Often referred to as write-up work, a compilation refers to financial statements prepared by an accountant without reviewing or auditing the amounts. Often the accountant merely takes a client’s amounts and...
Often referred to as write-up work, a compilation refers to financial statements prepared by an accountant without reviewing or auditing the amounts. Often the accountant merely takes a client’s amounts and...
Money set aside for a specific purpose. An individual’s monthly mortgage payment might include $300 per month for the real estate taxes due at the end of the year. The $300 is said to be put into escrow each...
Life insurance without a cash value.
See full disclosure principle.
See manufacturing costs.
An intangible asset reported on the balance sheet at the company’s cost (or lower). Often, successful trade names were developed by companies over many years. As a result the cost of the trade name is minimal, but...
Revenue that has been earned but not yet invoiced to the customer.
A class of corporation stock that provides for preferential treatment over the holders of common stock in the case of liquidation and dividends. For example, the preferred stockholders will be paid dividends before the...
A common cost. Often refers to the costs prior to the point where several products emerge from a common process.
Cash and other resources that are expected to turn to cash or to be used up within one year of the balance sheet date. (If a company’s operating cycle is longer than one year, an item is a current asset if it will...
Obligations due within one year of the balance sheet date. (If a company’s operating cycle is longer than one year, an item is a current liability if it is due within the operating cycle.) Another condition is that...
In accounting this term means a company’s net income, which is the bottom line of the income statement.
Transfer of an asset’s title from seller to buyer for a stated amount. The transfer/sale occurs at the shipping point (if terms are FOB shipping point), at the time when the item reaches the destination (if terms...
The amount before deductions. For example, gross pay is the amount before withholding deductions. Gross sales is the amount before sales returns and allowances and sales discounts.
A difference between an actual cost and a budgeted or standard cost, and the actual cost is the lesser amount. In the case of revenues, a favorable variance occurs when the actual revenues are greater than the budgeted...
Occurring twice per month. For example, if salaried personnel are paid on the 15th and the last day of the month, we would say they are paid semimonthly. People paid semimonthly will receive 24 paychecks during a year....
The next best benefit foregone. The opportunity lost. Often measured as the contribution margin given up by not doing an activity. For example, if a sole proprietor is foregoing a salary and benefits of $50,000 at...
A legal entity organized under state laws that is considered separate from its owners. Ownership is evidenced by shares of stock.
The length of time that an asset would last. Instead of the physical life, accountants focus on the useful life. For example, a computer’s physical life is perhaps 50 years. However, its useful life is likely to be...
Usually this refers to manufacturing employees who are not classified as direct labor. Material handlers, mechanics, setup workers, clean up workers are a few examples of indirect labor.
An employee’s pretax compensation based on hours worked times an hourly rate of pay. Production workers and nonmanagement employees are usually paid wages. To learn more, see Explanation of Payroll Accounting.
A term meaning behind, such as dividends in arrears, or something occurring at the end of a period, such as the recurring payment in an annuity in arrears.
See certificate of deposit.
The recording of a company’s transactions into the accounts contained in the general ledger. It is usually associated with the accounting tasks prior to the preparation of the trial balance. To learn more about...
A bond with collateral.
The party receiving goods to be sold. See consigned goods.
The ability to generate cash.
A dividend paid in assets other than cash.
Journals other than the general journal. Special or specialized journals include the cash receipts journal, the cash disbursements journal, the purchases journal, and the sales journal.
See absorption costing.
A dividend in the form of more shares of stock. A 5% stock dividend means that a stockholder holding 100 shares would receive 5 additional shares of stock. Since all shareholders receive additional shares, each...
A bearer bond is a bond that is not registered in its owner’s name. The person holding the bond is presumed to be the owner of the bond. The interest on a bearer bond is received by clipping one of the dated...
A rental agreement where ownership is not intended. An operating lease is not recorded in the general ledger accounts and therefore the asset and liability will not appear on the balance sheet. A lease that in substance...
The repeated elimination of products without a corresponding decrease in overhead costs. As a result the amount of overhead allocated to each unit of product increases. If selling prices are increased to cover the higher...
The relationship between two variables. There can be correlation without a cause-and-effect relationship. Also see coefficient of correlation.
The abbreviation for the accounting and bookkeeping term debit.
See perpetual system of inventory.
The internal growth of a company’s existing businesses. Organic growth excludes the additional sales resulting from acquiring another company.
See income statement. To learn more, see Explanation of Income Statement.
See chief executive officer.
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