEPRECIATION.)

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 - An accountable plan is 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. (See
CERTIFIED PUBLIC ACCOUNTANT.)

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. (See AUDITORS' REPORT)

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 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).

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

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.

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.

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)

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).
The auditor will issue an adverse opinion when there is an existence of a material weakness on
the effectiveness of internal control over financial reporting.

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.

Agreed-Upon Procedures Report - See ACCOUNTANTS' REPORT.

AICPA - See AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS.

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

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NASBA - See NATIONAL ASSOCIATION OF STATE BOARDS OF ACCOUNTANCY.

National Association of State Boards of Accountancy - 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.

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.

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

Net Income - Excess or DEFICIT of total REVENUES and GAINS compared with total expenses
and losses for an ACCOUNTING period. (See INCOME and LOSS.)

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

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.

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.

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.

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

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

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No-Par Value - Stock or bond that does not have a specific value indicated. (See STATED
VALUE.)

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).
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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.

OCBOA - See OTHER COMPREHENSIVE BASIS OF ACCOUNTING.

OPEB - See OTHER POST-RETIREMENT EMPLOYEE BENEFIT.

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.

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

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 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.

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

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