Accounting Dictionary


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A quick reference of terms and definitions used within the commercial financial management industry.

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Accounting Dictionary

  1. 1. Accounting Dictionary <br />Absorption costing.  This is a methodology under which all manufacturing costs are assigned to products, while all non-manufacturing costs are expensed in the current period.<br />Accelerated depreciation.  This is any of several methods that recognize an increased amount of depreciation in the earliest years of asset usage.  This results in increased tax benefits in the first few years of asset usage.<br />Accounting change.  This is an alteration in the accounting methodology or estimates used in the reporting of financial statements, usually requiring discussion in a footnote attached to the financial statements.<br />Accounting entity.  This is a business for which a separate set of accounting records is being maintained.<br />Accounts payable.  This is a current liability on the balance sheet, representing short-term obligations to pay suppliers.<br />Accounts receivable.  This is a current asset on the balance sheet, representing short-term amounts due from customers who have purchased on account.<br />Accrual accounting.  This is the recording of revenue when earned and expenses when incurred, irrespective of the dates on which the associated cash flows occur.<br />Accumulated depreciation.  This is the sum total of all deprecation expense recognized to date on a depreciable fixed asset.<br />Activity based costing (ABC).  This is a cost allocation system that compiles costs and assigns them to activities based on relevant activity drivers.  The cost of these activities can then be charged to products or customers to arrive at a much more relevant allocation of costs than was previously the case.<br />Actual cost.  This is the actual expenditure made to acquire an asset, which includes the supplier-invoiced expense, plus the costs to deliver and set up the asset.<br />Additional paid-in capital.  This is any payment received from investors for stock that exceeds the par value of the stock.<br />Advance.  This is a payment made by a customer to the company, or by the company to a supplier, in advance of the performance of any associated service or delivery of product.<br />Allocation.  This is the process of storing costs in one account and shifting them to other accounts, based on some relevant measure of activity.<br />Allowance for bad debts.  This is an offset to the accounts receivable balance, against which bad debts are charged.  The presence of this allowance allows one to avoid severe changes in the period-to-period bad debt expense by expensing a steady amount to the allowance account in every period, rather than writing off large bad debts to expense on an infrequent basis.<br />Amortization.  This is the write-off of an asset over the period when the asset is used.  This term is most commonly applied to the gradual write-down of intangible items, such as goodwill or organizational costs.<br />Annual report.  This is a report issued to a company’s shareholders, creditors, and regulatory organizations at the end of its fiscal year.  It typically contains at least an income statement, balance sheet, statement of cash flows, and accompanying footnotes.  It may also contain management comments, an audit report, and other supporting schedules that may be required by regulatory organizations.<br />Appreciation.  This is an increase in the perceived or actual value of an asset.<br />Asset.  This is a resource, recorded through a transaction, that is expected to yield a benefit to a company.<br />Average inventory.  This is the beginning inventory for a period, plus the amount at the end of the period, divided by two.  It is most commonly used in situations where just using the period-end inventory yields highly variable results, due to constant and large changes in the inventory level.<br />Bad debt.  This is an account receivable that cannot be collected.<br />Balance sheet.  This is a report that summarizes all assets, liabilities, and equity for a company for a given point in time.<br />Bank reconciliation.  This is a comparison between the cash position recorded on a company’s books and the position noted on the records of its bank, usually resulting in some changes to the book balance to account for transactions that are recorded on the bank’s records but not the company’s.<br />Batch cost.  This is a cost that is incurred when a group of products or services are produced, and which cannot be identified to specific products or services within each group.<br />Bill of materials.  This is an itemization of the parts and subassemblies required to create a product, frequently including assumed scrap rates that will arise as part of the production process.<br />Book inventory.  This is the amount of money invested in inventory, as per a company’s accounting records.  It is comprised of the beginning inventory balance, plus the cost of any receipts, less the cost of sold or scrapped inventory.  It may be significantly different from the actual on-hand inventory, if the two are not periodically reconciled.<br />Book value.  This is an asset’s original cost, less any depreciation that has been subsequently incurred.<br />Bottleneck.  This is an operation in the midst of a manufacturing or service process in which the required production level matches or exceeds the actual capacity.<br />Break-even point.  This is the sales level at which a company, division, or product line makes a profit of exactly zero, and is computed by dividing all fixed costs by the average gross margin percentage.<br />Budget.  This is a set of interlinked plans that quantitatively describe a company’s projected future operations.<br />By-product.  This is a product that is an ancillary part of the primary production process, having a minor resale value in comparison to the value of the primary product being manufactured.  Any proceeds from the sale of a by-product are typically offset against the cost of the primary product, or recorded as miscellaneous revenue.<br />Capital.  This is the investment by a company’s owners in a business, plus the impact of any accumulated gains or losses.<br />Capital asset.  This is a fixed asset, something that is expected to have long-term usage within a company, and which exceeds a minimum dollar amount (known as the capitalization limit, or cap limit).<br />Capital budgeting.  This is the series of steps one follows when justifying the decision to purchase an asset, usually including an analysis of costs and related benefits, which should include a discounted cash flow analysis of the stream of all future cash flows resulting from the purchase of the asset.<br />Capital gain.  This is the gain recognized on sale of a capital item (fixed asset), calculated by subtracting its sale price from its original purchase price (less the impact of any associated depreciation).<br />Capital lease.  This is a lease in which the leasee obtains some ownership rights over the asset involved in the transaction, resulting in the recording of the asset as company property on its general ledger.<br />Capitalize.  This is a purchase that has been recorded on the company books as an asset.  The grounds for capitalizing an item include a purchase price that is higher than a minimum limit (known as the capitalization limit) and an estimated lifetime for the item that will exceed one year.<br />Catastrophe Bond.  A " cat bond" is designed to raise money in the event of a major catastrophe, which is usually defined as an earthquake, hurricane, or windstorm.  If the issuer suffers a loss from a pre-defined catastrophe, then its obligation to repay the interest or principal is either deferred or cancelled.  Some cat bonds are indemnity-based, which means that they pay out based on actual claims stemming from the catastrophe; these bonds are considered more risky for bond purchasers, since a wide variety of claims may be brought.  Another type of cat bond is based on parametric data, so they only pay out if precise physical measurements of the actual event occur, such as wind speed or earthquake magnitude exceeding a threshold level.  Large cat bonds are almost always issued by reinsurance companies, and are typically rated as junk bonds.  <br />Chart of accounts.  This is a listing of all accounts used in the general ledger, usually sorted in order of account number.<br />Consolidation.  This is a summarization of the financial statements of a parent company and those of its subsidiaries over which it has voting control of common stock.<br />Constant dollar accounting.  This is a method for restating financial statements by reducing or increasing reported revenues and expenses by changes in the consumer price index, thereby achieving greater comparability between accounting periods.<br />Contribution margin.  This is the margin that results when variable production costs are subtracted from revenue.  It is most useful for making incremental pricing decisions where a company must cover its variable costs, though perhaps not all of its fixed costs.<br />Corporation.  This is a legal entity, organized under state laws, whose investors purchase shares of stock as evidence of ownership in it.  A corporation is a legal entity, which eliminates much of the liability for the corporation’s actions from its investors.<br />Cost depletion.  This is a method of expensing the cost of a resource consumed by first determining the total investment in the resource (such as the procurement of a coal mine), then determining the total amount of extractable resource (such as tons of available coal), and then assigning costs to each consumed unit of the resource, based on the proportion of the total available amount that has been used.<br />Cost driver.  This is a factor that directly impacts the incidence of a cost, and which is generally based on varying levels of activity.<br />Cost object.  This is an item for which a cost is compiled.  For example, this can be a product, a service, a project, a customer, or an activity.<br />Cost of capital.  This is the blended cost of company’s currently outstanding debt instruments and equity, weighted by the comparative proportions of each one.  During a capital budgeting review, the expected return from a capital purchase must exceed this cost of capital, or else a company will experience a net loss on the transaction.<br />Cost of goods sold.  This is the accumulated total of all costs used to create a product or service, which is then sold.  These costs fall into the general sub-categories of direct labor, materials, and overhead.<br />Cost pool.  A cluster of cost items.<br />Cost.  This is the expense incurred to create and sell a product or service.  If a product is not sold, then it is recorded as an asset, whereas the sale of a product or service will result in the recording of all related costs as an expense.<br />Current asset.  This is typically the cash, accounts receivable, and inventory accounts on the balance sheet, or any other assets that are expected to be liquidated within a short time interval.<br />Current cost.  Under target costing concepts, this is the cost that would be applied to a new product design if no additional steps were taken to reduce costs, such as through value engineering or kaizen costing.  Under traditional costing concepts, this is the cost of manufacturing a product with work methods, materials, and specifications currently in use.<br />Current liability.  This is typically the accounts payable, short-term notes payable, and accrued expenses accounts on the balance sheet, or any other liabilities that are expected to be liquidated within a short time interval.<br />Debt.  This is funds owed to another entity.<br />Default.  This is the failure by a debtor to make a principal or interest payment in a timely manner.<br />Deficit.  This is a negative balance in the retained earnings account that is caused by cumulative losses that exceed the amount of equity.<br />Depletion.  The reduction in a natural resource, which equates to the cost of goods sold in a manufacturing organization.<br />Depreciation.  This refers to both the decline in value of an asset over time, as well as the gradual expensing of an asset over time, roughly in accordance with its level of usage or decline in value through that period.<br />Direct cost.  These are costs that can be clearly associated with specific activities or products.<br />Direct costing.  This is a costing methodology that only assigns direct labor and material costs to a product, and which does not include any allocated indirect costs (which are all charged off to the current period).<br />Direct labor.  This is labor that is specifically incurred to create a product.<br />Direct materials cost.  This is the cost of all materials used in a cost object, such as finished goods.<br />Direct materials mix variance.  This is the variance between the budgeted and actual mixes of direct materials costs, both using the actual total quantity used.  This variance isolates the unit cost of each item, excluding all other variables.<br />Director.  This is a member of a company’s Board of Directors.<br />Disclosure.  This is additional information attached to a company’s financial statements, usually as explanation for activities whose related transactions have influenced the financial statements.<br />Discontinued operation.  This is a business segment that has been, or is planned to be closed or sold off.<br />Discounted cash flow.  This is a technique that determines the present value of future cash flows by applying a rate to each periodic cash flow that is derived from the cost of capital.  Multiplying this discount by each future cash flow results in an amount that is the present value of all the future cash flows.<br />Dividend.  This is a payment made to shareholders that is proportional to the number of shares owned.  It is authorized by the Board of Directors.<br />Driver.  This is a factor that has a direct impact on the incurring of a cost.  For example, adding an employee results in new costs to purchase office equipment for that person; therefore, additions to headcount is a cost driver for office expenses.<br />Economic life.  This is the period over which a company expects to be able to use an asset.<br />Entry.  This is the act of recording an accounting transaction in the accounting books.<br />Equity.  This is the difference between the total of all recorded assets and liabilities on the balance sheet.<br />Exit value.  This is the value that an asset is expected to have at the time it is sold at a predetermined point in the future.<br />Expenditure.  This is a payment or the incurrence of a liability by an entity.<br />Expense.  This represents the reduction in value of an asset as it is used for current company operations.<br />Extraordinary item.  This is a transaction that rarely occurs, and which is unusual, such as expropriation of company property by a foreign government.  It is reported as a separate line item on the income statement.<br />Factoring.  This is the sale of accounts receivable to a third party, with the third party bearing the risk of loss if the accounts receivable cannot be collected.<br />Factory overhead.  These are all the costs incurred during the manufacturing process, minus the costs of direct labor and materials.<br />Fair market value.  This is the price that an asset or service will fetch on the open market.<br />Finished goods inventory.  This is goods that have been completed by the manufacturing process, or purchased in a complete form, but which have not yet been sold to customers.<br />First in, first-out costing method.  This is a process costing methodology that assigns the earliest cost of production and materials to those units being sold, while the latest costs of production and materials are assigned to those units still retained in inventory.<br />Fiscal year.  This is a twelve month period over which a company reports on the activities that appear in its annual financial statements.  The twelve-month period may conform to the calendar year, or end on some other date that more closely conforms to a company’s natural business cycle.<br />Fixed asset.  This is an item with a longevity greater than one year, and which exceeds a company’s minimum capitalization limit.  It is not purchased with the intent of immediate resale, but rather for productive use within a company.<br />Fixed cost.  This is a cost that does not vary in the short run, irrespective of changes in any cost drivers.  For example, the rent on a building will not change until the lease runs out or is re-negotiated, irrespective of the level of business activity within that building. (1)<br />Fixed overhead.  This is that portion of total overhead costs which remains constant in size irrespective of changes in activity within a certain range.<br />Freight in.  This is the transportation cost associated with the delivery of goods from a supplier to a company.<br />Freight out.  This is the transportation cost associated with the delivery of goods from a company to its customers.<br />Gain.  This is the profit earned on sale of an asset, computed by subtracting its book value from the revenue received from its sale.<br />General ledger. This is the master set of accounts that summarize all transactions occurring within a company.  There may be a subsidiary set of ledgers that summarize into the general ledger.<br />Generally accepted accounting principles.  These are the rules that accountants follow when processing accounting transactions and creating financial reports.  The rules are primarily derived from regulations promulgated by the various branches of the AICPA Council.<br />Goodwill.  This is the excess of the price paid to buy another company over the book value of its assets and the increase in cost of its fixed assets to fair market value.<br />Go public.  The process of offering a company’s shares for sale to the public through an initial public offering.<br />Gross margin.  This is revenues less the cost of goods sold.<br />Gross sales.  This is the total sales recorded prior to sales discounts and returns.<br />Historical cost.  This is the original cost required to perform a service or purchase an asset.<br />Hurdle rate.  This is the minimum rate of return that a capital purchase proposal must pass before it can be authorized for acquisition.  The hurdle rate should be no lower than a company’s incremental cost of capital.<br />Income.  This is net earnings after all expenses for an accounting period are subtracted from all revenues recognized during that period.<br />Income statement.  This is a financial report that summarizes a company’s revenue, cost of goods sold, gross margin, other costs, income, and tax obligations.<br />Income tax.  This is a government tax on the income earned by an individual or corporation.<br />Incremental cost.  This is the difference in costs between alternative actions.<br />Indirect cost.  This is a cost that is not directly associated with a single activity or event.  Such costs are frequently clumped into an overhead pool and allocated to various activities, based on an allocation method that has a perceived or actual linkage between the indirect cost and the activity.<br />Indirect labor.  This is the cost of any labor that supports the production process, but which is not directly involved in the active conversion of materials into finished products. (1)<br />Intangible asset.  This is a nonphysical asset with a life greater than one year.  Examples are goodwill, patents, trademarks, and copyrights.<br />Internal rate of return.  This is the rate of return at which the present value of a series of future cash flows equals the present value of all associated costs.  This measure is most commonly used in capital budgeting.<br />Interest.  This is the cost of funds loaned to an entity.  It can also refer to the equity ownership of an investor in a business entity.<br />Invoice.  This is a document submitted to a customer, identifying a transaction for which the customer owes payment to the issuer.<br />Job.  This is a distinctly identifiable batch of a product.<br />Joint cost.  This is the cost of a production process that creates more than one product at the same time.<br />Joint product.  This is a product that has the highest sales value from amongst a group of products that are the result of a joint production process.<br />Journal entry.  This is the formal accounting entry used to identify a business transaction.  The entry itemizes accounts that are debited and credited, and should include some description of the reason for the entry.<br />Just-in-time manufacturing.  This is the term for several manufacturing innovations that result in a “pull” method of production, in which each manufacturing workstation creates just enough product for the immediate needs of the next workstation in the production process.<br />Kaizen costing.  This is the process of continual cost reduction that occurs after a product design has been completed and is now in production.  Cost reduction techniques can include working with suppliers to reduce the costs in their processes, or implementing less costly re-designs of the product, or reducing waste costs.<br />Labor efficiency variance.  This is the difference between the amount of time that was budgeted to be used by the direct labor staff and the amount actually used, multiplied by the standard labor rate per hour.<br />Labor rate variance.  This is the difference between the actual and standard direct labor rates actually paid to the direct labor staff, multiplied by the number of actual hours worked.<br />Last-in, first-out.  This is an inventory costing methodology that bases the recognized cost of sales on the most recent costs incurred, while the cost of ending inventory is based on the earliest costs incurred.  The underlying reasoning for this costing system is the assumption that goods are sold in the reverse order of their manufacture.<br />Leasehold improvement.  This is any upgrade to leased property by a leasee that will be usable for more than one year, and which exceeds the lessee’s capitalization limit.  It is recorded as a fixed asset and depreciated over a period no longer than the life of the underlying lease.<br />Ledger.  This is a book or database in which accounting transactions are stored and summarized.<br />Lessee.  This is the entity that contracts to make rental payments to a lessor in exchange for the use of an asset.<br />Lessor.  This is the entity that rents property that it owns to a second party in exchange for a periodic set of rental payments.<br />Leveraged buyout.  This is the purchase of one business entity by another, largely using borrowed funds.  The borrowings are typically paid off through the future cash flow of the purchased entity.<br />Liability.  This is a dollar amount of obligation payable to another entity.<br />Liquidation.  This is the process of selling off all the assets of a business entity, settling its liabilities, and closing it down as a legal entity.<br />Long-term debt.  This is a debt for which payments will be required for a period of more than one year into the future.<br />Loss. This is an excess of expenses over revenues, either for a single business transaction or in reference to the sum of all transactions for an accounting period.<br />Loss carryback.  This is the offsetting of a current year loss against the reported taxable income of previous years.<br />Loss carryforward.  This is the offsetting of a current year loss against the reported taxable income for future years.<br />Lower of cost or market.  This is an accounting valuation rule that is used to reduce the reported cost of inventory to its current resale value, if that cost is lower than its original cost of acquisition or manufacture.<br />Manufacturing resource planning (MRP II).  This is an expansion of the material requirements planning concept, with additional computer-based capabilities in the areas of direct labor and machine capacity planning.<br />Marginal cost.  This is the incremental change in the unit cost of a product as a result of a change in the volume of its production.<br />Market value.  This is the price at which a product or service could be sold on the open market.<br />Marketable security.  This is an easily traded investment, such as treasury bills, and is recorded as a current asset, since it is easily convertible into cash.<br />Markup.  This is an increase in the cost of a product to arrive at its selling price.<br />Matching principle.  This is the processing of linking recognized revenue to any associated costs, thereby showing the net impact of all transactions related to the recognition of revenue.<br />Material requirements planning (MRP).  This is a computer-driven production methodology that manufactures products based on an initial demand forecast.  It tends to result in more inventory of all types than a just-in-time (JIT) production system.<br />Materiality.  This is the proportional size of a financial misstatement.  It can be construed as the net impact on reported profits, or the percentage or dollar change in a specific line item.<br />Materials price variance.  This is the difference between the actual and budgeted cost to acquire materials, multiplied by the total number of units purchased.<br />Materials quantity variance.  This is the difference between the actual and budgeted quantities of material used in the production process, multiplied by the standard cost per unit.<br />Merger.  This is the combination of two or more entities into a single entity, usually with one of the original entities retaining control.<br />Moving average inventory method.  This is an inventory costing methodology that calls for the re-calculation of the average cost of all parts in stock after every purchase.  Therefore, the moving average is the cost of all units subsequent to the latest purchase, divided by their total cost.<br />Negative goodwill.  This describes a situation when a business combination results in the fair market value of all assets purchased exceeds the purchase price.<br />Net income.  This is the excess of revenues over expenses, including the impact of income taxes.<br />Net present value.  This is a discounted cash flow methodology that uses a required rate of return (usually a firm’s cost of capital) to determine the present value of a stream of future cash flows, resulting in a net positive or negative value.<br />Net realizeable value.  This is the expected revenue to be gained from the sale of an item or service, less the costs of the sale transaction.<br />Net sales.  This is total revenue, less the cost of sales returns, allowances, and discounts.<br />Obsolescence.  This is the reduction in utility of an inventory item or fixed asset.  If it is an inventory item, then a reserve is created to reduce the value of the inventory by the estimated amount of obsolescence.  If it is a fixed asset, the depreciation method and timing will be set to approximate the rate and amount of obsolescence.<br />Operating expense.  This is any expense associated with the general, sales, and administrative functions of a business.<br />Operating income.  This is the net income of a business, less the impact of any financial activity, such as interest expense or investment income, as well as taxes and extraordinary items.<br />Operating lease.  This is the rental of an asset from a lessor, but not under terms that would qualify it as a capital lease.<br />Opportunity cost.  This is lost revenue that would otherwise have been realized if a different decision point had been selected.<br />Other assets.  This is a cluster of accounts that are listed after fixed assets on the balance sheet, and which contain minor assets that cannot be reasonably fit into any of the other main asset categories.<br />Owners’ equity.  This is the total of all capital contributions and retained earnings on a business’s balance sheet.<br />Paid-in capital.  This is any payment received from investors for stock that exceeds the par value of the stock.<br />Par value.  This is the stated value of a stock, which is recorded in the capital stock account.  Equity distributions cannot drop the value of stock below this minimum amount.<br />Parent company.  This is a company that retains control over one or more other companies.<br />Pareto analysis.  This is the 80:20 ratio that states that 20% of the variables included in an analysis are responsible for 80% of the results.  For example, 20% of all customers are responsible for 80% of all customer service activity, or 20% of all inventory items comprise 80% of the inventory value.<br />Partnership.  This is a form of business organization in which owners have unlimited personal liability for the actions of the business, though this problem has been mitigated through the use of the limited liability partnership.<br />Payback method.  This is a capital budgeting analysis method that calculates the amount of time it will take to recoup the investment in a capital asset, with no regard for the time cost of money.<br />Pension plan.  This is a formal agreement between an entity and its employees, whereby the entity agrees to provide some benefits to the employees upon their retirement.<br />Perpetual inventory.  This is a system that continually tracks all additions to and deletions from inventory, resulting in more accurate inventory records and a running total for the cost of goods sold in each period.<br />Pooling of interests.  This is an method for accounting for a business combination.  When used, the expenses of the combination are charged against income at once, and the net income of the acquired company is added to the full-year reported results of the acquiring company.<br />Preferred stock.  This is a type of stock that usually pays a fixed dividend prior to any distributions to the holders of common stock.  In the event of liquidation, it must be paid off before common stock.  It can, but rarely does, have voting rights.<br />Prepaid expense.  This is an expenditure that is paid for in one accounting period, but which will not be entirely consumed until a future period.  Consequently, it is carried on the balance sheet as an asset until it is consumed.<br />Privately held.  This is a company that is entirely owned by a small number of people; further, its shares are not publicly traded.<br />Pro forma.  This is a set of financial statements that incorporate some assumptions, usually regarding future events.  For example, pro forma statements can be constructed that extend a company’s financial statements through the end of its fiscal year, and which contain assumptions regarding the final few months of the year, which have not yet occurred.<br />Process costing.  This is a costing methodology that arrives at an individual product cost through the calculation of average costs for large quantities of identical products.<br />Process.  This is a series of linked activities that result in a specific objective.  For example, the payroll process requires the calculation of hours worked, multiplication by hourly rates, and the subtraction of taxes before the final objective is reached, which is the printing of the paycheck.<br />Product cost.  This is the total of all costs assigned to a product, typically including direct labor, materials (with normal spoilage included), and overhead.<br />Production yield variance.  This is the difference between the actual and budgeted proportions of product resulting from a production process, multiplied by the standard unit cost.<br />Profit center.  An entity within a corporation against which both revenues and costs are recorded.  This results in a separate financial statement for each such entity, which reveals a net profit or loss, as well as a return on any assets used by the entity.<br />Property, plant, and equipment.  This is comprised of all types of fixed assets recorded on the balance sheet, and is intended to reveal the sum total of all tangible, long term assets used to conduct business.<br />Proration.  This is the allocation of either under or over-allocated overhead costs among the work-in-process, finished goods, and cost of goods sold accounts at the end of an accounting period.<br />Public offering.  This is the sale of new securities to the investing public.<br />Purchase method.  This is an accounting method used to combine the financial statements of companies.  This involves recording the acquired assets at fair market value, and the excess of the purchase price over this value as goodwill, which will be amortized over time.<br />Quick asset.  This is any asset that can be converted into cash on short notice.  This is a subset of a current asset, for it does not include inventory.  Its most common components are the cash, marketable securities, and accounts receivable accounts.<br />Raw materials inventory.  This is the total cost of all component parts currently in stock that have not yet been used in work-in-process or finished goods production.<br />Recognition.  This is the act of verifying the existence of a business transaction by recording it in the accounting records.<br />Replacement cost.  This is the cost that would be incurred to replace an existing asset with one having the same utility.<br />Reporting period.  This is the time period for which transactions are compiled into a set of financial statements.<br />Retained earnings.  This is a company’s accumulated earnings since its inception, less any distributions to shareholders.<br />Revenue.  This is an inflow of cash, accounts receivable, or barter from a customer in exchange for the provision of a service or product to that customer by a company.<br />Rework.  This refers to a product that does not meet a company’s minimum quality standards, but which is then repaired in order to meet those standards.<br />Sales allowance.  This is a reduction in a price that is allowed by the seller, due to a problem with the sold product or service.<br />Sales discount.  This is a reduction in the price of a product or service that is offered by the seller in exchange for early payment by the buyer.<br />Sales value at split-off.  This is a cost allocation methodology that allocates joint costs to joint products in proportion to their relative sales values at the split-off point.<br />Salvage value.  This is the expected revenue to be garnered from the sale of a fixed asset at the end of its useful life.<br />Scrap.  This is the excess unusable material that is left over after a product has been manufactured.<br />Security.  This can be either the collateral on a loan, or some type of equity ownership or debt, such as a stock option or note payable.<br />Segment reporting.  This is a portion of the financial statements that breaks out the results of specific business units.<br />Selling price variance.  This is the difference between the actual and budgeted selling price for a product, multiplied by the actual number of units sold.<br />Setup cost.  This is the cluster of one-time costs incurred whenever a production batch is run, which includes the cost to configure a machine for new production and  all batch-related paperwork.<br />Share.  This is the minimum unit of ownership in a corporation.<br />Shrinkage.  This is the excess of inventory listed in the accounting books of record, but which no longer exists in the actual inventory.  Its disappearance may be due to theft, damage, mis-counting, or evaporation.<br />Split-off point.  This is the point in a production process when clearly identifiable joint costs can be identified within the process.<br />Spoilage, abnormal.  This is spoilage arising from the production process that exceeds the normal or expected rate of spoilage.  Since it is not a recurring or expected cost of ongoing production, it is expensed to the current period.<br />Spoilage, normal.  This is the amount of spoilage that naturally arises as part of a production process, no matter how efficient that process may be.<br />Standard cost.  This is a predetermined cost that is based on original engineering designs and production methodologies.  It is frequently used to determine the degree of additional actual costs incurred above the standard rates.<br />Statement of cash flows.  This is part of the financial statements, and summarizes an entity’s cash inflows and outflows in relation to financing, operating, and investing activities.<br />Statement of retained earnings.  This is an adjunct to the balance sheet, providing more detailed information about the beginning balance, changes, and ending balance in the retained earnings account during the reporting period.<br />Step cost.  This is a cost that does not change steadily, but rather at discrete points.  For example, a facility cost will remain steady until additional floor space is constructed, at which point the cost will increase to a new and higher level.<br />Stock certificate.  This is a document that identifies a stock holder’s ownership share in a corporation.<br />Stock option.  This is a right to purchase a specific maximum number of shares at a specific price no later than a specific date.  It is a commonly used form of incentive compensation.<br />Stockholder.  This is a person or entity that owns shares in a corporation.<br />Subsidiary account.  This is an account that is kept within a subsidiary ledger, which in turn summarizes into the general ledger.<br />Subsidiary company.  This is a company that is controlled by another company through ownership of the majority of its voting stock.<br />Transaction.  This is a business event that has a monetary impact on an entity’s financial statements, and is recorded as an entry in its accounting records.<br />Transfer price.  This is the price at which one part of a company sells a product or service to another part of the same company.<br />Transferred-in cost.  This is the cost that a product accumulates during its tenure in another department that is earlier in the production process.<br />Unearned revenue.  This is a payment from a customer that cannot yet be recognized as earned revenue, because the offsetting service or product for which the money was paid have not yet been delivered.<br />Unissued stock.  This is stock that has been authorized for use, but which has not yet been released for sale to prospective shareholders.<br />Useful life.  This is the estimated lifespan of a fixed asset, during which it can be expected to contribute to company operations.<br />Variable cost.  This is a cost that changes in amount in relation to changes in a related activity.<br />Variance.  This is the difference between an actual measured result and a basis, such as a budgeted amount.<br />Work-in-process inventory.  This is inventory that has been partially converted through the production process, but for which additional work must be completed before it can be recorded as finished goods inventory.<br />Working capital.  This is the amount of a company’s current assets minus its current liabilities, and is considered to be a prime measure of its level of liquidity.<br />Write off.  This is the transfer of some or all of the contents of an asset account into an expense account upon the realization that the asset no longer can be converted into cash, can provide no further use to the company, or has no market value.<br />