Dictionary of...Accounting Terms
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r
- The statistic known as the coefficient of correlation. The range of this statistic is -1 to +1. When this statistic is squared the result is the percentage change in the dependent variable y that is explained by the independent variable x.
r squared
- A statistic known as the coefficient of determination. This statistic indicates the percent change in the dependent variable that is explained by the change in the independent variable(s).
R & D
- See research and development costs.
R. Smith, Capital at Beginning of Year
- The owner's equity account that contains the amount invested in the sole proprietorship by R. Smith plus the net income since the company began minus the draws made by R. Smith since the company began. The current year net income might be in the temporary revenue and expense accounts and the current year draws might be in the drawing account. However, after the financial statements for the year are prepared the current year net income and draws will be transferred to this account.
R. Smith, Current Year Net Income
- The net amount of revenues and gains minus expenses and losses for the sole proprietorship owned by R. Smith. After the financial statements are prepared for the year, this amount will be transferred to R. Smith, Capital.
R. Smith, Drawing
- This contra owner's equity account has a debit balance that represents the current year draws made by the sole proprietor, R. Smith. After the year's financial statements have been prepared, the balance in this account will be transferred to R. Smith, Capital.
ratio analysis
- To learn more, see Explanation of Financial Ratios.
raw materials inventory
- See direct materials inventory.
real account
- Permanent account. Includes the balance sheet accounts (assets, liabilities, and owner's or stockholders' equity accounts) but excludes the owner's drawing account, which is a temporary account.
receipts
- Cash received. Receipts is different from revenue.
reciprocal services
- The situation where manufacturing service departments service each other. For example, the factory maintenance department services the factory administrative department and the factory admininstrative department services the factory maintenance department.
reconciliation of bank statement
- To learn more, see Explanation of Bank Reconciliation.
record date
- The date that determines the stockholders entitled to receive a corporation's declared dividend. No accounting entry is made on this date.
redemption of bonds payable
- The repurchase of bonds by the issuer of the bonds.
regression analysis
- A statistical tool that uses the least–squares method to estimate the fixed and variable components of mixed costs.
regression line
- The best fitting line through a series of points as determined by the least-squares method.
relative sales value method of allocating cost
- The allocation of common costs based on the sales value of the products that emerge. For example, a company develops a large parcel of land at a cost of $5 million dollars. Individual lots will be sold for $100,000 to $300,000. A reasonable way to allocate the $5 million of common cost is on the basis of each lot's expected selling price. As a result a $300,000 lot will have three times the cost allocated to it as will a $100,000 lot. This method will also result in a relatively uniform gross profit percentage on each lot sold.
relevance
- A qualitative characteristic in accounting. Relevance is associated with information that is timely, useful, has predictive value, and is going to make a difference to a decision maker.
relevant cost
- A current or future cost that will differ among alternatives. For example, if a company is deciding whether to expand its sales territory, the real estate tax and depreciation on the company's headquarters building is not relevant. The additional travel expenses to the new territory and the additional sales from the new territory are relevant to the decision.
relevant range
- Usually used in describing fixed costs. We often state that fixed costs will not change as volume changes. However, if volume were to triple, there would likely be more fixed costs as the company will need more space and managers. Accordingly, we state that costs are fixed only in a relevant range.
reliability
- A qualitative characteristic in accounting. Is achieved when information is verifiable, objective (not subjective) and you can depend on it.
reliable
- Verifiable, objective (not subjective), and you can depend on it.
rent expense
- Under the accrual basis of accounting, the account Rent Expense will report the cost of occupying space during the time interval indicated in the heading of the income statement, whether or not the rent was paid within that period. (Rent that has been paid in advance is shown on the balance sheet in the current asset account Prepaid Rent.) Depending upon the use of the space, Rent Expense could appear on the income statement as part of administrative expenses or selling expenses. If the rented space was used to manufacture goods, the rent would be part of the cost of the products produced.
rent revenue/income
- Under accrual accounting it is the rent earned during the period indicated in the heading of the income statement, regardless of when the money is received from the tenant.
reorder point
- The quantity on hand that will trigger an order to buy more items. A company's reorder point for Product X might be 80 units. When the quantity on hand gets down to 80, a purchase order is prepared to obtain more of these items.
repairs
- Operating expenses made to return an asset to its previous condition (rather than to make the asset more than it was originally). The amount is charged to an account such as Repairs and Maintenance Expense in the period when the repair is made.
repairs and maintenance expense
- The costs incurred to bring an asset back to an earlier condition or to keep the asset operating at its present condition (as opposed to improving the asset). For example, if a company truck is damaged, the cost to repair the damage is immediately debited to repairs and maintenance expense. Routine maintenance such as engine tune-ups, oil changes, radiator flushing, etc. is also debited to repairs and maintenance expense. (If an expenditure is made to improve the truck, such as adding a hydraulic lift to the truck or if an expenditure is a major repair that extends an asset's useful life, the amount is not expensed immediately; rather, the amount is recorded as an asset and is then depreciated over the truck's remaining useful life.)
replacement cost
- The amount needed to replace an asset such as inventory, equipment, buildings, etc. Because of the cost principle, replacement cost is not acceptable in the financial statements distributed by a company. However, economists and others believe that replacement cost is more relevant than the historical cost. For an illustration involving inventory, see Explanation of Lower of Cost or Market.
replenish
- A term associated with petty cash. Replenish means to return the amount of actual cash in the petty cash box back to the amount appearing in the general ledger account Petty Cash. This is done whenever the amount of actual cash in the petty cash box is low and at the end of each accounting period. A check is written on the company's main checking account for the needed amount. This will be a credit to Cash. The petty cash vouchers (receipts, documentation) determine the general ledger accounts to be debited. Any difference in the amounts of debits and credits goes to the income statement account Cash Short and Over.
required rate of return
- A term used in evaluating business investments. It represents the targeted rate that a company needs to earn. It is also referred to as the discount rate, because this rate is used to discount the future cash flows to the present value.
research and development costs
- R & D costs. These are costs incurred to develop new products or processes that may or may not result in commercially viable items. The general rule is that research and development costs are to be expensed immediately when the costs are incurred.
residual
- Remainder. In the accounting equation owner's equity is referred to as the residual of assets minus liabilities.
residual value
- The remainder or difference. In depreciation the residual value is the estimated scrap or salvage value at the end of the asset's useful life. In the accounting equation, owner's equity is considered to be the residual of assets minus liabilities. In investment evaluations, the residual value is the profit minus the cost of capital.
restricted accounts
- Accounts that have some restrictions. For example, an investment account and a cash account might be restricted for the construction of a new factory. The restrictions mean that these accounts be reported as a long-term asset, since the funds can only be used for the building and are not available for working capital purposes.
Another example is the restriction of retained earnings. This restriction will prohibit dividends from being declared from the restricted portion. restricted cash
- Cash that can be used only for the purpose intended.
restricted retained earnings
- Retained earnings not available for dividends.
retail method of estimating inventory
- A method for estimating the inventory of a retailer. This method requires that the retail amounts and the related cost amounts are available for beginning inventory and purchases. An illustration of this technique is available near the end of the Explanation of Inventory & Cost of Goods Sold. Intermediate accounting textbooks and accounting professionals will provide more of the complexities involving markdowns, discounts to employees, etc.
retained earnings
- A stockholders' equity account that reports the net income of a corporation from its inception until the balance sheet date less the dividends declared from its inception to the date of the balance sheet.
retained earnings statement
- A financial statement that reports the current year information contained in the general ledger account Retained Earnings. The statement will include the beginning balance, prior period adjustments, net income for the current period, dividends declared in the current period, and the ending balance. Also see statement of stockholders' equity and statement of retained earnings.
retirement of assets
- Usually means to scrap a long-term plant asset and receive no proceeds from its disposal.
retirement of bonds
- To repurchase bonds that the company had previously issued.
return on average common stockholder equity
- See return on stockholders' equity.
return on investment
- A financial ratio that expresses the income statement effect from employing an asset as a percentage of the asset's cost on the balance sheet.
return on stockholders' equity
- The result of dividing a corporation's net income by the average amount of common stockholders' equity during the time interval when the net income was earned. To learn more, see Explanation of Financial Ratios.
returned check
- A check that is not paid by the bank on which it is written (drawn). Often the reason for a check not to be paid is the account on which the check was drawn did not have a sufficient balance. In that case the check is returned as "NSF" or not sufficient funds. A check could also be returned unpaid because the account was closed or due to a stop payment order requested by the maker of the check.
revenue recognition principle
- The accounting guideline requiring that revenues be shown on the income statement in the period in which they are earned, not in the period when the cash is collected. This is part of the accrual basis of accounting (as opposed to the cash basis of accounting).
revenues
- Fees earned from providing services and the amounts of merchandise sold. Under the accrual basis of accounting, revenues are recorded at the time of delivering the service or the merchandise, even if cash is not received at the time of delivery. Often the term income is used instead of revenues.
Examples of revenue accounts include: Sales, Service Revenues, Fees Earned, Interest Revenue, Interest Income. Revenue accounts are credited when services are performed/billed and therefore will usually have credit balances. At the time that a revenue account is credited, the account debited might be Cash, Accounts Receivable, or Unearned Revenue depending if cash was received at the time of the service, if the customer was billed at the time of the service and will pay later, or if the customer had paid in advance of the service being performed.
If the revenues earned are a main activity of the business, they are considered to be operating revenues. If the revenues come from a secondary activity, they are considered to be nonoperating revenues. For example, interest earned by a manufacturer on its investments is a nonoperating revenue. Interest earned by a bank is considered to be part of operating revenues. To learn more, see Explanation of Income Statement. revenues and gains
- This is the classification shown on a single-step income statement which reports the operating revenues, nonoperating revenues, and gains in one section of the income statement. Revenues and gains enhance the owner's equity.
revenues from service charges
- An income statement account at a financial institution used to record and report the amounts earned from fees charged to customers.
reversing entry
- A journal entry made on the first day of a new accounting period to undo the accrual type adjusting entries made prior to the preparation of the financial statements dated one day earlier. Reversing entries allow for an effortless way to avoid double-counting revenues or expenses that were accrued at the end of an accounting period.
revision of depreciation estimates
- Usually a change in the estimated useful life of an asset or a change in the estimated salvage value. The change usually causes a change in the depreciation expense for the current year and subsequent years. The depreciation expense of previous years is not changed.
Robert Morgan, Capital
- An owner's equity account that reports the amount the sole proprietor invested in the company plus earnings of the company not withdrawn by the owner.
ROI
- See return on investment.
rubber check
- See not sufficient funds check.
rule of 72
- A technique for estimating the number of years or the interest rate necessary to double your money. Divide 72 by the interest rate and you will have the approximate number of years needed to double your money. If your money earns 4%, your money will double in 18 years (72 divided by 4). If you earn 8%, your money will double in 9 years (72 divided by 8).
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