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Accounts Payable

answer

A liability backed by the general reputation and credit standing of the debtor.

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Accoutning

answer

The information system that measures business activities, processes that information into reports and financial statements,and communicates the results to decision makers.

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Accounting Equation

answer

The most basic tool of accounting: Assets = Liabilities + Owners' Equity.

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Asset

answer

An economic resource that is expected to be of benefit in the future.

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Balance Sheet

answer

List of an entity's assets, liabilities, and owners' equity as of a specific date. Also called the statement of financial position.

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Board of Directors

answer

Group elected by the stockholders to set policy for a corporation and to appoint its officers.

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Capital

answer

Another name for the owners' equity of a business.

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Cash

answer

Money and any medium of exchange that a bank accepts at face value.

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Common Stock

answer

The most basic form of capital stock.

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Going-concern (continuity) Assumption

answer

Holds that the entity will remain in operation for the foreseeable future.

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Corporation

answer

A business owned by stockholders. It's a legal entity, an "artificial person" in the eyes of the law.

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Current Asset

answer

An asset that is expected to be converted to cash, sold or consumed during the next 12 months, or within the business's normal operating cycle if longer than a year.

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Current Liability

answer

A debt due to be paid within one year or within the entitys operating cycle if its longer than a year.

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Deficit

answer

Negative balance in retained earnings caused by net losses over a period of years.

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Dividends

answer

Distributions (usually cash) by a corporation to its stockholders.

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Entity

answer

An organization/section that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit.

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Ethics

answer

Standards of right and wrong that transcends economic and legal boundaries. These standards deals with the way you treat others and restrain our own actions because of the desires, expectations, or rights of others, or with our obligations to them.

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Expenses

answer

Decrease in retained earnings that results from operations, the cost of doing business; opposite of revenues.

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Fair Value

answer

The amount that a business could sell an asset for, or the amount that a business could pay to settle a liability.

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Financial Accounting

answer

The branch of accounting that provides information to people outside the firm.

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Financial Statements

answer

Business documents that report financial information about a business entity to decision makers.

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Financial Activities

answer

Activities that obtain from investors and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows.

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Fixed Assets

answer

Another name for property, plant, and equipment.

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Generally Accepted Accounting Principles (GAAP)

answer

Accounting guidelines, formulated by the Financial Accounting Standards Board, that govern how accounting is practiced.

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Historical Cost Principle

answer

Principle that states that assets and services should be recorded at their actual cost.

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Income Statement

answer

A financial statement listing an entity's revenues, expenses, and net income or net loss for a specific period. Also called the statement of operations.

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International Financial Reporting Standards (IFRS)

answer

Accounting guidelines, formulated by the International Accounting Standards Board (IASB). By 2014, U.S. GAAP is expected to be harmonized with IFRS. At that times, U.S. companies are expected to adopt these principles for their financial statements, so that they can be compared with those of companies from other countries.

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Investing Activities

answer

Activites that increase/decrease the long-term assets available to the business; a section of the statement of Cash flows.

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Liability

answer

An economic obligation (debt) payable to an individual/organization outside the business.

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Limited Liability Company (LLC)

answer

A business organization in which the business organization in which the business (not the owner) is liable for the company's debts.

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Long-term Debt

answer

A liability that falls due beyond one year from the date of the financial statements.

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Management Accounting

answer

The branch of accounting that generates information for the internal decision makers of a business, such as top executives.

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Merchandise Inventory

answer

The merchandise that a company sells to customers, also called inventory.

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Net Earnings

answer

Another name for Net Income.

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Net Income

answer

Excess of total revenues over total expenses.

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Net Profit

answer

Another name for Net Income.

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Note Payable

answer

A liability evidenced by a written promise to make a future payment.

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Operating Activities

answer

Activities that create revenue/expenses in the entity's major line of business; a section of the statement of cash flows. These activities affect the income statement.

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Owners' Equity

answer

The claim of the owners of a business to the business. Also called capital, stockholders' equity, or net assets.

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Paid-in Capital

answer

The amount of stockholders equity that stockholders have contributed to the operation. Also called contributed capital.

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Partnership

answer

An association of two or more persons who co-wn business for profit.

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Plant Assets

answer

Another name for property, plant, and equipment.

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Property, plant, and equipment

answer

Long-lived assets, used in the operation of the business. Also called plant assets or fixed assets.

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Proprietorship

answer

A business with a single owner.

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Retained Earnings

answer

The amount of stockholders' equity that the corporation has earned through profitable operation and hasnt given back to stockholders.

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Revenues

answer

Increase in retained earnings from delivering goods/services to customers/clients.

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Shareholder

answer

Another name for stockholder.

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Stable-monetary-unit Assumption

answer

The reason for ignoring the effect of inflation in the accounting records, based on the assumption that the dollar's purchasing power is relatively stable.

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Statement of Cash Flows

answer

Reports cash receipts and cash payments classified according to the entity's major activities: operating, investing, and financing.

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Statement of Financial Position

answer

Another name for Balance Sheet.

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Statement of Operations

answer

Another name for Income Statement.

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Statement of Retained Earnings

answer

Summary of the changes in the retained earnings of a corporation during a specific period.

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Stock

answer

Shares into which the owners' equity of a corporation is divided.

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Stockholder

answer

A person who owns stock in a corporation. Also called shareholder.

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Stockholders' Equity

answer

The stockholders' ownership interest in the assets of a corporation.

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Account

answer

The record of the changes that have occurred in a particular asset, liability, or stockholders' equity during period. The basic summary of accounting.

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Accrued Liability

answer

A liability for an expense that has not yet been paid by the company.

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Cash

answer

Money and any medium of exchange that a bank accepts at face value.

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Chart of Accounts

answer

List of a company's accounts and their account numbers.

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Credit

answer

The right side of an account.

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Debit

answer

The left side of an account

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Journal

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The chronological accounting record of an entity's transaction.

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Ledger

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The book of accounts and their balances.

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Posting

answer

Copying amounts from the journal to the ledger.

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Trial Balance

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A list of all the ledger accounts with their balances.

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Account Format

answer

A blance-sheet format that lists assets on the left and liabilities and stockholders' equity on the right.

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Accrual

answer

An expense/revenue that occurs before the business pays/receives cash. It is the opposite of deferral.

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Accrual Accounting

answer

Accounting that records the impact of the business event as it occurs, regardless whether the transaction affected cash.

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Accrued Expense

answer

An expense incurred but not yet pain in cash.

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Accrued Revenue

answer

A revenue that has been earned but not yet received in cash.

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Accumulated Depreciation

answer

The cumulative sum of all depreciation expenses from the date acquiring a plant asset.

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Adjusted Trial Balance

answer

A list of all the ledger accounts with their adjusted balances.

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Book Value (of a plant asset)

answer

The asset's cost minus the accumulated appreciation.

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Cash-Basis Accounting

answer

Accounting that records only transactions in which case cash was received/paid.

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Classified Balance Sheet

answer

A balance sheet that shows current assets/liabilities separate from long-term assets/liabilities.

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Closing the Books

answer

The process of preparing the accounts to begin recording the next period's transactions. It consists of journalizing and posting the closing entries to set the balances of the revenue, expense, and dividends accounts to zero. Also called closing the accounts.

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Closing Entries

answer

Entries that transfer the revenue, expense, and dividends balances from these respective accounts to the Retained Earnings account.

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Contra Account

answer

On account that always has a companion account and whose normal balance is opposite that of the companion account.

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Current Ratio

answer

Current assets divided by current liabilities. Measures a company's ability to pay current liabilities with current assets.

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Debt Ratio

answer

Total liabilities divided by total assets. States the proportion of a company's assets that is financed by debt.

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Deferral

answer

An adjustment for which the business paid/received cash in advance. Ex. prepaid rent, prepaid insurance, supplies, etc.

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Depreciation

answer

Allocation of the cost of a plant asset to expense over it's useful life.

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Liquidity

answer

Measure of how quickly an item can be converted to cash.

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Long-Term Asset

answer

An asset that is not current asset.

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Long-Term Liability

answer

A liability that is not a current liability.

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Matching Principle

answer

The basis for recording expenses. Directs accountants to identify all the expenses incurred during the period, to measure expenses, and to match them against the revenues earned during that same period.

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Multi-Step Income Statement

answer

An Income Statement that contains subtotals to highlight important relationships between revenues and expenses.

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Operating Cycle

answer

Time span during which cash is paid for goods/services that are sold to customers who pay the business in cash.

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Permanent Accounts

answer

Asset, liability, and stockholders' equity accounts that are not closed at the end of the period.

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Plant Assets

answer

Long-lived assets, such as land, buildings, and equipment, used in the operation of the business. Also called fixed assets.

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Prepaid Expense

answer

A category of miscellaneous assets that typically expire or get used up in the near future. Ex. prepaid rent, prepaid insurance, supplies, etc.

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Report Format

answer

A balance-sheet format that lists assets at the top, followed by liabilities and stockholders' equity below.

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Revenue Principle

answer

The basis for recording revenues, tells accountants when to record revenue and the amount of revenue to record.

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Single-Step Income Statement

answer

An Income Statement that lists all the revenues together under heading such as Revenues/Revenues and Gains. Expenses appear in a separate category called Expenses/Expenses and Losses.

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Temporary Accounts

answer

The revenue and expense accounts that relate to a limited period and are closed at the end of the period are temporary accounts. For a corporation, the Dividends account is also temporary.

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Time-Period Concept

answer

Ensures that accounting information is reported at regular intervals.

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Unearned Revenue

answer

A liability created when a business collects cash from customers in advance of earning the revenue. The obligation is to provide a product/service in the future.

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Audit

answer

A periodic examination of a company's financial statements and the accounting systems, controls, and records that produce them. May be external or internal. External are usually performed by Certified Public Accountants (CPAs).

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Bank Collections

answer

Collections of money by the bank on behalf of a depositor.

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Bank Reconciliation

answer

Document explaining the reasons for the difference between a depositors records and the bank's records about the depositors cash.

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Bank Statement

answer

Document showing the beginning and ending balances of a particular bank account listing the month's transactions that affected the account.

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Budget

answer

A quantitative expression of a plant that helps managers coordinate the entities activities.

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Cash Budget

answer

A budget that projects the entity's future cash receipts and cash disbursements.

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Cash Equivalent

answer

Investments such as time deposits, certificates of deposits, or high-grade government securities that are considered so similar to cash that they are combined with cash for financial disclosure purposes on the balance sheet.

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Check

answer

Document instructing a bank to pay the designated person/business the specified amount of money.

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Computer Virus

answer

A malicious program that enters a company's computer system by e-mail or other means and destroys program and data files.

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Controller

answer

The chief accounting officer of a business.

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Deposits in Transit

answer

A deposit recorded by the company but not yet the bank.

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Electronic Fund Transfer (EFT)

answer

System that transfers cash by electronic communication rather than by paper documents.

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Encryption

answer

Mathematical rearranging of data within an electronic file to prevent unauthorized access of information.

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Exception Reporting

answer

Identifying data that is not within "normal limits" so that managers can follow up and take corrective action. Exception reporting is used in operating and cash budgets to keep company profits and cash flow in line with management's plans.

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Fidelity Bond

answer

An insurance policy taken out on employees who handle cash.

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Firewall

answer

An electronic barrier, usually provided by passwords around computerized data files to protect local area networks of computers from unauthorized access.

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Fraud

answer

An intentional misrepresentation of facts made for the purpose of persuading another party to act in a way that causes injury or damage to that party.

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Fraud Triangle

answer

The three elements that are present in almost all cases of fraud. These elements are motive, opportunity, and rationalization on the part of the perpetrator.

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Fraudulent Financial Reporting

answer

Fraud perpetrated by management by preparing misleading financial statements.

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Imprest System

answer

A way to account for petty cash, by maintaining constant balance on petty cash account, supported by the fund (cash plus payment tickets) totaling the same amount.

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Internal Control

answer

Organizational plan and related measures adopted by an entity to safeguard assets, encourage adherence to company policies, promote operational efficiency, and ensure accurate and reliable accounting records.

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Lapping

answer

A fraudulent scheme to steal cash through misappropriating certain customer payments and posting payments from other customers to the affected accounts to cover it up. Caused by weak internal controls.

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Lock-Box System

answer

A system of handling cash receipts by mail whereby customers remit payment directly to the bank, rather than through the entity's mail system.

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Misappropriation of Assets

answer

Fraud committed by employees by stealing assets from the company.

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Nonsufficient Funds (NSF) Check

answer

A "hot" check, one for which the payer's bank account has insufficient money to pay the check. NSF checks are cash receipts that turn out to be worthless.

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Operating Budget

answer

A budget of future net income. The operating budget projects a company's future revenue and expenses. It is usually prepared by line item of the company's income statement.

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Outstanding Checks

answer

A check issued by the company and recorded on its books but not yet paid by its bank.

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Password

answer

A special set of characters that must be provided by the user of computerized program or data files to prevent unauthorized access to those files.

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Petty Cash

answer

Fund containing a small amount of cash is used to pay minor amounts.

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Phishing

answer

Creating bogus Web sites for the purpose of stealing unauthorized data, such as names, addresses, social security, bank account, and credit card numbers.

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Remittance Advice

answer

An optional attachment to a check that indicates the payer, date and purpose of the cash payment. The remittance advice is often used as the sour documents for posting cash receipts or payments.

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Treasurer

answer

In a large company, the department that has total responsibility for cash handling and cash management. This includes cash budgeting, cash collections, writing checks, investing excess funds, and making proposals for raising additional cash when needed.

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Trojan Horse

answer

A malicious program that hides within legitimate programs and acts like a computer virus.

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Acid-Test Ratio

answer

Sum of cash + Short-term investments + Net current receivables divided by Total current liabilities. Tells whether the entity can pay all its current liabilities if they come due immediately. Also called quick ratio.

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Accounts Receivable Turnover

answer

Net sales divided by Average net accounts receivables.

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Aging-of-Receivables

answer

A way to estimate bad debts by analyzing individual accounts receivable according to other length of time they have been receivable from the customer.

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Allowance for Doubtful/Uncollectible Accounts

answer

The estimates amount of collection losses.

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Allowance Method

answer

A method of recording collection losses based on estimates of how much money the business will not collect from its customers.

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Bad-Debt Expense

answer

Another name for uncollectible account expense.

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Creditor

answer

The party to whom money is owed.

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Day's Sales in Receivables

answer

Ratio of average net account receivable to one day's sales. Indicates how many days' sales remain in Accounts Receivable awaiting collection. Also called the collection period.

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Debtor

answer

The party who owes money.

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Direct Write-Off Method

answer

A method of accounting for bad debts in which the company waits until a customer's account revivable proves uncollectible and then debits uncollectible-account expense and credits the customer's account receivable.

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Interest

answer

The borrower's cost of renting money from a lender. Its revenue for the lender and expense for the borrower.

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Maturity

answer

The date on which a debt instrument must be paid.

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Maturity Date

answer

The date in which the debtor must pay the note.

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Maturity Value

answer

The sum of principle and interest on the note.

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Percent-of-Sales Method

answer

Computes uncollectible-account expense as a percentage of net sales. Also called the income statement approach because it focuses on the amount of expense to be reported on the income statement.

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Principal

answer

The amount borrowed by the debtor and lent by the creditor.

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Receivables

answer

Monetary claims against a business/individual, acquired mainly by selling goods/services and by lending money.

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Short-Term Investments

answer

Investments that a company holds for one year or less. Also called Marketable Securities.

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Term

answer

The length of time from inception to maturity.

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Trading Securities

answer

Stock investments that are to be sold in the future with the intent of generating profits on the sale.

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Uncollectible-Account Expense

answer

Cost to the seller of extending credit. Arises from the failure to collect from credit customers. Also called Doubtful-Account Expense or Bad-Debt Expense.

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Average-Cost Method

answer

Inventory costing method based on the average cost of inventory during the period. Average cost is determined by dividing the cost of goods available by the number of units available. Also called the weighted-average method.

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Consignment

answer

An inventory arrangement where the seller sells inventory that belongs to another party. The seller doesn't include consigned merchandise in hand in its Balance Sheet, because the seller doesn't own this inventory.

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Conservatism

answer

The accounting concept by which the least favorable figures are presented in the financial statements.

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Consistency Principle

answer

A business must use the same accounting method and procedures from period to period.

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Cost of Goods Sold

answer

Cost of the inventory the business has sold to customers.

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Cost-of-Goods-Sold Model

answer

Formula that brings together all the inventory data for the entire accounting period (Beginning inventory - Ending inventory = Cost of Goods Sold).

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Debit Memorandum

answer

A document issued to the seller (vendor) when an item of inventory that is unwanted/damaged is returned. This document authorizes a reduction (debit) to accounts payable for the amount of the goods returned.

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Disclosure Principle

answer

A business's financial statements must report enough information for outsiders to make knowledgeable decisions about the business. The company should report relevant, reliable, and comparable information about its economic affairs.

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First-In, First-Out (FIFO) Cost Method

answer

Inventory costing method by which the first costs into inventory are the first costs out to cost of foods sold. Ending inventory is based on the costs of the most recent purchases.

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Free on Board (FOB)

answer

A legal term that designates the point at which titles passes for goods sold. FOB shipping point means that the buyer owns, and therefore is legally obligated to pay for goods at the point of shipment, including transportation costs. In this case, the buyer owns the goods while they are in transit from the seller and mush include their cost, including freight, in inventory at that point. FOB destination means that the seller pays the transpiration costs, so the goods don't belong to the buyer until they reach the buyer's place of business.

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Gross Margin

answer

Another for Gross Profit.

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Gross Margin Method

answer

Another name for the Gross Profit Method.

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Gross Margin Percentage

answer

Another name for the Gross Profit Percentage.

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Gross Profit

answer

Sales revenue - Cost of Goods Sold. Also called Gross Margin.

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Gross Profit Method

answer

A way to estimate inventory based on a rearrangement of the Cost-of-Goods-Sold model (Beginning inventory + Net purchases = Goods available - Cost of goods sold = Ending inventory). Also called the Gross Margin Method.

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Gross Profit Percentage

answer

Gross profit divided by Net sales revenue. Also called Gross Margin percentage.

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Inventory

answer

The merchandise that a company sells to customers.

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Inventory Turnover

answer

Ratio of cost of goods sold to average inventory. Indicates how rapidly inventory is sold.

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Last-In, Last-Out (LIFO) Cost Method

answer

Inventory costing method by which the last costs into inventory are the first costs out to cost of goods sold. This method leaves the oldest cost in ending inventory.

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Lower-of-Cost-or-Market (LCM) Rule

answer

Requires that an asset be reported in the financial statements at which ever is lower, historical cost or market value (current replacement cost for inventory).

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Periodic Inventory System

answer

An inventory system in which the business doesn't keep a continuous record of the inventory on hand. Instead, at the end of the period, the business makes a physical count of the inventory on hand and applies the appropriate unit costs to determine the cost of the ending inventory.

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Perpetual Inventory System

answer

An inventory system in which the business keeps a continuos record for each inventory item to show the inventory item to show the inventory on hand at all times.

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Purchase Allowance

answer

A decrease in the cost of purchases because the seller has granted the buyer a subtraction (an allowance) from the amount owed.

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Purchase Discount

answer

A decrease in the cost of purchases earned by making an early payment to the vendor.

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Purchase Return

answer

A decrease in the cost of purchases because the buyer returned the goods to the seller.

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Specific-Unit-Cost Method

answer

Inventory cost method based on the specific cost of particular units of inventory.

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Weighted-Average Method

answer

Another name for the Average-Cost Method.

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Accelerated Depreciation Method

answer

A depreciation method that writes off a relatively larger amount of the asset's costs nearer the start of its useful life than the straight-line method does.

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Amortization

answer

The systematic reduction of a lumpsum amount. Expense that applies to intangible assets in the same watt depreciation applies to plant asset and depletion applies to natural resources.

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Capital Expenditure

answer

Expenditure that increases an asset;s capacity/efficiency or extends its useful life. Are usually debited to an asset account.

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Copyright

answer

Exclusive right to reproduce and sell a book, musical composition, film, other work of art, or computer program. Issued by the federal government, they extend 70 years beyond the authors life.

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Depletion Expense

answer

The portion of a natural resource's cost that is used up in a particular period. It's computed in the same way as units-of-production depreciation.

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Depreciable Cost

answer

The cost of a plant asset minus its estimated residual value.

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Double-Declining-Balance (DDB) Method

answer

An accelerated depreciation method that compose annual depreciation by multiplying the assets decreasing book value by a constant percentage, which is two times the straight-line rate.

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Estimated Residual Value

answer

Expected cash value of an asset at the end of its useful life. Also called residual value, scrap value, or salvage value.

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Estimated Useful Life

answer

Length of service that a business expects to get from an asset. May be expressed in years, unit of output, miles, or other measures.

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Franchise and Licenses

answer

Privileges granted by a private business/government to sell a product/service in accordance with specified conditions.

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Goodwill

answer

Excess of the cost of an acquired company over the sum of the market values of its net assets (assets minus liabilities).

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Impairment

answer

The condition that exists when the carrying amount of a long-lived asset exceeds its fair value. Whenever long-term assets have been impaired, they have to be written down to fair market values. Under U.S. GAAP, once impaired, the carrying value of a long-lived asset may never again be increased. Under IFRS, if the fair value of impaired assets recover in the future, the values may be increased.

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Intangible Assets

answer

An asset with no physical form, a special right to current and expected future benefits.

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Modified Accelerated Cost Recovery System (MACRS)

answer

A special depreciation method used only for income-tax purposes. Assets are grouped into classes, and for a given class depreciation is commuted by the double-declining-balance method, the 150%-declining balance method, or, for most real estate, the straight-line method.

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Patent

answer

A federal government grant giving the holder the exclusive right for 20 years to produce and sell an invention.

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Plant Assets

answer

Long-lived assets, such as land, buildings, and equipment, used in the operation of the business. Also called Fixed Assets.

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Straight-Line (SL) Method

answer

Depreciation method in which an equal amount of depreciation expense is assigned to each year of asset use.

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Trademark (Trade Name)

answer

A distinctive identification of a product/service. Also called a Brand Name.

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Units-of-Production (UOP) Method

answer

Depreciation method by which a fixed amount of depreciation is assigned to each unit of output produced by the plant asset.

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Accrued Expense

answer

An expense incurred but not yet paid in cash. Also called Accrued Liability.

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Accrued Liability

answer

A liability for an expense that has not yet been paid. Also called Accrued Expense.

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Bonds Payable

answer

Groups of notes payable issued to multiple lenders called bondholders.

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Callable Bonds

answer

Bonds that are paid off early at a specific price at the option of the issuer.

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Capital Lease

answer

Lease agreement in which the lessee assumes, in substance, the risks and rewards of an asset ownership. In the U.S. a lease is assumed to be a capital lease if it meets any of four criteria: 1) Transfers title of the leased asset to the lessee. 2) Contains a bargain purchase option. 3) Term is 75%+ of the estimated useful life of the leased asset. 4) Present value of the lease payments is 90%+ of the market value of the leased asset.

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Convertible Bonds/Notes

answer

Bonds/notes that may be converted into the issuing company's common stock at the investors option.

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Current Portion of Long-Term Debt

answer

The amount of the current principle that is payable within one year.

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Debentures

answer

Unsecured bonds-bonds backed only by the good faith of the borrower.

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Discount (on a bond)

answer

Excess of a bond's face (par) value over its issue price.

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Earnings Per Share (EPS)

answer

Amount of a company's net income per share of its outstanding shares.

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Interest-Coverage Ratio

answer

Another name for the times-interest-earned ratio.

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Lease

answer

Rental agreement in which the tenant (lessee) agrees to make rent payments to the property owner (lessor) in exchange for the use of the asset.

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Lessee

answer

Tenant in a lease agreement.

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Lessor

answer

Property owner in a lease agreement.

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Leverage

answer

Using borrowed funds to increase the return on equity. Successful use of leverage means earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business. Also called trading on the equity.

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Market Interest Rate

answer

Interest rate that investors demand for loaning their money. Also called Effective Interest Rate.

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Operating Lease

answer

A lease in which the lessee does not assume the risk/rewards of asset ownership.

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Payroll

answer

Employee compensation, a major expense of many business.

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Pension

answer

Employee compensation that will be received during retirement.

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Premium (on a bond)

answer

Excess of a bond's issue price over its face (par) value.

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Present Value

answer

Amount a person would invest now to receive a greater amount at a future date.

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Serial Bonds

answer

Bonds that mature in installments over a period of time.

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Short-Term Notes Payable

answer

Note payable due within one year.

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Stated Interest Rate

answer

Interest rate that determines the amount of cash interest the borrower pays and the investor receives each year.

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Term Bonds

answer

Bonds that mature at the same time for a particular issue.

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Trading on the Equity

answer

Earning more income from operations to interest expense, thereby increasing the earnings for the owners of the business. Also called the Interest-Coverage Ratio.

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Times-Interest-Earned Ratio

answer

Ratio of income from operations to interest expense. Measures the number of times that operating income can cover interest expense. Also called the Interest-Coverage Ratio.

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Underwriter

answer

Organization that purchases the bonds from an issuing company and resells them to its clients or sells the bonds for a commission, agreeing to buy all unsold bonds.

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Authorized Stock

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Maximum number of shares a corporation can issue under its charter.

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Board of Directors

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Group elected by the stockholders to set policy for a corporation and to appoint its officers.

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Book Value (of a stock)

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Amount of owners' equity on the company's books for each share of its stock.

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Bylaws

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Constitution for governing a corporation.

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Chairperson

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Elected by a corporations board of directors, usually the most powerful person in the corporation.

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Common Stock

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The most basic form of capital stock. The common stockholders own a corporation.

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Contributed Capital

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The amount of stockholders equity that stockholders have contributed to the corporation. Also called Paid-in Capital.

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Cumulative Preferred Stock

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Preferred stock whose owners must receive all dividends in arrears before the corporation can pay dividends to the common stockholders.

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Deficit

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Debit balance in the Retained Earnings account.

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Dividend

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Distribution (usually cash) by a corporation to its stockholders.

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Double Taxation

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Corporations pay income taxes on corporate income. Then, the stockholders pay personal income tax on the cash dividends that they receive from corporations.

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Issued Stock

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Number of shares a corporations has issued to its stockholders.

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Legal Capital

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Minimum amount of stockholders' equity that a corporation must maintain for the protection of creditors. For corporations with par-value stock, legal capital is the par value of the stock issued.

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Limited Liability

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No personal obligation of a stockholder for corporation debts. A stockholder can lose no more on an investment in a corporation's stock than the cost of the investment.

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Liquidation Value

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The amount a corporation must pay a preferred stockholder in the event the company liquidates and goes out of business.

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Market Value (of a stock)

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Price for which a person could buy/sell a share of stock.

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Outstanding Stock

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Stock in the hands of stockholders.

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Paid-in Capital

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The amount of stockholders' equity that stockholders have contributed to the corporation. Also called Contributed Capital.

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Par Value

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Arbitrary amount assigned by a company to a share of its stock.

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Preferred Stock

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Stock that gives its owners certain advantages, such as the priority to receive dividends before the common stockholders or assets of the company liquidates.

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President

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Chief operating officer in charge of managing the day-to-day operations of a corporation.

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Rate of Return on Common Stockholders' Equity (ROE)

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Net income - Preferred Dividends, divided by Average Common Stockholders' Equity. A measure of profitability. Also called Return of Equity.

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Rate of Return on Total Assets (ROA)

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Net Income + Interest Expense, divided by Average Total Assets. This ratio measures a company's success in using its assets to earn income for the persons who finance the business, Also called Return on Assets.

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Redeemable Preferred Stock

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A corporation receives the right to buy an issue stock back from the shareholders, with the intent to retire the stock.

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Redemption Value

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The price a corporation agrees to eventually pay for its redeemable preferred stock, set when the stock is issued.

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Retained Earnings

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The amount the stockers' equity that the corporation has earned through profitable operation of the business and has not given back to stockholders.

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Shareholders/Stockholders

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A person who owns stock in a corporation.

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Stated Value

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An arbitrary amount assigned to no-par stock; similar to par value.

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Stock

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Shares in which the owners' equity of a corporation is divided.

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Stock Dividend

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A proportional distribution by a corporation that owns stock of its stockholders.

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Stockholders' Equity

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The stockholders' ownership interest in the assets of a corporation.

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Stock Split

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An increase in the number of authorized, issued, and outstanding shares of stock coupled with a proportionate reduction in the stocks par value.

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Treasure Stock

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A corporations's own stock that it has issued and later reacquired.

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Available-For-Sale Investments

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All investments not classified as held-to-maturity or trading securities.

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Consolidated Statements

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Financial statements of the parent company plus those of majority-owned subsidiaries as if the combination were a single legal entity.

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Controlling (Majority) Interest

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Ownership of more than 50% of an investee company's voting stock.

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Equity Method

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The method used to account for investments in which the investor has 20-50% of the investee's voting stock and can significantly influence the decisions of the investee.

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Fair Market Value

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The amount that a seller would receive on the sale of an investment to a willing purchaser on a given date. Securities and Available-For-Sale securities are valid at a fair market values on the Balance Sheet date. Other assets may be recorded at fair market value on occasion.

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Foreign-Currency Exchange Rate

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The measure of one country's currency against another country's currency.

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Foreign-Currency Translation Adjustment

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The balancing figure that brings the dollar amount of the total liabilities and stockholders' equity of the foreign subsidiary into agreement with the dollar amount of its total assets.

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Hedging

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To protect oneself from losing money in one transaction by engaging in a counterbalancing transaction.

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Held-To-Maturity Investments

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Bonds and Notes that an investor intends to hold until maturity.

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Long-Term Investments

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Any investment that does not meet the criteria of a short-term investment. Any investment that the investor expects to hold longer than a year or than is not readily marketable.

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Noncontrolling (Minority) Interest

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A subsidiary company's equity hat is held by stockholders other than the parent company, less than 50%.

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Parent Company

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An investor company owns more than 50% of the voting stock of a subsidiary company.

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Short-Term Investments

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Investment that a company plans to hold for 1 year or less. Also called Marketable Securities.

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Strong Currency

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A currency whose exchange rate is rising relative to other nation's currencies.

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Subsidiary

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An investee company in which parent company owns more than 50% of the voting stock.

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Weak Currency

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A currency whose exchange rate is falling relative to that of other nations.

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Channel Surfing

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A type of financial statement fraud that is accomplished by shipping more to customers (usually around the end of the year) than they ordered, with the expectation that they may return some or all of it, The objective is to record more revenue than the company has actually earned with legitimate sales and shipments.

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Comprehensive Income

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A company's change in total stockholders' equity from all sources other than from the owners of the business.

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Earnings Per Share (EPS)

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Amount of a company's net income per share of its outstanding stock.

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Earnings Quality

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The characteristics of an earnings number than make it most useful for decision making. The degree to which earnings are an accurate reflection of underlying economic events for both revenues and expenses and the extent to which earnings from a company's core operations are improving over time. Assuming that revenues and expenses are measured accurately, high-quality earnings are reflected in steadily improving sales and steadily declining costs over time, so that income from continuing operations follows a high and improving pattern over time.

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Extraordinary Gains and Losses

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These gains/losses are both unusual and infrequent for the company. Also called Extraordinary items.

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Investment Capitalization Rate

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An earnings rate used to estimate the value of an investment in stock.

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Pretax Accounting Income

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Income before tax on the Income Statement.

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Prior-Period Adjustment

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A correction to beginning balance of retained earnings for an error of an earlier period.

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Statement of Stockholders' Equity

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Reports the changes in all categories of stockholders' equity during the period.

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Taxable Income

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The basis for computing the amount to tax to pay the government.

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Unqualified (Clean) Opinion

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An audit opinion stating that the financial statements are reliable.

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