Glossary of Accounting Terms and Definitions

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Above the Line
Above the line items are those revenue and expense items that directly affect the calculation of
periodic net income.
Absolute Change
Absolute change is the numeric change in the value of a commodity, expense etc.
Absorb/Absorption
Absorb means that one account or group of accounts combines the amounts from similar or
related accounts or groups of accounts. Thus, the combined account is a new entity while the
old ones are removed. For instance, if you have 3 creditors, John, George and Paul, you can
combine them into one 'creditors' account. Hence, they are called absorption.
Absorbed Costs
Absorbed Costs are a combination of both variable and fixed costs.
Absorption Costing
Absorption costing absorbs all costs under two head product costs (manufacturing costs) and
period costs (non-manufacturing costs).
Absorption Pricing
Absorption pricing is setting a price which is the sum of the absorbed cost plus a marked-up
percentage of profit.
Absorption Variance
Absorption variance is the difference between the predicted and actual absorption costs.
Accelerated Depreciation
Accelerated depreciation is a form of depreciation where larger amounts of depreciation are
calculated in the first few years.
Account
An account is the physical record of the transactions incurred related to an asset, liability,
revenue, expense etc.
Accounts Analysis
Accounts analysis can be looked as a method of cost behavior analysis by classifying records
under two heads: fixed or variable.
Accounts Group
Accounts group is a combination of similar accounts. e.g. fixed assets group, long-term
liability group etc.
Accounting
Accounting is the process of recording all the economic events that affect the
business/individual over an accounting period. Accounting is done based on the various
accounting principles, concepts and the Golden Rules.

Accounting Concepts
There are certain assumptions that are taken for granted while recording the accounts. These
assumptions are called accounting concepts. The 4 accounting concepts are Going Concern
Concept, Accrual Basis Concept, Consistency Concept and Prudence Concept. Read on for more
about Basic Accounting Concepts and Principles.
Accounting Cycle
An accounting cycle is the series of steps to be followed while preparing financial statements.
The steps in the accounting cycle are budgeting, journal entries, adjusting entries, ledger
posting, preparing financial reports and closing of accounts.
Accounting Entity Assumption
For legal and tax purposes, a business can be treated as a different entity from the owners.
Thus, only the transactions related to the business are recorded and not the ones related to
owners.
Accounting Equation
The accounting equation lays down the relationship between total assets, liabilities and
owner's equity. The accounting equation is Total Assets = Total Liabilities + Owner's Equity
Accounting Event
An accounting event is any event where there is a change (increase/decrease) in value of the
assets, liabilities or owner equity.
Accounting Income
Accounting income is the income earned by the business over the accounting year on an
accrual basis.
Accounting Measurement and Disclosure
Accounting measurement and disclosure is the accounting concept that says that adequate
dates should be used and disclosed for the purpose of decision-making.
Accounting Periods
An accounting period is the frame of time during which the accounts are prepared. An
accounting period is usually for a year.
Accounting Principles
Accounting principles are commonly accepted principles assumed while accounting for the
business. For details, refer to GAAP (Generally Accepted Accounting Principles).
Accounting Ratios
Accounting ratios are mathematical tools which help in performing the comparative
financial analysis for two financial variables.
Accounting System
An accounting system is a holistic approach to accounting. It may be manual as well as
computerized. An accounting system helps identify economic events, record them and
generate reports at the end of the accounting period or even during the period.
Accounting Theory
An accounting theory develops a framework for the accounting procedure. There are four
types of theories of accounting: Classical Inductive, Income, Decision Usefulness and

Information economics.
Accounting Timing Difference
Accounting time difference is the effect that considering a deferred financial event would
have on the financial statements.
Accounting Treatment
Accounting treatment is the set of rules that lays down how to treat an account and how to
handle a particular transaction.
Accounts Payable
Accounts payable are those accounts wherein the business has an obligation to pay for
receiving goods or services. They are classified as a liability.
Accounts Payable to Sales
Accounts payable to sales represents the time taken between the sales and payment to
creditors.
Accounts Receivable
Accounts receivable are those accounts where the business can owe money for providing goods
or services. It is an asset.
Accounts Receivable Reserve
An accounts receivable reserve is a pool of money kept aside by the business to protect itself
from default on the accounts receivables.
Accounts Receivable Turnover
Accounts receivable turnover lets the business measure how quickly the customers are paying
out the money receivable. It is calculated by Accounts Receivable Turnover = Net Credit Sales /
Average Accounts Receivable.
Accrual Concept
Accrual concept is one of the core accounting concepts. Accrual concept states that a economic
event should be recorded in the period in which it is incurred rather than when it is paid for
or when cash is received in return.
Accrued Assets
Accrued assets are those assets from which the revenues are earned but not received.
Accrued Expenses
Accrued expenses are those expenses which have been incurred but not paid.
Accrued Income
Accrued income is income that is earned but not yet received.
Accrued Interest
Accrued interest is interest that an asset has earned, but not received.
Accrued Inventory
Accrued inventory is that which has arrived in the warehouse of the business but hasn't yet
been paid for.
Accrued Liability

Accrued liabilities are those liabilities that have been incurred by the business and haven't
been paid off.
Accrued Payroll
Accrued payroll is employee salaries that remain unpaid at the end of the year.
Accrued Revenue
Accrued revenue is revenue that has been earned but not yet received.
Accumulated Amortization
Accumulated amortization is the accumulated charges against the intangible assets owned
by the business.
Accumulated Depreciation
Accumulated depreciation is the charges incurred for the wear and tear of a fixed asset that
is calculated periodically.
Acid Test Ratio
Acid test ratio is a ratio that analyzes the liquidity position of the business. It is calculated by
Acid Test Ratio = Total Liquid Assets / Current Liabilities.
Acquisition
Acquisition is a situation where one company takes over the controlling stake of another
company.
Activity Based Costing
Activity based costing is a form of costing that analyzes the cost of a product based on the cost
of the various activities performed for it.
Activity Ratio
Activity ratio is the ability of a business to convert their balance sheet assets into cash or sales.
Actual Cash Value
Actual cash value is a method for determining the actual loss incurred by the business
expressed in monetary terms. It is normally used in context of depreciation.
Actual Cost
Actual cost is the exact amount you pay to buy a fixed asset as opposed to the market value or
production cost.
Additional Paid-in Capital
Additional paid-in capital is the amount paid by the shareholders over and above the par
value of the asset.
Adequate Disclosure
Adequate disclosure is giving the required amount of information in the form of footnotes to
indicate the financial status of the business
Adjusted Book Value
Adjusted Book Value may be tangible book value or an economic book value. In a tangible
book value, the value of intangible assets are deducted from the total assets. In the economic
book value, the assets are adjusted to their market value as opposed to the cost of purchase.

Adjusting Entries
Adjusting entries are the entries done at the end of the accounting period to update certain
items that are not recorded as daily transactions. The process of recording adjusting entries
are known as adjustment.
Administrative Costs
Administrative costs are those which are not directly required for the process of production,
but are included in the final price of the product as they are incurred. e.g sales office rent is
an administrative cost as it is not required in the process of production.
Advance
Advance is an amount of money paid before the business earns it.
Agency
An Agency is the contractual relationship between the principal and his agent where the
agent is empowered by the principal to take certain decisions on his behalf.
Aggregate
Aggregate means total.
Allocation
Allocations are amounts distributed to each department for their working expenses.
Allowance
Allowance is a discount given to customers in the event of provision of unsatisfactory goods or
services.
Allowance for Bad/Doubtful Debts
Allowance for bad debts are amounts of money set aside by the business as a cover for possible
defaults on payments.
Alternate Payee Endorsement
Alternate payee endorsement is when the original payee endorses the draft to another entity,
and this other entity endorses it again.
Amalgamation
Amalgamation is the merger of two or more business entities.
Amortization
Amortization can mean three things.It is a series of payments that result in gradual
reduction of a large debt.
It is writing off the value of an intangible asset over the useful life of the asset.
It can also mean periodic deduction in the value of a fixed asset by means of depreciation.
Amount Due
Amount due is the amount payable by a debtor to a creditor. Read on to know What is
Amortization.
Ancillary
Ancillary refers to something that has lesser importance.
Annualized
Annualizing is a method by which all the amounts pertaining to less than a year are
calculated to their one-year equivalents.

Annual Report
An annual report is a detailed report of all the financial statements of a business. It is a
mandatory requirement for public companies
Annuity
An annuity is a series of periodical payments of a fixed amount for a fixed period. e.g.
insurance premium. Read on for Fixed Annuities Explained and the Annuities Pros and Cons.
Appreciation
Appreciation is the increase in the value of the asset due to economic conditions or
improvements to the asset.
Appropriation
Appropriation is the allocation of amounts, that are part of the total net profit, under various
heads such as general reserve fund etc.
Arrears
Arrears are debt that have not been paid yet.
Assessed Value
Assessed value is the estimated value that is taken for calculation of tax.
Assessment
Assessment is the total amount of tax or levy payable.
Asset
Asset is something that is owned by a business that has commercial value or exchange value.
Asset Earning Power
Asset earning power is one of the profitability ratios that determine the earning power of
assets. It is calculated by Asset Earning Power = Earnings before Taxes / Total Assets.
Asset Turnover Ratio
Asset turnover ratio helps establish the relationship between the sales and the total assets. It is
calculated by Asset Turnover Ratio = Total Revenue / Average Assets.
Asset Valuation
Asset valuation is the process by which the value of an asset or an asset portfolio is determined.
Audit
Audit is the process of checking and validating the business records.
Audit Committee
Audit committee is a special committee appointed in an organization to carry out the audit
oversight responsibility of the board of directors.
Audit Report
Audit report is an official, signed document that provides the details regarding the purpose,
scope and findings of the audit.
Authorized Capital
Authorized capital is the total money that the company has made by selling the issue of

authorized shares. It is calculated by Authorized Capital = Number of Shares which are Issued
* Par Value of Shares
Average Cost
Average cost = Total Cost / Number of Units.
Average Inventory
Average inventory is the average amount of inventory held over the accounting period. It is
calculated by Average Inventory = (Opening Inventory + Closing Inventory) / 2
Average Net Receivables
Average net receivables are the average of the accounts receivable over the accounting period.
It is calculated by Average Net Receivables = (Opening Net Receivables + Closing Net
Receivables) / 2
Average Settlement Period
Average Settlement Period is calculated
for debtors Average Settlement Period = (Trade Debtors * 365) / Credit Sales
for creditors Average Settlement Period = (Trade Debtors * 365) / Credit Purchases
Average Tax Rate
Average tax rate = Total Taxes Paid / Tax Base.
Avoidable Cost
Avoidable cost is the cost that can be avoided by taking a particular decision.
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Bad Debt
Bad Debt is the amount owed to us but which cannot be recovered. It is a loss.
Balance
Balance is the difference between the credit and the debit sides of an account.
Balance Sheet
A balance sheet is the list of all the assets and liabilities of the business.
Balloon payment
Balloon payment is the final payment on a loan. It is called so as it is considerably higher
than the regular payments.
Bank Balance
Bank balance is the amount of money present in the bank account of the business.
Bank Overdraft
Bank overdraft represents negative balance in the bank account of the company.
Bank Reconciliation
Bank reconciliation is the verification of all the entries in the bank statement with the bank
book of the business. Read on for the Purpose of Bank Reconciliation Process and Steps to
Accounts Reconciliation.
Bank Statement
A bank statement is the financial statement showing the details of all the transactions that
the business had made through the particular bank account.

Bankruptcy
Bankruptcy is a situation where a business/individual does not have enough assets to pay off
his liabilities. A person who is bankrupt is called an insolvent.
Barter System
Barter system is a non-monetary system of exchange where commodities are traded for
commodities rather than for money.
Base Capital
Base capital = Issued and Paid-up Share Capital + Contributed Surplus + Retained Earnings.
Basic Earning Power
Basic earning power measures the profitability of the assets. It is calculated by the formula
Basic Earning Power = EBIT / Total Assets.
Basis
Basis means the starting point for calculating a variety of variables such as profit, loss,
depreciation, amortization etc. It can also mean the book value of investments.
Batch
Batch is a collection of items that need to be handled together for production.
B/D
Brought Down. It is the balance from the previous accounting period that is carried forward.
Below the Line
Below the line items are those that directly affect the balance sheet and not the income
statements.
Benchmarks
A benchmark is a high standard that is set for performance.
Big 4
Big 4 refers to the 4 biggest accounting firms: PriceWaterhouseCoopers, KPMG, Delloite and
Touche and Ernst and Young.
Billings
A billing is a request sent to the debtor asking for payment for a debt.
Bill of Exchange
Refer: Draft
Bills Payable
Bills payable is a promise made by the receiver of a benefit to the giver of a benefit, to pay an
amount of money in the future.
Bills Receivable
Bills receivable is a record of all the bills that are receivable by a firm.
Bond
A bond is a certificate of debt issued either by a corporation or the government to raise
money.

Bond Discount
A bond discount is the difference between the face value of the bond and the issued price. The
face value in this case is higher than the issued price.
Bond Premium
Bond Premium is the difference between the issued price and the face value of the bond. In
this case, the issued price is higher.
Bond Sinking Fund
Bond sinking fund is a provision made by the bond issuing body to pay off the face value of
the bond at maturity.
Bonus
A bonus can be looked upon as the remuneration given to an employee in excess of the
stipulated salary.
Books
Books refers to the journals, ledgers and other subsidiary books such as sales books and
purchase books, as maintained by the business.
Book Building
Book building is a type of share issue where the price of the shares are not fixed, but is
determined by investor bidding.
Book Costs
The book cost is the cost of an asset when it was purchased. It may be a historical cost.
Book Income
Book income is the revenue earned by a business as reported in the financial statement.
Book Inventory
Book Inventory = Cost of Acquiring the Inventory - All the Liabilities associated with the
Inventory.
Book Keeping
Book keeping is the process of recording all the economic events and transactions of the
business.
Books of Accounts
Refer Ledger
Book to Market Ratio
Book to market ratio is a ratio that calculates the book value of the equity of a firm to the
market value of the equity.
Branch Accounting
Branch Accounting is keeping the books of accounts for geographically separated departments
or units of the same business.
Break Even Analysis
Break even analysis can be basically ascertaining how many units of a product sold will cover
the costs. The point of the sales volume where the costs are equal to the volume is called break

even point. Read on for Break Even Analysis Formulas

Brought Forward
Refer B/D
Budget
A budget gives the list of expense heads and the amounts allotted to expense heads. For
example, a sales budget lays down the amount to be spent on sales, etc.
Budgetary Deficit
When there is an excess of expenditure over revenue in a budget, it is known as a budgetary
deficit.
Budgetary Control
Budgetary control is a process where the actual amount incurred and the budgeted amount
for each expense head is compared.
Budgeting
Budgeting is estimating the expenditure needs of the department or each expense head based
on historical data and trend analysis.
Budget Performance Report
Budget performance report represents the comparison between the actual expenditure and the
budgeted expenditure.
Buffer
A buffer is a safety measure over the budgeted amount, in case of contingency.
Business Entity
A business entity may be a proprietorship, partnership, corporation, or LLC. Every entity has to
follow a separate set of rules.
Business Valuation
Business valuation is the amount that would be realized if the business was sold to a
hypothetical buyer.
Bylaws
Bylaws are the different provisions that govern the corporate policies.
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C
CA
CA may be short for either Chief Accountant or Chartered Accountant.
Call
A call may be The process for redeeming a bond or preferred stock before its maturity date.
Right to buy 100 shares/asset within a specified period at a specified price.
Callable Bond
A callable bond is a type of bond which gives the issuer the right to pay off at his discretion.
Capital
Capita is the money or the property available for the purpose of production.
Capital Account

Capital account is the account where all the details regarding the transactions related to the
paid-up capital are given.
Capital Asset
Capital asset is usually used in the context of fixed assets. Assets that are not used in the dayto-day course of business are called capital assets.
Capital Budget
Capital budget is the amount allocated for the purchase of fixed assets during the accounting
period.
Capital Charge
Capital charge is calculated by the formula Capital Charge = Capital * Weighted Average Cost
of Capital.
Capital Commitment
Capital commitment is a commitment to buy capital assets at a fixed time in the future.
Capital Contribution
Capital contribution is the cash and assets a corporation acquires through shareholder
money.
Capital Employed
Capital Employed is the actual value of the assets that is contributing to the ability of the
business to generate revenue. It is calculated by Capital Employed = Fixed Assets + Current
Assets - Current Liabilities.
Capital Expenditure
Capital Expenditure is the money spent for the improvement and servicing of existing fixed
assets or for purchasing new fixed assets.
Capital Expenditure Ratio
Capital Expenditure Ratio is calculate by the formula Capital Expenditure Ratio = Capital
Expenditure / Total assets.
Capital Fund
Capital funds are calculated by the formula Capital Fund = Total Capital Stock + Capital
Debentures + Surpluses + Undivided Profits + Reserves + Guarantee Fund + Guarantee Fund
Surplus
Capital Gain
Capital gain is the positive difference between sale value and the purchase value for an asset.
Capital Improvement
Capital improvement is any value adding activity to an asset that increases its value.
Capital Intensive
Capital intensive is a type of industry that relies more on capital to purchase high-end
machinery for its production as opposed to labor intensive that relies more on human
resources.
Capital Investment
Refer Capital Expenditure.

Capitalization
Capitalization refers to the statement of the total capital available with the firm.
Capitalization Rate
It is the rate of interest that is required to convert the series of future receivable payments into
their present value equivalent.
Capitalized Cost
Capitalized costs are those that are deducted over several accounting periods on account of
depreciation or amortization.
Capital Loss
A situation where there is a negative difference between the purchased price of an asset and
selling price of an asset. It is the exact opposite of capital gain.
Capital Market
Capital market is the market where shares and securities of the listed companies are traded.
Capital Profit
Capital profit is when the distribution of cash due to tax savings on account of depreciation,
sale of a fixed asset or any other sources that are not related to retained earnings.
Capital Rationing
Capital rationing is to put a restriction or a cap on capital expenditures.
Capital Receipts
Capital receipt is the amount received on account of the sale of a capital asset.
Capital Redemption Reserve
A capital redemption reserve is an undistributed reserve created out of the profits of a
company.
Capital Reduction
Capital reduction means to reduce the total capital available with the company.
Capital Reserve
A capital reserve is one of the reserves that a business creates, out of the yearly profits, for any
specific purpose.
Capitation
Capitation is a fixed charge, tax or payment that is levied as a fixed amount per person.
Carried Down
Carried down is the year's closing balance for an account that is carried to the next
accounting period.
Cash
Cash refers to the liquid money available with the business in the form of notes and coins for
the purpose of payment.
Cash Basis
The opposite of accrual basis is known as cash basis. It is a type of accounting where the

transactions are recorded only when there is an exchange of cash, irrespective of when the
transactions occurred. Cash basis accounting is different from the GAAP.
Cash Book
Cash book is the record of all the cash transactions - receipts and payments, that are made by
the business. It may also be expanded to include the bank transactions if the business does not
wish to keep a separate bank book.
Cash Budget
Cash budget is the allocation towards the cash receipts and payments that the business might
incur over an accounting period.
Cash Deficit
Cash deficit means the excess of cash payment obligations over the total cash available.
Cash Discount
Cash discount is the discount allowed to the debtor to induce him to pay earlier.
Cash Dividend
Cash dividend is the share of the company profits that is given to the shareholders as
dividend.
Cash Earnings
Cash earnings are defined as the excess of cash revenue over cash expenses in an accounting
period.
Cash Flow
Cash flow is the difference between the cash inflow and the cash outflow in the business. It does
not deal with accrued payments and only deals with the inflow and outflow of cash.
Cash Flow Analysis
A financial management and analysis technique that is used to compare the amount and
timing of the inflow and outflow of cash into the business.
Cash Flow Statement
Cash flow statement is a financial statement that provides details of the inflow and outflow of
cash for the business. It is divided into three parts: cash flows from financing, cash flows from
investing and cash flows from operations.
Cash Inflow
Cash Inflow is the measure of the total cash coming into the business as a result of various
financing, investment and operational activities.
Cash Outflow
Cash outflow is the measure of the total cash going out of the business as a result of the
various financing, investment and operational activities.
Cash Management
Cash management is a financial management technique that aims to maximize the
availability of cash in the business without changing the levels of fixed assets. It aims to
secure faster debtor payments to improve the liquidity position of the business.
Cash Profit

Cash profit is calculated as Cash Profit = Profit after tax + Depreciation.

Cash Ratio
Cash ratio is calculated by Cash Ratio = (Cash + Marketable Securities) / Current Liabilities.
Cash Receipt
Refer Receipts
Certified Financial Planner
A certified financial planner is a financial planner qualified as per the requirements of the
Institute of Certified Financial Planners.
Certified Public Accountant
Certified Public Accountant is a certification that gives an individual the license to practice
public accounting.
Charge Off
Refer Bad Debt
Chapter S
A special form of incorporated business entity in the United States and is governed by a
certain set of rules and is allowed to avoid payment of corporate taxes.
Charter
A charter is a document of a corporation.
Chart of Accounts
A chart of accounts is a serial listing of all the ledger accounts of a business.
Check
A check is a form of payment, through the bank and can be made payable to a specific person
or an unspecified bearer at large.
Checking Account
A checking account is a form of bank account where the amount can be withdrawn by a
check, an ATM card or a debit card.
Claims
A claim is a legally backed demand for money from a debtor, which if not paid, results in a
law suit.
Claims Outstanding
Claims outstanding can be calculated by Claims Outstanding = Claims Against Assets Claims Settled.
Close
To close an account is to carry forward the balance to the next year at the end of the
accounting period.
Closing Accounts
Closing an account is passing the closing entry on the last day of the accounting period.
Closing Date

Closing date is the date where one gets possession of or title to an asset.
Closing Entry
The closing entry is an accounting entry that is passed to carry forward the balance of an
unbalanced account to the next accounting period.
Closing Stock
Closing stock is the stock of inventory available with the business at the end of the accounting
period.
Coding
Coding means assigning the proper code to the accounts.
Collateral
Collateral/Security/Mortgage are assets that are given as security for obtaining a loan. In
case of a default on the loan, the lender has the right to take up the ownership of the
collateral.
Collateral Note
Collateral Note is a type of note that is secured using a collateral.
Collection Period
Collection period defines the amount of time it takes to convert your average sales into cash.
In other words, it is the time allowed to sales debtors for payment.
Combined Financial Statement
A combined financial statement is a financial report that combines the financial statements
of two or more merged business entities.
Commercial Loan
Commercial loan is a short term financing given by a lender for a period of around 6
months.
Commercial Paper
Commercial paper is another form of short term financing issued by businesses to investors for
a 2 to 270 day period.
Committed Costs
Committed costs are a long term fixed costs that the business has an obligation to pay.
Commodity
Commodities/goods are the main item that the business deals in and is used for commerce. It
may be a product or a service based on the nature of the business. Read on for more about
Commodity Price Index.
Common Size Analysis
Common Size analysis is a type of financial analysis where one item/account is taken as the
base value and all the others are compared to it.
Common Size Statement
A common size statement is the financial statement that shows detailed common size
analysis.

Company
A company is an association of persons who bring in capital and undertake a legal business
activity. A company may be limited by guarantee or shares.
Company Tax
Refer Corporation Tax
Comparative Statement
A comparative statement is a financial statement that compares the results of two or more
previous years with the current results.
Compensating Errors
Compensating errors are those errors that cancel a previous error.
Compliance Audit
Compliance audit is a watchdog procedure to ensure that the business is complying with the
set of rules and procedures that are set for it. It can be compared to the accounts audit which
ensures that the true accounting details are disclosed.
Compliance Panel
A compliance panel is a committee of people in charge of a compliance audit. This can be
compared to the financial audit committee.
Composite Depreciation
Composite depreciation is to combine similar assets in a same class and apply depreciation to
all of them at flat rate.
Composite Financial Statement
A composite financial statement is an average of financial statements of either two or more
companies or two or more periods.
Compound Annual Growth Rate
Compound annual growth rate is the yearly rate applied to an investment over multiple years.
Compound Interest
Compound interest is the interest calculated on the principal over which the interest
continues to accrue over time.
Compound Journal Entry
Compound general entry is an entry of an economic event that simultaneously affects either
two or more debits or two or more credits or both.
Comprehensive Annual Financial Report
A comprehensive annual financial report is the complete annual financial report of the
business.
Compulsory Liquidation
A compulsory liquidation is the liquidation of the assets of the company by a court order when
the company is unable to pay off its outstanding debts.
Concessionary Loans
Concessionary loans are sanctioned by the government to the companies to fund a particular
activity as prescribed by the issuing authority.

Conglomerate
A conglomerate is a group of different companies run under the same umbrella ownership
and run as a single entity.
Conservatism Principle
Conservatism principle of accounting says that the estimates of the company should be
conservative and not understated or overstated.
Consistency Principle
Consistency principle of accounting says that the same accounting policies and procedures
should be followed in every accounting period.
Consolidated Capital
Consolidated capital includes all the assets and money that is used in day-to-day business
operations.
Consolidated Financial Statement
A consolidated financial statement is a comprehensive statement that gives details regarding
all the assets, liabilities and operating accounts of the parent company and subsidiary
companies under it, if any.
Constraint
A constraint is something that limits or restricts a business activity.
Contingency Budget
Contingency budget is the money set aside for a contingency plan.
Contingency Plan
A contingency plan is implemented if some unfortunate event takes place. It is a 'plan B'.
Contingent
A contingent is something that occurs due to a condition that is not yet established.
Continuity Assumption
The continuity assumption in accounting states that the accounting for the business should
be done assuming that the business will have an unlimited life span.
Contra Entry
A contra entry is a type of ledger entry that gets offset by an exactly opposite entry.
Contributed Assets
Contributed assets are those assets that are owned by a contributing entity to the business.
Contributed Capital
Refer Paid-Up Capital
Contributed Surplus
A contributed surplus is the money earned through selling the shares of the company over the
par value.
Contributed Margin
Contributed margin is the excess of proceeds from sales over the variable costs. It gives the

total revenue available for servicing the fixed costs.

Contribution to sales ratio
Contribution to sales ratio is calculated by Contribution to Sales Ratio = (Contribution * 100)
/ Sales Revenue
Controllable Expense
Controllable expenses are those that can be controlled, restrained or avoided completely by
the business.
Conversion Costs
Conversion costs are calculated as Conversion Costs = Direct Labor + Manufacturing
Overhead.
Convertible
The word 'Convertible' is generally used to refer to one type of security that can be converted
into another type of security.
Corporate Governance
Corporate Governance is a system which governs the direction and control of business
corporations.
Corporation
A corporation is a business that has been incorporated and enjoys separate legal rights from
its owners.
Corporation Tax
Corporation tax is the direct tax charged to the profits incorporated in business entities.
Correcting Entry
A correcting entry is an entry made to nullify the effect of a previously made wrong entry.
Cost
Cost is the monetary amount that needs to be paid to acquire something.
Cost Accounting
Cost Accounting/Costing is a procedure to find out, analyze and control costs.
Cost Allocation
Cost allocation is the budget allotted to the various cost centers in the business.
Cost Assignment
Cost Assignment is the assigning of costs of an account to the various accounts that are
responsible for incurring the cost.
Cost Benefit Analysis
Cost benefit analysis is the analysis of the costs and benefits associated with any business
decision by first estimating the costs and then the expected return.
Cost Ceiling
Cost ceiling is the maximum budget that will be allotted for a project. It is calculated as Cost
Ceiling = Target Cost + Contingency Cost

Cost Center
A cost center of an organization is one that does not directly add value to the product, but
are indirect costs. For instance, sales and marketing costs are cost centers.
Cost Control
Cost control is an exercise to control the costs incurred under any head in a business.
Cost Driver
Cost driver is an event or a series of events and activities that results in costs being incurred
Cost/Income Ratio
Cost income ratio is a reasonably simple ratio to understand and is calculated as
Cost/Income Ratio = Total Expense / Total Income.
Cost of Capital
Cost of Capital is the rate of return that a business can earn with different investments. It is
calculated so that the best investment decision can be taken by the business.
Cost of Debt
Cost of debt is the amount of money it takes for financing a debt in the form of interest, etc.
Cost of Equity
Cost of Equity is the compensation that the investors demand for their investment and risk,
that the business has an obligation to pay.
Cost of Goods Sold
Cost of Goods sold is the cost of procuring and processing goods. It includes direct material,
labor and factory overheads.
Cost Plus
Cost plus is a method of pricing that involves finding out the total cost required to produce a
finished good and then adding a reasonable rate of profit.
Cost Principle
Cost principle of accounting says that the fixed assets purchase should be recorded at the cost
at which they were purchased, as opposed to their economic costs.
Cost Reduction
Cost reduction is an exercise taken to reduce the total costs incurred by the company by not
incurring the avoidable costs.
Cost Rollup
Cost Rollup is the determination of all the cost elements in the total costs incurred during the
course of the business.
Cost Split
Cost split is one of the most fundamental elements of costing and involves systematic breaking
down of all the costs that can be associated with production.
Cost Profit Volume Analysis
Cost profit volume analysis is a study of the response of the total costs, revenues and profit due
to the changes in the output level, selling price, variable costs per unit and the fixed costs.

Coupon Bond
Coupon bond is a financing measure for a business. A coupon bond gives its holder a fixed
interest payment on a yearly basis and the proceeds from redemption at the maturity of the
bond
Coupon Rate
Coupon rate is the fixed interest rate that is provided on a coupon bond.
Coverage Ratio
Coverage ratio refers to the ability of a business to meet any certain type of expense.
Credit
Credit is an arrangement between a buyer and a seller for deferred payment on goods and
services. A credit entry is an entry which eventually will reduce assets or increase liabilities.
Credit Control
Credit Control is a situation where obtaining credit is discouraged by increasing the cost of
credit.
Credit Line
Credit line is the maximum credit allowed by the business to one customer, a group of
customers or all the customers.
Credit Memo
Credit memo is the document which is used while issuing credit to vendors.
Credit Note
When a customer returns the merchandise to the business, then the business issues a credit
note to his name, saying that his account has been credited for the value of the goods
returned.
Creditor Account
Creditor account is a cumulative record of all the creditors to the business. It is a record of
the money payable to them.
Creditor Turnover
Creditor Turnover ratio is calculated as Creditor Turnover = (Average Creditors * 365) / Cost
of Sales
Credit Risk
Credit risk is the chance of loss that a business faces from nonpayment by the borrowers.
Credit Sales
Credit sales are sales for which cash is not paid immediately, but the customer promises to pay
it on a future date.
Cumulative Earnings
Cumulative Earnings is the sum total of all the earnings over a period of time.
Cumulative Preferred Stock
Cumulative preferred stock is a type of preferred stock on which if the dividend is not paid in
one year, then the dividend will accumulate to the future years.

Current Asset
Current Assets are those assets in the hands of the company that are usually sold or converted
into cash within a year.
Current Cost
Current cost is the cost that would be incurred if the business decided to replace an asset.
Current Cost Accounting
Current cost accounting is a type of accounting that records the updated amounts according
to the current cost as opposed to the historical cost.
Current Debt to Total Debt Ratio
Current debt to total debt ratio shows the current liabilities of the company as a percentage of
the total liabilities of the business. It is calculated by Current Debt to Total Debt Ratio =
Current Debt * 100 / Total Debt
Current Liabilities
Current liabilities are the liability obligations of the business which it is expected to pay off
within a year.
Current Ratio
Current ratio is the ratio that compares the current assets to the current liabilities in the
company. It is calculated by the formula: Current Ratio = Current Assets / Current Liabilities.
Custodian
A custodian is the business entity that is in charge of maintaining records or is the caretaker
for a property.
Customs
Customs is the authority who is in charge of collecting duty on the merchandise that comes
into the country. The duty that is paid for importing goods into the country is called custom
duty.
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D
Day Book
A day book is a daily written record of transactions.
Day's Cash on hand
Days cash on hand is the average cash available with the business.
Day's Inventory
Day's inventory shows the average amount of time that the items are in the inventory.
Days Payable Outstanding
Days payable outstanding shows the amount of time it takes for the business to pay off its
creditors on receipt of inventory from them.
Days Sales Outstanding
Days sales outstanding is the amount of time it takes for converting debtors/receivables to
cash.
Dead Assets
Dead assets are those assets whose life is restricted to their immediate use.

Debentures
Debentures are instruments used by the business to raise money. A debenture may be backed
by security or unsecured.
Debit
A debit is an entry on the left side of a ledger account which eventually increases the amount
of assets or expenses or decreases the liabilities, revenue or the net worth.
Debit Note
A debit note is a document that informs/reminds a debtor of his outstanding debt.
Debit Record
Refer Debit
Debt
A debt is money or goods or services which one business owes another business. A business that
owes money to another is said to have a debt over the other.
Debt Coverage ratio
Debt coverage ratio is the comparison between the net income of an investment and the
amount required to service the debt.
Debt Financing
Debt financing means to finance the activities of the business by issuing debt instruments like
bonds and debentures or getting loans.
Debt Instrument
A debt instrument is a written document that acknowledges debt.
Debtor
A person or persons who owe money to the business are collectively known as debtors.
Debtor Days
Debtor days is the average number of days required to convert receivables to sales.
Debt ratio
Debt ratio measures how much of the total funds of the business are provided by outsiders. It is
calculated by: Debt Ratio = Total Liabilities / (Total Liabilities + Shareholder Equity)
Debt Security
Debt security is the security for debt capital i.e debentures, bonds
Debt Service Ratio
Debt service ratio is the amount of total revenue that is spent on paying for debts. It is
calculated by Debt Service Ratio = (Debt Payment * 100) / Total Income
Debt to Equity Ratio
Debt to equity ratio measures the part of the total capital that is financed by debt and the
part financed by equity. It is calculated by Debt to Equity Ratio = Total Liabilities /
Stockholder Equity
Debt to Total Assets Ratio

Debt to total assets ratio measures the percentage of assets financed by debt.
Declining Balance Depreciation Method
Declining balance depreciation method is a method of calculation of depreciation at a fixed
rate. Under this method, an asset will continuously be depreciated a fixed rate of percentage
and the subsequent depreciation will be on the reduced balance.
Deduction
Deduction means to subtract.
Deductive Accounting Theory
Deductive accounting theory works on the assumption that accounting standards and
reporting rules can be based on logical and mathematical deduction.
Default
Default is when a debtor to the business does not pay the amount due to the business, due to
inability or unwillingness on his part. It is used more commonly in the context of banking
where a default is a situation when a person who has taken a loan does not pay it back.
Defeasance
Defeasance is to release a debtor from his debt obligation to the business.
Deferred
Deferred is an asset or a liability that will be realized at a future date.
Deferred Annuity
Deferred annuity is a series of payments that will start on a future date.
Deferred Development Costs
Deferred Development Costs are those which will be recognized after a certain
condition/obligation is satisfied.
Deferred Expenditure
Deferred expenditure is expenditure which is carried forward and written off over subsequent
periods.
Deferred Expenses
Refer Prepaid Expenses
Deferred Income
Deferred income is income earned in advance by the business.
Deferred Maintenance
Deferred Maintenance is the expense that should have been paid for maintenance but has
been delayed.
Deferred Payment Credit
Deferred payment credit is a letter of credit that states that a payment will be made at the
end of the period specified in the letter of credit.
Deferred Tax Assets
Deferred tax assets are those assets that reduce the tax liability of the business for some years
over the validity of those assets.

Deferred Tax Liability

Deferred tax liabilities are the opposite of deferred tax assets and have the effect of increasing
the tax payment of the business in the following years.
Deficit
A deficit is the excess of expenditure over revenue.
Deficit Budget
A deficit budget is a budget where the budgeted expenses are more than the budgeted income.
Deficit Spending
Deficit spending is the external financing required to finance the expenses that are not
covered by income.
Deflation
Deflation is a situation characterized by a decline in prices.
Delinquency Ratio
Delinquency Ratio is the ratio that compares the past-due loans to the loans that have been
serviced completely.
Demand Deposit
A demand deposit is a deposit kept with a bank from which money may be withdrawn at any
time without any notice.
Demand Draft
Demand draft is an instrument of payment that one person gives to the other and the other
person can demand money against it.
Demand Note
Demand note is a note that is payable on demand from a person who owes the money.
Departmental Accounting
Departmental accounting is maintaining the account of the expenses and revenue of the
various departments of the company that have varying autonomy, but are not geographically
separated.
Depreciable Cost
Depreciable cost is the cost of the fixed asset which is subject to depreciation.
Depreciated Historical Costs
Depreciated historical cost is the method of valuing certain assets. Depreciated Historical
Costs = Cost of their Acquisition + Enhancement - Reduced Depreciation till that date.
Depreciation
Depreciation is writing off the book value of a fixed asset every year, due to the reduction in
its value caused by wear and tear, obsolescence etc.
Depreciation Allocation
Depreciation allocation means that instead of simply writing off depreciation each year, the
business could instead make an amortization or a reserve for improving the fixed asset or for
buying a new one.

Depreciation Convention
Depreciation convention is determining the method of depreciation to be used for an asset
that is purchased at some time during the accounting period.
Depreciation Reserve
Depreciation reserve is used to create a systematic account by allocating the depreciated price
of a fixed asset over its entire life.
Depreciation Schedule
A depreciation schedule is a statement showing the details of the amounts and timing of
depreciation over its effective life.
Derivative
A derivative is a transaction or a contract whose value is derived from the value of the
underlying assets.
Designated Receipts
Designated receipts are revenues that are designated for a specific purpose.
Devaluation
Devaluation is reducing the value of something. It is most commonly used in the context of
currency value reduction.
Diluted Earnings Per Share
Diluted Earnings per share are calculated not only on equity stock but also on preferred stock
and convertible debt.
Dilution
Dilution is weakening or decrease in the value of a balance sheet item.
Diminishing Value Method
Refer Declining Balance Depreciation Method
Direct Cost
Direct Cost is a total of the costs that are associated with the actual production of a product.
Direct Costs = Direct Material + Direct Labor.
Direct Expense
Direct Expenses are those expenses which are directly associated with providing a product for
sale.
Direct Labor
Direct Labor is the remuneration paid to the employees who produce the product.
Direct Labor Budget
Direct Labor Budget is the planned monetary allocation for paying for the direct labor.
Direct Labor Rate Variance
Direct Labor Rate Variance is the difference between the standard hours to be worked by an
employee and the actual hours worked by the employee.
Direct Materials

Direct Materials includes the cost of purchasing the raw materials for the process of
production.
Director's Report
The director's report is written by the director of the company in the annual report as to his
analysis and comments on the performance of the company in the past year and the director's
vision for the next year.
Direct Write off Method
Direct write off method is to write off all the bad debts at the time that they are adjudged
non-collectable.
Disbursement Voucher
Disbursement voucher is the document used to request disbursement for expenses.
Disclosure Note
Refer Disclosure Principle
Disclosure Principle
Disclosure principle in accounting says that any detail regarding the information related to
the better understanding of the financial statement should be disclosed by the management.
Discount
Discount is the decrease in the price of a product.
Discount Allowed
A discount is said to be allowed when the seller reduces the price to induce the customer to
make a purchase.
Discounted Cash Flow
Discounted cash flow is to discount the cash flow from an investment at the required rate of
interest each year.
Discounted Earnings
Discounted earnings is to reduce the value of future inflows into the company by a specific
rate of interest.
Discounted Payback
Discounted payback period is the period of time it will take to cover your initial cash outflow
at the discounted rate of interest.
Discounting Rate
Discounting rate is the rate of interest at which a series of cash inflows/outflows are
discounted.
Discrepancy
Discrepancy is the difference between two claims or facts.
Discretionary Costs
Discretionary costs are those costs that can be increased or decreased at the choice of the
business.
Discretionary Income

Discretionary income is the income left with the company after all the primary costs are
incurred.
Dishonored Note
Dishonored note is a note that the debtor defaulted on, creating a bad debt.
Disintermediation
Disintermediation is the transfer of funds from the low return investment options to the
higher return options.
Disposable Income
Disposable income is the income left with the company after all the primary obligations are
met.
Dissolution
Dissolution is legally winding up the business.
Distribution Cost
Distribution cost is the cost incurred on distributing the product to its users.
Distribution to Owners
Distribution to owners is the payment to owners in the form of dividend.
DIT
DIT is short for Depreciation, Interest and Taxes.
Divestiture
Divestiture is when a company sells its product line, division or a subsidiary.
Dividend
Dividend is a portion of the earnings of the business that is paid to the shareholders of the
company.
Dividend Capitalization
Dividend capitalization is the method for estimating the cost of the firm's common equity.
Dividend Payout Ratio
Dividend payout ratio gives the percentage of earnings that are given as dividends.
Dividend Per Share
Dividends per share are calculated by Dividend per share = Total Dividend / Number of
Shares.
Dividend Yield Ratio
Dividend yield ratio = Latest Annual Dividends / Current Share Price
Division
A division is a unit or a part of the company that is runs its operations independently.
Document Control
Document control is the department in the company that looks after the documentation in
the company and take care of all the documents.

Document Reconciliation
Document Reconciliation is the synchronization and verification of all the documents.
Document Review
Document Review is a technique of data collection by examining existing records.
Doomsday Ratio
Doomsday ratio is calculated by Doomsday Ratio = Cash in Hand / Total Liability
Double Accounting
Double accounting is a fraudulent or unintentional double counting of assets or liabilities.
Double Entry Accounting
Double entry accounting is recording the debit as well as the credit effect of the entry.
Double Leverage
Double Leverage refers to a situation where the holding company raises the debt and
dowstreams it to the subsidiary company.
Doubtful Debts
Doubtful debt is a debt owed to the business the recovery of which, is not certain.
Down payment
Down payment is a lump sum payment made at the time of purchase.
Draft
A draft is a note that signifies a contract between a buyer and seller, saying that the buyer
will pay the specified sum of money at the end of the specified period.
Draw
Refer Proprietor's Draw
Drawdown
Drawdown shows the quantity of value lost, either as a percentage or in currency terms
Drawee
Drawee is the person in whose favor a check/bill etc. is drawn.
Duality Concept
Duality concept is an accounting concept which says that every accounting entry will have
two effects, debit and credit.
Due Diligence
Due diligence is the level of diligence that the internal audit committee is expected to
maintain.
Duty
Duty is the tax which is imposed on imported goods.
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E
E & OE
E & OE is an abbreviation for Errors and Omissions Excepted.

E&P
E & P is an abbreviation for Earnings and Profits.
Earned Income
Earned income is the income earned by selling goods and services.
Earning Asset
Earning asset is simply an asset which has a capacity to earn.
Earning Capacity
Earning Capacity is the net average earnings of an asset at any given point of time.
Earning Power
Earning Power = EBIT / Total Assets
Earnings
Earnings is the financial ability of the business to make distributions to its shareholders.
Earnings before Taxes
Refer Profit Before Taxes
Earnings from Operations
Earnings from operations = Sales - Operating Costs
Earnings per Share
Earnings per share = Profit After Tax / Number of Shares
EBIT
EBIT is the acronym for Earnings Before Interest and Taxes.
EBITDA
EBITDA is the acronym for Earnings Before Interest, Taxes, Depreciation and Amortization.
EBITDARM
EBITDARM is the acronym for Earnings Before Interest, Taxes, Depreciation, Amortization,
Rent and Management fees.
Economic Cost
Refer Opportunity Cost
Economic Entity
Economic entity is the accounting concept that provides a context for economic events for
recording the transactions.
Economic Order Quantity
Economic order quantity is that level of inventory to be ordered which minimizes the cost of
holding and transporting inventory along with having the required stock all the time so that
the production activity does not get hindered.
Economic Value
Economic value is the value of the asset derived from its earning capacity.
Economies of Scale

Economies of scale is a theory that the more quantity you buy, the lesser is the average cost of
each individual item.
Effective Interest Rate
Effective interest rate is the cost of credit computed on a yearly basis and expressed as a
percentage.
Effective Tax Rate
Effective tax rate is the net rate of all the taxes that a person/business pays on income. Effective
Tax Rate = total taxes paid / total income
Efficiency
Efficiency is the comparative ratio of output to input.
Embezzlement
Embezzlement is fraud or misappropriation by an entrusted person, e.g. by employees.
EMI
EMI is the acronym for Equated Monthly Installments.
Employee Compensation
Employee compensation is the wages/salaries and all the other benefits provided to the
employee by the employer.
Endorsement
Endorsement is to forward a note/bill/check by the original payee.
Engagement
Engagement is to pledge, bind or come together of two or more entities.
Engineered Costs
Engineered costs are those costs which are directly linked to output.
Entity Concept
Entity concept of accounting says that the business and its proprietors are different entities
and the personal transactions of the proprietor should not be included in the books of
accounts.
EOM
EOM is the acronym for End of the Month
EOY
EOY is the acronym for End of the Year
Equity
Equity means the ownership or the percentage of ownership that a person has in a company.
Equity Accounting
Equity Accounting is the practice of showing the undistributed profits of another company in
which one company holds an ownership of below 50%.
Equity Capital
Equity capital is a way of financing where the company's equity is sold to investors.

Equity Financing
Equity financing is a way of financing by issuing common stock or preferred stock.
Equity Holding
Equity holding is holding a share of capital in a company which gives the shareholder the
rights to vote, receive dividend etc.
Equity Share
An equity share is defined as the share of the total equity held by the investor.
Equity to Asset Ratio
Equity to asset ratio gives the amount of assets that are financed by the shareholders' equity
capital.
Errors of Commission
Errors of commission are those that occur because some incorrect action is taken.
Errors of Omission
Errors of omission are those that occur because some action is not taken.
Errors of Original Entry
Errors of original entry are those where a wrong amount is entered on both debit and credit
sides in the journal.
Errors of Principle
Errors of principle are those where the entry is made to a wrong category of account.
Estate
Estate is all the assets owned by the company at the time of death of the holder of the assets
Estate Taxes
Estate taxes are the taxes levied on the transfer of property from the deceased to the legal
heirs.
Ethical Standards
Ethical standards are written documents that contain the basic principles and essential
procedures along with the related guidance in the form of explanations and other material.
Excise Tax
Excise tax is the tax that is levied by the federal government or the state government on
activities such as manufacture, occupation, privilege, sale and non-deductible consumption.
Executor
An executor is a legal entity, specified in the will of the deceased that is vested with the power
to execute the will.
Exempt
Exempt is to be free from a tax liability.
Expected Annual Capacity
Expected annual capacity is the production capacity planned for the year.

Expendable
Expendable item is one that can be used and discarded and will not affect the end product.
Expenditure
Expenditure is the cost incurred in trying to generate revenue.
Expenses
Expenses are daily costs incurred to run and maintain a business.
External Audit
External audit is the audit performed by an entity which is external to the business.
Extraordinary Items
Extraordinary items are those which occur infrequently and are unusual.
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F
Face Value
Face value is the value that is printed on the face of a commodity.
Factoring
Factoring is to buy a debt at a discount.
Factory Overhead
Factory overheads are those costs incurred within the factory that cannot be directly assigned
to direct costs.
Fair Market Value
Fair market value of a commodity is the value at which the seller is willing to sell the
commodity and the buyer is ready to buy it.
Fair Value
Fair value is the value at which a seller is willing to sell and the buyer is willing to buy an
asset.
F&A
F & A is the commonly used acronym for either Facilities and Administrative costs or Finance
and Accounts or Finance and Administration.
Favorable Variance
A variance is said to be favorable when the actual spending/use of resources by the business is
less than the standard spending/use.
FBWT
FBWT is the acronym for Fund Balance with Treasury.
FDI
FDI is the acronym for Foreign Direct Investment.
Fees Earned
Fees earned is an income statement account which shows the service revenues earned during
the period.
Fees Simple

Fees simple implies absolute ownership over a real property.

FF & E
FF & E is the acronym for Furniture, Fixtures and Equipment.
Fictitious Asset
Fictitious asset is the debit balance on the asset side of the balance sheet. Intentional creation
of fictitious assets may amount to fraud.
Fiduciary
Fiduciary is a business or an individual that is empowered to act for another in good faith
and trust.
FIFO
FIFO is the acronym for First In First Out. It assumes that the inventory that is purchased first
is used or sold before the inventory that is purchased later.
Finance
Finance may be used to mean either money, or the subject that deals with effective
management of funds or a department in the company which is in charge of managing
funds.
Finance Charge
Finance charge is the total amount expressed in dollar terms which you will be charged as
interest for loan.
Financial Accounting
Financial Accounting is the process of recording all the transactions of the business for
reporting and analysis.
Financial Analysis
Financial analysis is the process to analyze the financial statement of a company.
Financial Cash Flow
Financial cash flow is the cash flow which is generated by the assets of the firm and how those
funds are distributed to the shareholders.
Financial Budget
Financial budget can be broken up into two types. Capital budget is the forecast for large
expenditures and cash budget is the forecast for cash receipts and disbursements.
Financial Engineering
Financial engineering is the process that deals with creation and combination of a variety of
financial instruments in order achieve a defined financial objective
Financial Gearing
Financial gearing is any borrowing which the business undertakes.
Financial Interest
Financial interest is any relationship with a commercial entity.
Financial Leverage
Financial leverage is using debt to increase the return on equity

Financial Management
Financial management is a subject that deals with financial management and control,
through analysis of financial statements.
Financing Cost
Financing cost is the difference between the cost of purchasing the asset and the return that
the asset provides.
Finished Goods Inventory
Finished goods inventory is the stock of finished goods lying unsold in the warehouse.
FIT
FIT is the acronym for Federal Income Tax.
Fixed Asset
Fixed assets are those assets that are required for normal conduct of business.
Fixed Bond
Fixed bond is a type of bond that pays interest at a fixed rate till maturity
Fixed Charge Ratio
Fixed Charge Ratio = Fixed Costs / Total Expenses.
Fixed Costs
Fixed costs are those costs which do not vary depending on the level of production and sales.
Fixed Deposits
Fixed deposits are amounts which you keep with the bank for a specified period of time and
earn a specific rate of interest which is higher than the rate for savings accounts.
Fixed Incomes
Fixed income is the type of income which you get from an investment. Interest on bank savings
is an example of fixed income.
Fixed Overheads
Fixed overhead costs are those costs that are not directly linked to production and remain
fixed irrespective of the level of production and sales.
Flat Interest
Flat interest rate is the rate charged on the starting amount rather than the current balance.
Flat Rate
Flat rate means that the price of a commodity will remain the same, irrespective of the volume
sold.
Forecast
Forecast is an estimate or prediction regarding the business results.
Forensic Audit
Forensic Audit is examining the evidence regarding an assertion made in the court of law.
FP & A

FP & A is the acronym for Financial Planning and Analysis.

Freight
Freight is the cost incurred in transporting assets or goods to or from a warehouse or place of
production.
Fringe Benefit
Fringe benefits are the non-monetary benefits provided to employees.
FRS
FRS is the acronym for Financial Reporting Standard.
Full Charge Bookkeeper
A full charge bookkeeper is one who can do all the accounts work right from journal
preparation to making the final financial statements.
Full Cost Recovery
Full cost recovery is adjusting the prices of goods/services so that all the fixed and variable
costs of the product are met.
Fully Depreciated
An asset is said to be fully depreciated when it has already been charged with the maximum
total depreciation as is allowed by the tax authorities for that asset.
Fund
A fund is an amount of money that is set aside for a certain purpose.
Funds Employed
Funds employed is the average of the Net Working Capital and the Fixed Assets
Funds Flow
Funds flow is the total funds generated from operations over the course of business activity.
Future Value
Future value is the value of a commodity or an asset at a future period of time.
FYE
FYE is the acronym for Fiscal Year Ended.
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G
GAAP
GAAP is the acronym for Generally Accepted Accounting Principles, which is an accepted set of
accounting procedures, policies and rules. Read on for more about the U.S. GAAP - Generally
Accepted Accounting Principles
G&A
G & A is the acronym for General and Administrative Overheads.
Gain
Gain is the excess of total revenue over total expenses. Gain may also be used to refer to a rise
in value, rate or prices.
Garnish

Garnish is to claim the debtor's wages/salary under a court order for previously defaulted
debts.
Gearing Ratio
Gearing ratio is the ratio that measures the percentage of the total capital employed financed
by long term debt.
Generally Accepted Auditing Standards
Generally Accepted Auditing Standards are the standards, rules and guidelines set by the
Auditing Standards Board of the American Institute of Certified Public Accountants.
Gilt
Gilt, in general use, is a bond issued by the government.
Global Bond
Global bond is a bond which can be traded outside the country of its issue.
Global Funds
Global Fund is a type of mutual fund where the fund company can invest in companies
located anywhere in the world
GMROI
GMROI is the acronym for Gross Margin Return on Investment.
Going Concern Concept
Going Concern Concept of Accounting assumes that the business will remain in existence for
all the foreseeable future.
Going Public
Going public is used to indicate that a certain business is going to issue publicly traded share
capital.
Going Rate
Going rate is the average cost of the products or services.
Golden Rules of Accounting
The Golden Rules of Accounting govern the treatment of various types of accounts in case of
an economic event.
For personal accounts, the rule is Debit the receiver; credit the giver.
For real accounts the rule is Debit what comes in; Credit what goes out.
For Nominal Accounts the rule is Debit all expenses or losses; Credit all incomes and gains.
Goods
The commodity in which a business trades, is collectively known as goods.
Goodwill
Goodwill is an intangible benefit one business enjoys over its competitor as the market is ready
to absorb the goods of the former company even at a higher price.
Governance
Governance is the act of exercising authority or simply governing which is performed by the
Board of Directors.
GP Ratio

GP Ratio is the acronym for Gross Profit Ratio. The Gross Profit ratio measures the relationship
between the gross profit and sales. GP Ratio = (Gross Profit * 100) / Sales
Gross
Gross is an amount before any deductions or additions are made to it.
Gross Debt
Gross debt is the total of all the debt obligations of the business.
Gross Margin
Gross Margin is used synonymously with Gross Profit or Gross Profit Ratio.
Gross Profit
Gross profit is the excess of sales over production costs.
Gross Profit Margin on Sales
Refer GP Ratio
Gross Profit Method
Gross Profit Method is the inventory estimated that is based on gross margin.
Gross Revenue
Gross revenue is the money earned from sales of goods.
Gross Sales
Gross sales is the total value of sales prior to any discounts, deductions or returns.
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H
Hard Assets
Hard Assets include physical assets and financial assets and do not include intangible assets.
Hard Costs
Hard costs are the total costs incurred on the purchase of assets.
Hidden Assets
Hidden assets are any value generating assets in the business that are not included in the
balance sheet of the company.
High Credit
High Credit is the highest that a debtor has ever taken from any one creditor.
High Low Method
High-Low method is a method of approximating cost method is one which considers only the
highest and lowest points of the given data and the activity in the given range.
High Yield Debt
High Yield Debt is a debt instrument that gives a higher yield/return as it is a higher risk
instrument.
Hire and Purchase Agreement
Hire and Purchase agreement is an agreement where the buyer hires an asset/goods at a rate
of rent and at the end of the renting period and after paying all the installments, receives
ownership of the asset or goods.

Holding Company
A holding company is one that holds more than 50% stake in another company (known as
subsidiary company).
Horizontal Financial Analysis
Horizontal Financial Analysis is the analysis of the ratios of one company with those of the
competitors and with those of the industry.
Hostile Takeover
A hostile takeover is when one company buys out the other company whether the board
approves of it or not. It is usually done by buying the majority stake of the company from the
publicly traded share, thus becoming the majority stakeholder, bypassing the board of
directors.
Human Capital
Human capital is the intellectual capital of the employees which the company enjoys.
Hybrid Instrument
Hybrid instrument is a bundled instrument containing two or more different types of risk
management instruments.
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I
Identifiable Assets and Liabilities
Identifiable assets and liabilities include both tangible and intangible items in the balance
sheet.
Idle Time
Idle time is the time for which production activity gets suspended.
Immovable
Immovable is generally used in the context of assets which are permanent and stationary, like
land and buildings.
Impairment of Value
Impairment of value is the permanent loss of value of an asset.
Implicit Rate of Interest
The rate of interest is said to be implicit when the stated interest rate is different from the
market rate.
Implied Costs
Implied costs are the hidden costs incurred on the assets that have already been paid for.
Imprest Basis
Imprest basis means that the cash balance for expenditure in the cash account is replaced at
the end of every period.
Income
Income is the amount of money received during a period of time on account of anything.
Income Gearing Ratio
Income Gearing Ratio = Interest Expense / Operating Profit.

Income Tax
Income tax is the tax paid as a percentage of business or personal income.
Income Taxes Payable
Income taxes payable is the amount of money payable as income tax, but is not paid yet.
Incorporated
Incorporated is a type of business entity that has been allowed to operate as a corporation by
the approval of the state government.
Incremental
Incremental means additional.
Incremental Budget
Incremental budget is the budget for the fixed overhead costs.
Incremental Cost
Incremental cost is the cost incurred for producing one additional unit of output.
Incremental Cost of Capital
Incremental cost of capital is the weighted cost of the additional capital raised.
Indirect Cost
Indirect costs are those costs which are not directly related to the process of production.
Indirect Shareholding
Indirect shareholding is when a company A holds a direct shareholding in company B and
company B holds a direct shareholding in company C, company A is said to have an indirect
shareholding in company C.
Industry Analysis
Industry analysis is the analysis of the financial performance of an industry as a whole.
Inflation Accounting
Inflation accounting is a form of accounting where the amounts are adjusted to the
changing prices.
Inflation Adjustment
Inflation adjustment is to adjust the figure on an amount for increase or decrease in
inflation.
Inherent Risk
Inherent risk is the risk that is intrinsic to any activity, investment etc.
Insolvency
Insolvency is a situation where an entity's liabilities exceed its assets and cannot be paid off.
Installation
Installation is the cost incurred to put an asset into use.
Installment Sale
Installment sale is selling a commodity and receiving the payments for it over successive

periods instead of a lump sum.

Insurance Claim
Insurance claim is the written notification which the insured gives to the insurer to ask for
the amount due under the policy.
Intangible Asset
An Intangible asset is an asset that cannot be physically seen or felt, but its presence benefits
the company, e.g goodwill.
Intellectual Capital
Intellectual capital is the resource of specialized knowledge that a company has and is
recognized as an asset to the company.
Interest
Interest is a fixed charge that is given as compensation for parting with immediate liquidity.
Interest-Bearing
Interest bearing is used to describe something that gives interest.
Interest Coverage
Interest Coverage Ratio = Net Interest Expense / EBIT
Interest Earnings
Interest earning is the total interest received by the company on various investments.
Interest Expense
Interest expense is the total interest paid by the company for various debts.
Interest Rate
Interest rate is a percentage of the total investment/debt at which the interest amount is
given/paid.
Interim Audit
Interim audit is an audit that is conducted at some time during the year.
Interim Dividend
Interim Dividend is the dividend that is paid at some time during the year
Interim Statement
Interim statement gives the financial position of the business at some time during the year.
Internal Audit
Internal audit is the audit carried out by the audit committee in the company itself.
Internal Rate of Return
Internal rate of return is the rate of return, expressed as a percentage, the net present value
for which is zero.
Intrinsic Value
Intrinsic value is the value of something by itself, irrespective of its use and whether it is used.
Inventory

Inventory is the stock of raw materials, work in progress or finished goods

Inventory Accumulation
Inventory accumulation is the extra inventory that was stored on account of unplanned
events.
Inventory and Purchases Budget
Inventory and purchases budget is the budget set by the company for purchasing and storing
inventory.
Inventory Control
Inventory Control is to maintain the optimum amount of inventory in the stores of the
company.
Inventory Obsolescence
Inventory is said to be obsolete when it is no longer usable or salable.
Inventory Profits
Inventory profit is the profit that the company earns due to the rise in the prices of inventory.
Inventory Transfer
Inventory transfer is a process that physically tracks the transfer of inventory from one place to
another.
Inventory Turnover Ratio
Inventory turnover ratio gives the number of times the inventory is purchased and used up for
production or sold in a given period.
Inventory Valuation
Inventory valuation is the process of assigning monetary value to inventory.
Investment
Investment is purchasing something with an intention to gain a profit from its sale or getting
income for it at regular intervals. Read on for Types of Investments
Investment Capital
Investment capital is the capital raised by the issue of shares or long term debt instruments
like debentures.
Investment Expense
Investment expense is the expenses incurred on the inventory other than those expenses which
are incurred for purchasing the inventory, like installation costs, brokerage etc.
Investment Tax Credit
Investment tax credit is a tax credit that is given to the businesses to write off a portion of the
cost of purchasing equipment.
Investment Turnover
Investment turnover is the ratio used to measure the number of times an asset or investment
revolves.
Invoice
An invoice is an itemized bill which gives the details of the items purchased or sold.

IPO
IPO is the acronym for Initial Public Offering. It is the first time that a business goes public
with the issue of shares.
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J
JIT
JIT is the acronym for Just-in-Time.
Job Costing
Job Costing is the allocation of time, material and expenses to an individual job or project.
Joint Account
Joint Account is the financial account that is used and run by two or more account holders.
Joint Payee Endorsement
Joint Payee endorsement is when a bank draft is made out to two parties, and both parties are
required to endorse the back of the bank draft before it is honored by the bank.
Joint Stock Company
Joint Stock Company is a type of company that enjoys some features of a partnership and some
features of a corporation.
Joint Venture
Joint Venture is a business activity started by two or more people, who invest capital for that
business activity. Read on for more about Venture Capital
Joint Ventures and Investments
Joint Ventures and Investments is the total investments and equity in a joint venture.
Journal
Journal is the first record of transactions of the business as they occur.
Journal Entry
Journal entry is a record of the transactions made by the business.
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K
Kaizen Budgeting
Kaizen Budgeting is the budgeting approach which takes into consideration projected future
costs rather than current practices.
Kaizen Costing
Kaizen costing is reducing the cost of production in small steps.
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Lag Time
Lag time is the time between two closely related phenomena such as stimulus and response.
Land
Land is the asset account in which the details and the costs of land holding for the business
are given.
Leasehold Improvements

Leasehold improvements are repairs and improvements made to leasehold land by the lessee.
Ledger
Ledger is the book which consists of various individual accounts to which the journal entries
are posted.
Ledger Group
Ledger group is a group of ledgers that consist of a primary ledger and a number of
secondary ledgers.
Legal Entity Assumption
Refer Entity Concept
Leverage
Leverage is the property rising or falling at a greater proportion than the comparable
investments.
Leverage Ratios
Leverage ratios measure the impact of equity and debt capital on profitability.
Levied
Levied is a charge that is imposed or collected.
Liability
Liability is a loan or a debt for the business that needs to be discharged.
LIFO
LIFO is the acronym for Last In First Out. It means that the inventory which is purchased last
is used or sold first.
LIFO Liquidation
LIFO Liquidation is the process of reducing the reported value of the inventory.
LIFO Reserve
LIFO reserve is the difference between the LIFO level of inventory and the FIFO level of
inventory.
Lifting and Operating expenses
Lifting and Operating expenses are generally incurred in the oil and energy industry, in the
running and maintenance of oil wells.
Limited Company
Limited Company is a legal entity that is owned by shareholders. Read more on Corporation
Types.
Limited Liability
Limited liability is when the owner's liability for the business is restricted to his share in the
business. Read on for An Explanation of LLC (Limited Liability Company).
Line of Credit
Line of Credit is an agreement between a financial institution and a business where the
financial institution agrees an upper limit on the amount sanctioned without having to take
another loan.

Liquid Assets
Liquid assets are cash and those assets that are easily convertible to cash.
Liquidating Dividends
Liquidating dividends are those dividends that are paid by the company at the time of
liquidation/bankruptcy
Liquidation
Liquidation is selling off all the assets of the business to pay off the debts of the business.
Liquidity
Liquidity is the ability of the business to meet all current debt obligations.
Liquidity Ratio
Liquidity Ratio = (Cash + Marketable Securities) / Current Liabilities
Loaded Labor Rate
Loaded labor rate is the total of the employee remuneration, benefits, capital expenses and
other overheads on labor.
Loan
Loan is when a lender allows the borrower to take some of the assets owned by the lender for a
specified amount of time, that will be returned at the end of the specified period along with
interest. Read on to know about Mortgage Loan Underwriting
LOC
LOC is the acronym for Letter of Credit.
Long-Lived Assets
Long-lived assets are those which are not consumed in the normal course of business.
Long Term Debt
Long term debt is a type of financing that is taken by a business and the maturity of which is
several years hence.
Long Term Debt-to-Equity
Long term Debt-to-Equity Ratio = Long Term Liabilities / Shareholder Equity
Long Term Liabilities
Long term liabilities are those which are due for over a year.
Long Term Receivables
Long term receivables are those receivables which will be received after a year.
Loss
Loss is the excess of expenses over incomes in any context.
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Maintenance
Maintenance is the cost incurred for keeping an asset in working condition.
Managed Receivables

Managed receivables are those receivables on which the company performs billing and
collection.
Management Accounting
Management accounting deals with the entire spectrum of collection, recording, examining
and managing the financial activities of the company by the management.
Manufacturing Account
Manufacturing account gives the total of the prime and overhead costs of manufacturing
finished goods.
Manufacturing Overhead
Manufacturing overheads include all the indirect labor costs, indirect material costs and
indirect expenses used for manufacturing.
Marginal Benefit
Marginal benefit is the extra amount of benefit derived by an increase or decrease in a unit
of an activity.
Marginal Cost
Refer Incremental Costs
Marginal Profit
Marginal profit is the incremental profit derived by an increase in production by one unit of
the goods.
Margin of Safety
Margin of Safety shows how far the sales level can fall, till the business starts incurring a loss.
Marketable Capacity
Marketable capacity is the difference between the total capacity absorbed by the market and
the predicted capacity.
Marketable Security
Marketable security is an equity or debt security that can be easily traded.
Market Capitalization
Market capitalization is the total value of the issued shares in the market. Market
Capitalization = Number of Shares * Current Market Price
Marketing Expense
Marketing expense is the money that the company spends on marketing their goods during
the accounting period.
Market to Book Value
Market to Book Value = Market Capitalization / Tangible Assets
Master Budget
Master Budget is the main budget prepared by the business which includes several budgets
that relate to each head for which the budget is prepared.
MAT
MAT is the acronym for Management, Administrative and Technological.

Matching Concept
Matching concept is the concept in accounting that says that the costs and revenues should be
matched in the income statement.
Material Control
Material control is proactively controlling the materials that are used in the manufacturing
activity.
Materiality Principle
Materiality principle says that accountants should use the Generally Accepted Accounting
Principles, except when their use is difficult or financially unviable.
Materials Requisition Planning
Materials Requisition planning is the process of planning for materials that are required
regularly in the process of production.
Materials
Materials is generally used to refer to the raw materials that are used in the process of
production.
Maturity Value
Maturity value is the value that an investment will realize at the end of the maturity period.
Merger
Merger is the union of two or more businesses where one is not absorbed by the other, but
instead, they both maintain their separate identities.
Minimum Wage
Minimum wage is the legally fixed lowest per hour wage that can be paid to an employee.
Miscellaneous Income
Miscellaneous income is the income which is derived from sources other than the usual sale of
goods.
Mixed Costs
Mixed costs are those costs which have both, a fixed and variable component.
Modified Accrual Basis
Modified accrual basis is a combination of both the cash and accrual bases of accounting.
Modified Internal Rate of Return
Modified internal rate of return is the rate of return which is modified to match up with the
required rate of return.
Monetary Assets
Monetary assets are the assets that are measured in their present collectible amounts, as
opposed to their historical costs.
Money Measurement Concept
Money measurement concept is one of the most fundamental concepts in accounting which
says that all the transactions should be measured in money terms.
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N
Natural Accounts
Natural accounts are user-defined accounts for the various activities which are associated
with the accounting entity that capture data at the transaction level.
Natural Classification
Natural classification of costs classifies the cost based on the nature of the cost item.
NEBT
NEBT is the acronym for Net Earnings Before Taxes.
Negative Amortization
Negative Amortization is when the outstanding principal balance of the loan increases
rather than decreasing, as is the case with normal amortization.
Negative Cash Flow
Negative Cash flow is when the cash outflow exceeds the cash inflow.
Negative Goodwill
Negative goodwill is said to arise when the net assets exceed the cost of acquisition.
Negative Working Capital
Working Capital is said to be negative when the current assets exceed the current liabilities.
Negligence
Negligence is defined as an omission to do something that a reasonable man would have not
forgotten to do.
Negotiable Instrument
Negotiable instrument is a document which represents a debt or money payable by one person
to another.
Net
Net is the final amount calculated after all the necessary deductions are made to the gross
amount.
Net Accounts Receivable
Net accounts receivable is the total accounts receivable minus a deduction for those accounts
which, the company assumes, won't be collected.
Net Assets
Net assets is the difference between total assets and non-capital liabilities.
Net Book Value
Net book value is the current book value of an asset or a liability.
Net Cash Flow
Net cash flow is the difference between the cash inflows and the cash outflows for a business.
Net Contribution
Net contribution is the remaining amount after all the deductions are made to the gross
amount.

Net Debt
Net Debt = (Debt + Short Term Loans) - Current Assets.
Net Earnings
Refer Net Income
Net Income
Net income is the excess of the total revenue generated by the business over the expenses.
Net Interest Margin
Net interest margin is the excess of interest received on investment over interest paid for debt.
Net of Taxes
Net of taxes usually indicates the effect of applicable taxes, which has been considered in
determining the overall effect of an item on the financial statements.
Net Operating Income
Net operating income is the excess of sales revenue over operating costs.
Net Operating Loss
Net operating loss is the excess of operating costs over sales revenue.
Net Operating Profit after Taxes (NOPAT)
NOPAT = Operating Income x (1 - Tax Rate).
Net Present Value
Net Present Value (NPV) is the difference between the present value of the full stream of future
inflows of cash from an investment and the present value of cash outflow for purchasing the
investment.
Net Profit
Net profit is the excess of income from all sources over the expenses.
Net Purchase
Net purchases is the amount of purchases after deducting the purchase returns, allowances
and discounts.
Net Receivables
Refer Net Accounts Receivables
Net Revenue
Net revenue = Gross revenue - (Discounts + Allowances + Sales Returns + Freight)
Net Sales
Net sales is the amount of sales attained after deducting the sales returns, allowances,
discounts etc.
Net Worth
Net Worth of a Business = Total Assets - Total Liabilities
Nominal Accounts
Nominal accounts are account items for incomes and expenses of the business.

Nominal Capital
Nominal capital is the total face value of the authorized share capital.
Nominal Interest Rate
Nominal interest rate is the rate of interest that is specified in the contract document for a
bond, loan etc.
Non-cash Expense
Non cash expenses are those which appear on the debit side of an income statement, but there
is no actual outflow of cash for the same, for e.g. depreciation
Non Current Assets
Non current assets are those assets in the balance sheet that are not current assets.
Non Equity Share
Non equity share is a type of share which shows the indebtedness of company to the
shareholder, but isn't part of the equity interest in the entity.
Non Fixed Asset
Non fixed assets are those assets in the balance sheet that are not fixed.
Non Performing Asset
Non performing asset is the asset that does not provide a return or is not effectual in
generating income.
Non Profit Organization
Non-profit organizations are those organizations running for social benefit and not for
making profit.
NOPLAT
NOPLAT is the acronym for Net Operating Profit Less Adjusted Taxes.
Not for Profit Accounting
Not for profit accounting is the practice of accounting for non profit organizations.
NPPE
NPPE is the acronym for Net Property, Plant and Equipment.
NPV
NPV is the acronym for Net Present Value
NWC
NWC is the acronym for Net Working Capital.
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O&M
O & M is the acronym for Operations and Management.
Objectivity Principle
Objectivity principle of accounting states that transactions will be recorded on the basis of
objective evidence available.
Off Balance Sheet Asset

An off balance sheet asset is one that represents a resource of the entity or something that is
projected to have a future economic value.
Off Balance Sheet Financing
Off the balance sheet financing is a borrowing the details of which are not given in the
balance sheet
Off the Books
Off the books is something which is not recorded in the books of accounts.
On Account
On account is a payment made to discharge the debt in full or in part.
Open Account
Open account is an arrangement where the payment may not be guaranteed.
Open Book Credit
Open book credit is a form of credit where the payment may not be assured.
Opening Balance
Opening balance is the balance carried forward of the account to the next accounting
period.
Opening Stock
Opening stock is the opening balance of raw or processed inventory.
Operating Allowance
Operating Allowance is an advance/reimbursement which is made against certain
costs/expenses and/or a reduction in amount payable to cover those certain costs/expenses.
Operating Assets
Operating assets are those long term assets that the business intends to use rather than sell.
Operating Budget
Operating budget is a combination of the various budgets that are set for operations. The
various budgets included in operating budget are sales and collection budget, cost of goods
sold budget, inventory and purchases budget and operating expenses budget.
Operating Cash Flow
Operating cash flow is the inflow and outflow of cash from the business for operational
activities.
Operating Cash Flow Ratio
Operating cash flow ratio is calculated by cash flow from operations/current liabilities.
Operating Cost
Operating costs are those costs which are incurred for maintaining property.
Operating Cycle
Operating cycle is the time difference between purchasing raw materials and realizing the
cash from the sales of finished goods.
Operating Expenditure

Operating Expenditure is the expenditure incurred on day-to-day items of expense in the

business.
Operating Expenses
Operating expenses are the general and administrative and selling expenses of the business.
Operating Expenses to Sales
Operating expenses to sales ratio gives the percentage of the total sales revenue that is used to
pay for operating expenses.
Operating Income
Operating income is the excess of revenues from operations over the operating expenses.
Operating Leverage
Operating Leverage is the ratio of fixed operating costs to the total operating costs.
Operating Margin
Operating margin is the ratio which compares operating income to sales revenue.
Operating Profit
Operating profit is the excess of gross profit over operating expenses.
Operating Profit to Sales
Operating profit to sales ratio is the ratio which compares the operating profit to the sales and
shows how much percentage of sales constitutes the operating profit.
Operating Ratio
Operating Ratio = Operating Expenses / Operating Revenues
Operating Revenue
Operating revenue is the revenue earned on the basis of day-to-day operations like sales.
Operating Risk
Operating risk is the risk inherent to the operations of any specific business.
Operating Transfer
Operating transfer is where a transfer of funds or resources is made from one account to
another to fund the operations of that account.
Opportunity Cost
Opportunity cost is the cost of choosing or not choosing one investment plan or an operation
over another.
Order of Liquidity
Order of liquidity is a format for preparing the balance sheet where all items on the asset side
of the balance sheet are listed in descending order of liquidity.
Order of Permanence
Order of permanence is format for preparing the balance sheet where all the fixed assets are
arranged in the descending order of their permanence.
Ordinary Asset
Ordinary asset is a non-capital asset that is used for business purposes.

Ordinary Income
Ordinary income is the income earned through the ordinary course of business and not from
any capital gains or extraordinary windfall gains.
Organization Cost
Organization cost is the expenses incurred to begin a business entity. These costs are also
known as startup costs and include the money spent on legal fees etc.
Other Income
Other income is the income derived from sources other than the main activity of the business.
Out of the Pocket
Out of the pocket expenses are those that require an outlay of cash in a given time period.
Outstanding
Outstanding is an unpaid amount owed to someone.
Outstanding Shares
Outstanding shares is the number of shares that are currently issued by the company and
held by the shareholders.
Overdraft
Overdraft is a facility given by a bank to an account holder that allows the account holder to
have a negative balance.
Overhead
Overhead is the cost which is not directly incurred on production, but indirectly incurred for
other reasons.
Overhead Budget
Overhead budget gives all the expected production costs other than direct materials and
direct labor.
Overhead Rate
Overhead rate is calculated by totaling all the expenses for one year, excluding labor and
materials, and then divided by the total cost of labor and materials.
Overtime
Overtime is the work done in excess of the regular working hours.
Overstated
Something is said to be overstated when it is quoted to be more than it actually is.
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P
PA
PA is the acronym for per annum.
Paid Up Capital
Paid up capital is the total amount paid by the shareholders for acquiring the stock of the
company.
P&L

P & L is the acronym for profit and loss statement. It gives the details regarding the incomes
and expenses of the business over the accounting period.
Parent Company
Parent company is the company which has a lot of subsidiaries under it.
Partnership
Partnership is a business type which has not been incorporated but has more than one owner.
Par Value
Par value is the face value. It is usually used while referring to bonds or other financial
instruments.
Payable
Payable is some amount which is not paid by the business. It is a liability.
Payables Turnover
Payables Turnover = Purchases / Payables
Payable to Shareholders
Payable to shareholders generally refers to the payments that are to be made to shareholders.
Payback Period
Payback period is the period of time required to recover the amount spent for capital
investment.
Pay Cycle
Pay cycle is a set of rules that define the criteria for selection of scheduled payments for
payment creation.
Payment Due Date
Payment due date specifies the last date till which the payment must be made.
Payout Ratio
Payout ratio is the dividend paid by the company to the shareholders out of earnings
expressed as a percentage.
Payroll
Payroll is the list of all the employees in the organization and their salaries.
PBT
PBT is the acronym for Profit Before Taxes.
Per Annum
Per annum means each year
P/E Ratio
Price to Earnings ratio compares the current price of the share to the earnings per share. P/E
Ratio = Market Price of the Share / Earnings per Share.
Performance Budget
Performance budget is a budget format that individually relates the input of resources and
the output of services for each unit in an organization.

Performing Asset
Performing asset is an asset which has been giving a good steady return over its functional
life.
Period Cost
Period costs are those which cannot be accumulated and need to be paid off by charging
them against the revenue in that year itself.
Periodicity Concept
Periodicity Concept is the accounting concept which states that each accounting period has
an economic activity associated with it, and that this activity can be measured, accounted
for, and reported.
Periodic Valuation
Periodic valuation of the assets deals with determining the future value of assets and
investment portfolios.
Perpetuity
Perpetuity is an annuity which is payable forever.
Persistent Earnings
Persistent earnings are continually recurring level of earnings from one accounting period to
the other.
Personal Accounts
Personal account is a type of account that keeps the record of transactions of different people
associated with the business, such as debtors and creditors.
Personal Equity
Personal equity is that portion of the owned equity that is invested in the asset.
Petty Cash
Petty cash is a cash allowance made for small, day-to-day cash expenses.
Physical Inventory
Physical inventory is the total inventory present in the warehouses.
Piecemeal
Piecemeal is either one thing at a time or a little bit at a time.
PITI
PITI is the acronym for Principle, Interest, Taxes and Insurance.
Plant Asset
Plant asset is the physical asset of the company where all the production activity takes place.
Pledged Accounts Receivable
Pledged accounts receivable is a short term loan arrangement where the accounts receivable
of the business are kept as security with the lender.
Pledged Assets
Pledged asset is the asset given to the lender of a loan as security. In case the person who has

taken the loan defaults on the payment, then the assets will be taken by the lender.
Pledged Revenue
Pledged revenue is that part of the revenue that has to be obligatorily used to service a debt.
PLS
PLS is the acronym for Profit and Loss Sharing.
Portfolio
A portfolio is the details and summary of all the investments as purchased by a business entity
or an individual.
Posting
Posting is to record all the transactions from the journal in the individual ledger accounts.
Preference Shares
Preference shares are a type of capital stock, the holders of which enjoy the first right on the
dividends of the company, which may be at a fixed rate and may even be cumulative.
Preferred Creditor
Preferred creditor is the creditor whose debt is to be paid off before paying off the debts of other
creditors.
Premium On Capital Stock
Premium on capital stock is the excess of paid value for the shares over the face value.
Pre-Operating Costs
Pre-operating costs are costs which are deferred till the related assets are ready for the
revenue service at which time the costs are charged to operations.
Prepaid Expenses
Prepaid expenses are those expenses which have been paid for in advance
Present Value
Present value is the discounted value of the amount of money receivable in the future as a
lump sum or an annuity.
Price to Book Ratio
Price to Book Ratio = Stock Capitalization / Book Value of Shares
Price to Cash Flow Ratio
Price to Cash Flow Ratio = Price per Share / Cash Flow per Share
Price to Revenue Ratio
Price to revenue = Market Value per Share / Revenue per Share
Prime Cost
Prime Cost is the total of direct materials and direct labor used for production
Proceeds
Proceeds is the money that comes into the business on account of sales etc.
Process Costing

Process costing is the costing which is done on the various process of the business to find out
the cost of each process.
Product
Product or goods is the main commodity which is sold by the business to generate its revenues.
Product Cost
Product cost is the cost of inventory in the warehouses of the business.
Product Invoice
Product invoice is the invoice for the sale of products.
Production Budget
Production budget is the budget set for all the activities related to production.
Productive Activity
Productive activity is any such activity which will produce economic value for the business.
Productivity Ratio
Productivity Ratio is the ratio of the output produced by the business to the input used by the
business for production.
Professional Fees
Professional fees are the fees charged by service professionals for the service delivered by them.
Profit
Profit is the excess of income over expenses.
Profitability Ratios
Profitability ratios is the set of ratios which help measure the profitability of the business.
Profit after Tax
Profit after tax is the excess of revenue over all the expenses and after payment of tax.
Profit Before Taxes
Profit before tax is the profit earned by the business before making the deduction for tax.
Promissory Note
A promissory note is a financial instrument made by the debtor stating that the debtor
intends to pay the money he owes to the creditor in the specified period and is signed by the
debtor to that effect.
Proprietary Asset
Proprietary asset is the asset which is considered as intellectual property and should not be
disclosed.
Proprietary Theory
Proprietary theory assumes no difference between the business and its owners and considers
them as one and the same.
Proprietor's Draw
Proprietor's draw is the cash withdrawal made by the proprietor from the business for his
personal use.

Proprietor's Fund
Proprietor's fund = Owners Capital + Net Profit - Proprietor's Draw
Public Offering
Public issue is the decision made by the company to raise more capital by the public issue of
share capital.
Purchase Account
Purchase account is the ledger account in which all the purchases of the raw materials or
inventory are recorded.
Purchase Discount
Purchase discount is the discount given by the seller to the business for purchases.
Purchase Method
Purchases method is an accounting method for an acquisition using market value for the
consolidation of the net assets of the two entities on the balance sheet.
Purchase Order
Purchase order is to place a requisition to purchase goods with the supplier of raw materials.
Purchase Returns
Purchase returns is the part of inventory which is returned to the seller due to bad quality,
unusable nature of the goods supplied etc.
Purchases
Purchases are all the goods purchased by the company for production or resale.
Purchases Budget
Each company sets a purchase budget where the total expense on purchases is fixed.
Purchases Ledger
Refer Purchase Account
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Q
Quarterly Report
Refer Interim Statement
Quick Assets
Quick assets is the sum of the current assets minus inventory.
Quick Ratio
Refer Acid test Ratio
Quotation
Quotation is a declaration of price at which the seller is willing to sell his goods.
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R
RAB
RAB is the acronym for Regulatory Asset Base.
Rate of Return

Rate of return is the gain or loss made by an investment or a business as a whole, expressed as
a percentage.
Ratio
Ratio is a mathematical instrument which helps compare the performance of two accounting
results.
Ratio Analysis
Ratio analysis is to use the various ratios that help compare the performance of the company
with other companies, or with its previous results or for checking internal efficiency.
Real Accounts
Real accounts are those accounts which deal with the transactions for an asset or a liability
account.
Realizable Value
Realizable value is the value that is expected on converting the assets held by the company to
cash.
Realization Principle
Realization principle of accounting states that the revenue should be recognized when the
goods are sold or the service is delivered.
Rebate
Rebate is the payment made to the customer to induce him into a sale or to induce early
payment for the sale.
Recast Earnings
Recast earnings are those earnings which can be made if some costs can be eliminated.
Receipt
Receipt can be either an act of receiving money or a document made by the receiver of cash
acknowledging that the money has been received.
Receivable
Receivable is the money which is due to the business and has not yet been received.
Receivables Turnover
Refer Accounts Receivable turnover
Receiver
Receiver is someone who receives something, which may be cash, assets etc.
Reconciliation
Reconciliation is the process of cross-checking and correcting/adjusting the balance of two
statements so that the figures of both these statements match for the single item.
Recording Principle
Recording principle in accounting governs the time of recording a particular entry. It says
that the entry should be recorded when the cash is earned or pledged rather than when the
actual inflow or outflow of cash takes place.
Recourse Note

Recourse note is the right of the payee to demand payment from the maker or endorser of a
negotiable instrument.
Recovery
Recovery is the collection of amounts receivable that had previously been written of as bad
debts.
Recurring Entry
A recurring entry is the entry that occurs regularly on the same date (of different months)
and has the same amount.
Redeemable
Redeemable is something that can be converted to cash.
Redemption
Redemption is to pay off the principal amount on a redeemable debt or security.
Register
Register is to record the entries for the transactions in the official books or registers.
Registered Bonds
Registered Bonds are those for which the names and contact details of the bond holders are
maintained by the issuing company.
Regulation
Regulation is the control or direction according to the rules set by the government.
Reimbursement
Reimbursement is to repay the amount to a person who had previously borne the expense on
our behalf.
Related Party Transaction
Related party transaction is a transaction between two parties where one party has a
significant control or influence over the other.
Relevance Concept
Relevance concept is the accounting concept which refers to the capacity of accounting
information to make an impact on the decision makers.
Reliability Concept
Reliability concept is the accounting concept which says that the financial reporting by the
company should be reliable and trustworthy.
Remittance Advice
Remittance advice is the notification sent to a debtor to remind him of the payment due.
Remuneration
Remuneration is the act of paying for the goods purchased or services received.
Replacement Cost
Replacement cost is the total cost at current prices of an asset which may not necessarily be an
exact duplicate of the subject asset but serves the same purpose or performs the same function
as the original.

Replacement Value
Replacement value is the cost spent to replace an item or an asset.
Reported Earnings Per Share
Reported earnings per share is the part of the total profit actually payable to the shareholders
divided by the number of shares available.
Representation Expenses
Representation expenses are those which are incurred for representational purposes such as
business parties.
Reserve
Reserve is a pool of money created out of profits for a specific purpose or as a security for
contingencies
Residual
Residual is what is left when the rest of the entity is taken away.
Residual Claim
Residual claim is the claim made on the earnings after all the other debt obligations have
been satisfied.
Residual Equity Theory
Residual equity theory states that the owners of common stock are the actual owners of the
company.
Residual Income
Residual income is the income which will be earned without any additional effort or expense.
Residual Value
Residual value is defined as the book value of a fixed asset after it has been fully depreciated.
Resource Absorption
Resource absorption is when all the limited resources of the company are absorbed.
Restricted Assets
Restricted assets are those whose use or working is restricted by law.
Results from Operations
Results for operations is the commonly used synonym for financial statement.
Retained Earnings
Retained earnings are that part of the distributable profit which have not been given to the
owners, but retained in the business for future use.
Retained Earnings Statement;
Retained earnings statement is the statement that gives the details regarding the earnings
retained by the company in the business.
Return on Assets
Return on asset is the ratio which compares the net profit after tax to the total assets in the
company. Return on Assets = Earnings after Tax / Total Assets

Return on Capital Employed

Return on Capital employed is a measure of how effectively a business is using its capital.
Return on Capital Employed = Profit Before Income and Taxes / (Total Assets - Current
Liabilities)
Return on Equity
Return on Equity = Net Income / Shareholders Equity
Return on Investment
Return on investment measures the total cash coming into the business on account of an
investment.
Return on Net Worth
Refer Return on Shareholder Equity
Return on Sales
Return on Sales = Earning before Taxes / Total Sales.
Return on Shareholder Equity
Return on Shareholder Equity = Profit after Tax / Shareholder Equity
Returns Inward
Refer Sales Returns
Returns Outward
Refer Purchase Return
Revaluation
Revaluation is an activity conducted by the company to review the value of the assets of the
company to make sure that they are not undervalued or overvalued.
Revenue
Revenue is the money that comes in on account of sales of goods or provision of services.
Revenue Adjustment
Revenue adjustment is an entry that adjusts the revenue based on received data.
Revenue Expenditure
Revenue expenditure is the total cost that is incurred on revenue generating activities.
Revenue Principle
Refer Realization Principle
Reversing Entry
Reversing entry is a rectifying entry which is made to correct an original mistake in
recording the entry.
Risk
Risk is a chance of losing or not gaining value from an economic activity.
Risk Adjusted Return
Risk adjusted return is subtracting the rate of return of one asset from the rate of return of

another asset, both asset having similar risks.

ROACE
ROACE is the acronym for Return on Average Capital Employed
ROI
ROI is the acronym for Return on Investment. Read on to know How to Calculate Return on
Investment.
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S
Safety Stock
Safety stock is the amount of stock a company defines as the lowest the inventory level of the
company can go.
Salary
Salary is the remuneration paid to the employees of the organization.
Sales
Sales is the money generated by selling the goods of the company. Sales = Number of Units *
Cost per Unit
Sales Account
The sales account is the ledger account which gives the details regarding the sales of the
business.
Sales and Collection Budget
Sales and collection budget is the amount of sales that the company expects to make in the
year and the revenues that it expects to collect.
Sales and Marketing Expense
Sales and marketing expenses are the total expenses spent on creating awareness for the
company and the products in the market and selling them.
Sales Discount
The discount allowed by the company on sales to induce early cash payment is called sales
discount.
Sales Invoice
Sales invoice is the record of the transaction between the buyer and the seller, made by the
seller.
Sales Journal
Sales Journal is where the entry for sales of goods is chronologically made.
Sales Order
Sales order is the contract in which the buyer and the seller of the goods agree on the terms of
a contract.
Sales Proceeds
Sales proceeds is the money realized from sales.
Sales Returns
Sales return is the goods returned by the customer to the business due to poor quality,

unsuitability etc.
Sales Revenue
Sales revenue is the revenue realized from the sale of goods.
Sales Tax
Sales tax is the tax levied on the sale of a product by the government.
Salvage Value
Salvage value is the scrap value realized on the sale of a fully depreciated asset or a asset
which cannot be used for production.
Scrap Value
Refer Salvage Value
Selling and Administrative Expense Budget
Selling and administrative expenses budget gives the amount that is allocated for selling and
administrative expenses of the business.
Semi Fixed Costs
Semi fixed costs are those costs where one component of the cost is fixed and the other is
variable. They are also known as semi variable costs.
Sensitive Assets
Sensitive assets are those assets, the return or usability of which can be affected by external
uncontrollable factors.
Sensitive Liabilities
Sensitive liabilities are those which have a floating interest rate which can be affected by
external uncontrollable factors.
Sensitivity Analysis
Sensitivity analysis helps the company check the sensitivity of an item in relation to the
various external or internal changes.
Separate Determination Concept
Separate determination concept in accounting says that each component of every category of
assets or liabilities should be valued separately.
Separate Valuation Concept
Separate valuation concept in accounting says that in order to determine the aggregate
amount of an asset or a liability, each individual asset or liability comprising the aggregate
must be determined separately.
Service Charge
Service charge is the charge which is paid over and above the basic fee for delivering a service.
Setoff
Setoff is a way of discharging a debt by creating a debt of the same amount against the
creditor, by the sale of goods etc.
Share
A share is a part of the business. It is the total capital divided into small individual parts.

Share Capital
Share capital is the capital raised by the company by a public issue of shares in favor of cash.
Shareholder Loan
Shareholder loan is any loan given to a shareholder by the company.
Share Premium
Share premium is the additional price paid for purchasing the stock, over and above the par
value of the share at the time of issue.
Short Term Asset
Short term asset is an asset which is expected to be converted into cash within a year.
Short Term Liability
Short term liability is the liability that is expected to be paid off within a year.
Simple Journal Entry
Simple journal entry is one which has only one debit effect and one credit effect.
Single Entry Bookkeeping
Single entry book keeping is the opposite of double entry bookkeeping and only one effect of a
transaction is recorded.
Sinking Fund
Sinking fund is a fund created by depositing the profits of each year with the objective of
ultimately paying off a debt.
Solvency
Solvency is a situation where the assets of the entity are sufficiently more than the liabilities.
Split Payment
Split payment is a mode of payment which allows you to pay partly in cash and partly on
credit.
Spoilage
Spoilage includes all the materials wasted or spoiled in the process of production.
Spontaneous Assets
Spontaneous assets are those that arise from the day-to-day operations of the business.
Spontaneous Liabilities
Spontaneous liabilities are those that arise from the day-to-day liabilities of the business
Spot Cash
Spot cash is the immediate payment of cash.
Standard Cost System
Standard cost system is the cost system that is specifically designed to allocate various costs
under their respective heads.
Startup Costs
Startup costs are the various costs incurred in starting the business. Legal fees and

registration fees are included in the startup costs.

Stated Capital
Stated capital is the amount of cash declared by the business as capital in the financial
statements of the company.
Statement of Accounts
Statement of account is the details of all the transactions between a debtor and creditor.
Statement of Cash Flows
Statement of cash flows shows the inflow and outflow of the cash from the business.
Statement of Retained Earnings
Statement of retained earnings gives the details of how the retained earnings of the company
are being utilized.
Statement of stockholders equity
Statement of stockholders equity is the summary of the changes in shareholder equity for the
accounting period.
Statutory Account
Statutory account is an account created by the operation of law, rather than as a business
need.
Statutory Deductions
Statutory deductions are those which are made in compliance of some law or regulation.
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T
Tainted Accounts Receivable
Tainted accounts receivable are those which have some legal problems attached to them,
related to fraud, misuse etc.
Takeover
Takeover is when one company buys a controlling stake in or entirely purchases another.
Tangible Assets
Tangible assets are those which can be seen or touched.
Tangible Book Value
Tangible book value is the summation of all the tangible assets of the business.
Tangible Capital
Tangible capital is the total of outstanding stocks and retained earnings.
Target Costing
Target costing involves setting a price for the product and then getting the production costs in
line with the target price, so that the business can earn profit too.
Target Margin
Target margin is the desired profit on a product.
Tariff
Tariff is the tax paid by the importing country on the import of goods.

Tax
Tax is the amount charged against the profits of a business by the government for allowing
the activity of the business in the country.
Taxable Benefits
Taxable benefits are those non-cash benefits provided by the employer to the employee on
which tax is to be paid.
Taxable Income
Taxable income is the income earned by an individual or a business entity on which the tax
liability is decided.
Tax Accounting
Tax accounting means taking into consideration the effect of taxes while planning business
strategies.
Tax Base
Tax base is the value of the taxable assets, income and property.
Tax Effect Method
Tax effect method says that the effect on tax to be paid, must be shown in the books of accounts
in the year in which the income is recorded, irrespective of when the tax is actually paid.
Technically Bankrupt
Technically bankrupt is a situation where the company's liabilities have exceeded its assets,
currently, but the creditors haven't yet asked for their money.
Term Bonds
Term bonds are bonds which are held for a certain predefined amount of time whose
principal amount is payable at maturity.
Term Debt
Term debt is a debt that will mature at a certain predefined date in the future.
Terminal Value
Terminal value is the total discounted amount realizable in the future.
Term Loans
Term loan is a loan taken from a lender for a specified period of time.
Time Value of Money
Time value of money is a concept that states that money in hand today is more valuable than
money receivable tomorrow.
Total Assets
Total assets is the sum of all the fixed and current assets.
Total Asset Turnover
Total asset turnover gives the efficiency of the business in managing their assets.
Trade Debtors
Trade debtors are those who owe the business money, on account of goods sold to them on

credit.
Trade Discount
Trade discount is reducing the selling price of goods to boost sales.
Trading Concern
Trading concern is one that derives its products for sale by purchasing products from other
producers for resale to their customer base, thereby generating revenue.
Transportation Costs
Transportation costs are those which are incurred in transporting the goods from one place to
another.
Trial Balance
Trial balance is listing all the ledger accounts and their balances.
Turnover
Turnover is sales.
U
Unabsorbed Costs
Unabsorbed costs are those which occur when the cost structure does not fully reflect all
variable and/or fixed costs.
Unallocated Costs
Unallocated costs are those which are not included in the cost of goods sold.
Unappropriated Profits
Unappropriated profits are those which have been withdrawn from the business by the
proprietors or not appropriated.
Uncollectible Accounts Expense
Uncollectible accounts expense is the expense incurred in trying to realize payment from a
debtor, but the debtor does not make the payment.
Uncontrollable Expense
Uncontrollable expense is that expense incurred in the usual course of business which cannot
be controlled.
Underabsorbed Overhead
Underabsorbed overhead is the total overhead that is not allocated to the product sold.
Under-Billing
Under-billing is not receiving the full amount payable or billing for a lower amount than
what is receivable.
Under-Stated
Understated is to state less than what it actually is.
Underwriting
Underwriting is to protect by insuring and to guarantee financial support.
Unearned Rent

Unearned rent is the rent received in advance before it is actually earned.

Unearned Revenue
Unearned revenue is the revenue received before it is actually earned.
Unfavorable Variance
Unfavorable variance is when the actual costs incurred are greater than the standard costs.
Unliquidated
Unliquidated is an asset which has not been converted to cash.
Unrealized Accounts Receivables
Unrealized accounts receivable are bad debts.
Unrealized Income
Unrealized income is that income which is earned but not yet received.
Unresolved Equity
Unresolved equity is the difference between the total assets and the total liabilities in the
balance sheet.
Unrestricted Assets
Unrestricted assets are those on which there is no government regulation regarding their use.
Unsecured debt
Unsecured debt is one where the borrower provides no collateral against the debt to the
lender.
Usage Variance
Usage variance is the difference between the budgeted and actual use of materials.
Useful Life
Useful life is the approximate amount of time for which the asset is assumed to be useful before
it is fully depreciated.
V
Valuation Allowance
Valuation allowance is an allowance which provides for changes in the value of the assets of
the company.
Valuation Date
Valuation date is the date on which the valuation is made.
Variable Costs
Variable costs are those which vary with an increase or decrease in the production.
Variable Expenses
Refer Variable Costs
Variable Interest Rate
Variable interest rate is the interest rate which changes depending on the changes in an
underlying interest rate index.

Variances
Variance is a difference between something projected and actual.
Variance Analysis
Variance analysis is the use of the various types of variances to analyze the overall
performance.
W
WACC
WACC is the acronym for Weighted Average Cost of Capital.
Wage
Wage is the remuneration paid to a worker for production of goods and services.
Warehouse
Warehouse is a store where all the unsold finished goods or the unused raw materials are
kept.
Wholly Owned Subsidiary
Wholly owned subsidiary is one whose 100% of the stock is owned by the parent company
Windfall gains
Windfall gain is a profit which the company gets as a result of an uncontrollable event
WIP
WIP is the acronym for Work in Progress.
Working Capital
Working Capital = Current Assets - Current Liabilities
Working Capital Turnover
Working capital turnover shows how efficiently the working capital of the business is employed.
Write Off
Write off is to decrease the value of an item.
Y
Yield
Yield is the annual return on investment which is expressed as a percentage.
YTM
YTM is the acronym for Yield to Maturity.
YTD
YTD is the acronym for years to date.
Z
Zero Coupon Bonds
Zero coupon bonds are those on which interest is not paid on a yearly basis.

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