Glossary

• Author: Vern Krishna
• Pages: 431-496

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Glossary

Accelerated Amortization

A method of allocating costs against income that records a greater portion

of the total cost in the earlier years of an asset’s life, and a lower portion in

later years. For example: declining balance amortization allocates more in

the earlier years than does the straight-line method.

Account

A record of an asset, liability, owners’ equity, revenue, or expense in which an

enterprise records transactions, accruals, and adjustments, generally in the

local currency of the country.

Account Aging

Usually refers to the methods of tracking past due accounts in accounts

receivable based on the dates the charges were incurred. Account aging can

also be used in accounts payable, to a lesser degree, to monitor payment

history to suppliers.

Accountant’s Opinion

A signed statement regarding the f‌inancial status of an entity from an

independent public accountant after examination of that entity’s records

and accounts.

Accounting Entity

The enterprise for which the accounting is being done. The entity may be a

single legal corporation or other organization, an economic unit without legal

standing (such as a proprietorship), or a group of corporations with con-

nected ownership for which consolidated f‌inancial statements are prepared.

Financial Skills for Professionals

Accounting Policies

The accounting methods chosen by a company to recognize economic events

on an accrual basis and to report the f‌inancial position and results of operations.

Accounting Principles

See Generally Accepted Accounting Principles (GAAP).

Accounts Payable

Liabilities representing amounts owed to short-term trade creditors. An

account payable for the debtor is an account receivable for the creditor.

Accounts Receivable

A current asset representing amounts owed by debtors (usually customers)

for services performed or merchandise sold on credit.

Accounts Receivable Financing

A secured short-term loan that involves either the assignment or factoring

of receivable.

Accretion

The adjustment of the dif‌ference between the price of a bond purchased at

an original discount and the par value of the bond.

Accrual Basis of Accounting (Accrual Accounting)

Wherein revenue and expenses are recorded in the period in which they are

earned or incurred regardless of whether cash is received or disbursed in

that period.

Accrual Income

The result of subtracting expenses from revenue(s) when both kinds of

accounts are calculated by accrual accounting.

Accrued Assets

Assets from revenues earned but not yet received.

Accrued Expenses

Expenses incurred during an accounting period for which payment is

postponed.

Accrued Income

Income earned during a f‌iscal period but not paid by the end of the period.

Accrued Interest

Interest earned but not yet received.

Accrued Liability

Liabilities that are incurred, but for which payment is not yet made, during a

given accounting period.

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Accumulated Amortization

The cumulative charges against the intangible assets of a company over the

expected useful life of the assets.

Accumulated Amortization (Depreciation)

A balance sheet account that accumulates total amortization expense (for intan-

gible assets) or depreciation expense (for f‌ixed assets) over a number of years.

Accumulated Depreciation

The cumulative charges against the f‌ixed assets of a company for wear and

tear or obsolescence.

Acid-Test Ratio

See Quick Ratio.

Acquisition

One company taking over controlling interest in another company.

Adjusted Present Value (APV)

Base case net present value of a project’s operating cash f‌lows plus present

value of any f‌inancing benef‌its.

Adjusted Trial Balance

The list of accounts prepared after all the accrual accounting adjustments

and corrections have been made and so representing the f‌inal account bal-

ances used in preparing the f‌inancial statements.

Allocating, Allocation

Spreading the impact of an event out over time, as in amortization of an

asset’s cost over its useful life or recognition of revenue for a long-term con-

tract over several periods.

Allowance for Doubtful Accounts

The estimated amount of accounts receivable that will not be collected

(which are “doubtful”). The allowance, which is a contra account to accounts

receivable, is used in order to recognize the bad debts expense related to

such doubtful accounts but without removing those accounts from the

books because the f‌irm will still try to collect the amounts owing.

Alpha

The measurement of returns from an investment in excess of market returns.

It represents the amount expected from fundamental causes, e.g., the

growth rate in earnings per share.

Amalgamations

Combinations of f‌irms that have been joined by merger, consolidation, or

acquisition.