ABC ACTIVITY-BASED COSTING. ABC METHOD Inventory management method that categorizes items in terms of importance.

Thus, more emphasis is placed on higher dollar value items ("A"s) than on lesser dollar value items ("B"s), while the least important items ("C"s) receive the least time and attention. Inventory should be analyzed frequently when using the ABC method. The procedure for ABC analysis follows: (1) Separate finished goods into types (chairs of different models, and so on); separate raw materials into types (screws, nuts, and so on). (2) Calculate the annual dollar usage for each type of inventory (multiply the unit cost by the expected future annual usage). (3) Rank each inventory type from highest to lowest, based on annual dollar usage. (4) Classify the inventory as Athe top 20%; Bthe next 30%; and Cthe last 50% of dollars usage, respectively. (5) Tag the inventory with its appropriate ABC classification and record those classifications in the item inventory master records. ACCOUNTABILITY Individual or departmental responsibility to perform a certain function. Accountability may be dictated or implied by law, regulation, or agreement. For example, an auditor will be held accountable to financial statement users relying on the audited financial statements for failure to uncover corporate FRAUD because of negligence in applying GENERALLY ACCEPTED AUDITING STANDARDS (GAAS). ACCOUNT ANALYSIS Way to measure cost behavior. It selects a volume-related cost driver and classifies each account from the accounting records as a variable or fixed cost. The cost accountant then looks at each cost account balance and estimates either the variable cost per unit of cost driver activity or the periodic fixed cost. Account analysis requires a detailed examination of the data, presumably by cost accountants and managers who are familiar with the activities of the company, and the way the company's activities affect costs. ACCOUNTANCY British term referring to the activities and theories comprising accounting including practice, research, and teaching. It includes the guidelines, principles, and procedures accountants are to follow in conducting their tasks. Accountants have legal and ethical responsibilities to their clients and public. ACCOUNTANT One who performs accounting services. Accountants prepare financial statements and tax returns, audit financial records, and develop financial plans. They work in private accounting

(e.g., for a corporation), public accounting (e.g., for a CPA firm), not-for profit accounting (e.g., for a governmental agency). Accountants often specialize in a particular area such as taxes, cost accounting, auditing, and management advisory services. ABOOKKEEPER is distinguished from an accountant as one who employs lesser professional skills. The bookkeeping function is primarily one of recording transactions in the journal and posting to the ledger. ACCOUNTANT IN CHARGE Professional responsible for the field engagement associated with an audit. Duties include the general supervision of the engagement, distributing the workload to assistants, reviewing audit findings, and drafting required field reports. ACCOUNTANT'S LIABILITY Potential legal obligation of an accountant who commits fraud or is grossly negligent in the performance of professional duties. The term typically applies when an auditor conducting the ATTEST FUNCTION does not employ GENERALLY ACCEPTED AUDITING STANDARDS (GAAS) with sufficient care. To avoid liability, the accountant must be knowledgeable about the accounting profession's authoritative pronouncements such as FASB statements and AICPA STATEMENTS ON AUDITING PROCEDURE as well as SEC ACCOUNTINGSERIES RELEASES. An accountant who violates the established rules and guidelines can be held legally liable to parties retaining him and those relying on work performed (e.g., investors, creditors). Most accounting practitioners carry malpractice insurance. ACCOUNTANT'S RESPONSIBILITY Ethical obligation to those relying upon the accountant's professional work. The accountant has a duty to management, investors, creditors, and regulatory bodies to exercise due care in performing the accounting and ATTEST FUNCTIONS. The accountant must follow with competence the promulgations of the ACCOUNTING PRINCIPLES BOARD (APB) and FINANCIAL ACCOUNTING STANDARDS BOARD (FASB), among others. ACCOUNTING SYSTEM Methods, procedures, and standards followed in accumulating, classifying, recording, and reporting business events and transactions. The accounting system includes the formal records and original source data. Regulatory requirements may exist on how a particular accounting system is to be maintained (e.g., insurance company). ACCOUNTING VALUATION Valuation of assets in accounting. Correct valuation is important. If, for example, an asset is valued incorrectly, it is impossible to draw accurate conclusions about a firm's liquidity or its

value in liquidation. Valuation is usually made in accordance with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). ACCOUNTS RECEIVABLE Amounts due the company on account from customers who have bought merchandise or received services. Accounts receivable are presented as a current asset in the balance sheet. ACCOUNTS PAYABLE Obligations to pay for goods or services that have been acquired on open account from suppliers. Accounts payable is a current liability in the balance sheet. ACCOUNTS RECEIVABLE TURNOVER Degree of realization risk in accounts receivable. The lower the turnover rate, the longer receivables are being heldand the less likely they are to be collected. Also, there is an OPPORTUNITY COST of tying up funds in receivables for a longer period of time. The accounts receivable turnover equals: Annual Credit Sales Average A/R Assume annual credit sales are $100,000, beginning-of-year accounts receivable are $30,000, and end-of-year accounts receivable are $20,000. The turnover is:

If sales vary greatly during the year, this ratio can become distorted unless proper averaging takes place. In such a case, quarterly or monthly sales figures should be used. ACCRUAL ACCOUNTING Recognition of revenue when earned and expenses when incurred. They are recorded at the end of an accounting period even though cash has not been received or paid. The alternative is CASH BASIS ACCOUNTING. An example of accrued revenue is dividend income earned on stock owned even though it has not yet been received. Accrued salary expense due employees at period-end is an example of an accrued expense. (ACCRUED ASSETS ACCRUED REVENUE.) ACCRUED EXPENSES Incurred at the end of the reporting period but not yet paid; also called accrued liabilities. The accrued liability is shown under current liabilities in the balance sheet. For example,

assume the last payroll date was January 28. The next payroll date is February 11. For the last few days of the month (January 29January 31) the company owes its employees $500 in salaries. The appropriate journal entry on January 31 is to debit salaries expense and credit salaries payable for $500. (ACCRUED LIABILITIES ACCRUED EXPENSES.) ACCRUED REVENUE Money that has been earned but not received as of the end of the reporting period; also called accrued assets. To accrue means to accumulate. The accrued asset is shown under current assets in the balance sheet. For example, assume a landlord has not received January rent of $500 from a tenant. The adjusting entry at the end of January is to debit rent receivable and credit rental revenue for $500. ACCUMULATED BENEFIT OBLIGATION Actuarial present value of benefits. Whether vested or no vested, they are attributed by the pension benefit formula to employee services rendered before a specified date and based on employee service and compensation up to that date using existing salary levels. See also MINIMUM PENSION LIABILITY; PENSION PLAN; PROJECTED BENEFIT OBLIGATION. ACCUMULATED DEPRECIATION Sum of depreciation charges taken to date on a fixed asset. Accumulated depreciation is a CONTRA ACCOUNT to the fixed asset to arrive at BOOK VALUE. For example, on 1/1/2000 an auto is bought costing $10,000, with a salvage value of $1000 and a life of 10 years. Using STRAIGHT-LINE DEPRECIATION the accumulated depreciation on 12/31/2003 would be $3600 ($900 4). ACCUMULATED EARNINGS TAX Penalty tax levied upon the unreasonable accumulation of corporate earnings and profits. The intent is to tax earnings retained to avoid personal income tax on dividends. ACCURACY Correctness of an accounting item (e.g., account balance, invoice, financial statement); also called accurate presentation. The concept refers to an accounting objective that the item fully reflects and valuates the set of facts involved, including all economic implications of the underlying transactions and events. ACID TEST RATIO Stringent test of LIQUIDITY; also called quick ratio. The ratio is found by dividing the most liquid current assets (cash, marketable securities, and accounts receivable) by current liabilities. (Notice that some current assets are not in the numerator: Inventory is not included

because it usually takes a long time to convert into cash; prepaid expenses are left out because they cannot be turned into cash and thus are incapable of covering current liabilities.) In general, the ratio should at least be equal to 1. In other words, for every $1 in current debt there should be $1 in quick assets. Assume cash is $100, marketable securities are $400, accounts receivable are $800, inventory is $3000, and current liabilities are $1000. The acid test ratio equals:

The acid test ratio for the current year should be compared to prior years to evaluate the trend. It should also be compared to the acid test ratio of a competing company to get a relative comparison. ACTIVITY-BASED BUDGETING (ABB) Approach to budgeting that involves quantitative expression of the activities/business processes of the organization reflecting forecasts of workload (quantity of drivers) and other financial requirements to achieve strategic goals or planned changes to improve performance. Activity-based budgeting provides greater detail, especially regarding overhead, because it permits the identification of value-adding activities and their drivers. After operations, it is useful for comparing actual costing rates and driver usage with the amounts budgeted. ACTIVITY-BASED COSTING (ABC) Costing system that identifies the various activities performed in a firm and uses multiple cost drivers (volume and non volume based cost drivers) to assign overhead costs (or indirect costs) to products. ABC recognizes the causal relationship of cost drivers with activities. ACTIVITY-BASED MANAGEMENT (ABM) Approach to the management of activities within business processes as the route to continuously improve both the value received by customers and the profit earned by providing this value. Causes of activities are identified, measured, and used along with other activity information for performance evaluation; emphasis is on the reduction or elimination of non value-adding activities. ABM draws on ABC data as a major source for information. ACTIVITY LEVEL Description of how an activity is used by a cost object or other activity. Some activity levels describe the cost object that uses the activity and the nature of this use. These levels include activities that are traceable to the product (i.e., unit-level, batch-level, and product-level costs), to the customer (customer-level costs), to a market (market-level costs), to a distribution channel (channel-level costs), and to a project, such as a research and development project (project-level costs). ACTUAL COST

Expenditure required buying or producing an item. The actual cost of a purchased item includes the list price (net of discounts) plus delivery and storage. The actual cost to manufacture a product is the total of direct material, direct labor, and factory overhead. ACTUARIAL Relating to analyses involving compound interest and/or statistics. It is usually associated with computations involved in insurance probability estimates. See also ACTUARY. ACTUARIAL BASIS OF ACCOUNTING Used in computing the amount of contributions to be made periodically to a pension fund. Total contributions plus the accumulated earnings on it must equal the required payments to be made out of the fund. Factors that must be considered are the length of time over which each contribution is to be held and the return on investment. A "Trust Fund" for a public employee retirement system is an example of a fund set up on an actuarial basis. ACTUARIAL COST METHOD Technique used by actuaries to determine the periodic employer contribution to the pension plan; also called actuarial funding method. It is used to measure pension expense and related funding. Two general approaches are usually considered when selecting an actuarial funding method, the cost approach and benefit approach. The cost approach projects an estimated total retirement benefit and then determines the level cost that will be adequate (including expected interest) to furnish total benefits at retirement. The benefit approach determines the amount of pension benefits attributable to service to date and then determines the present value of these benefits. See also ACTUARIAL GAINS, LOSSES. ACTUARIAL GAINS, LOSSES Difference between estimates and actual experience in a pension plan. For example, if the actual interest rate earned on pension assets exceeds the estimated rate, an actuarial gain results. Actuarial gains and losses are deferred and amortized to pension expense of future periods. The amortization of the actuarial gain will reduce pension expense. Actuarial gains and losses applicable to a single event not related to the pension plan and not in the ordinary course of business are recognized immediately in earnings. Examples are plant closing and segment disposal. See also ACTUARIAL COST METHOD. ADDITIONAL PAID-IN CAPITAL Excess received from stockholders over PAR VALUE or STATED VALUE of the stock issued; also called contributed capital in excess of par. For example, if 1000 shares of $10 par value common stock is issued at a price of $12 per share, the additional paid-in capital is $2000 (1000 shares $2). Additional paid-in capital is shown in the STOCKHOLDERS' EQUITY section of the balance sheet. ADEQUATE DISCLOSURE comprehensive and clear disclosure in the body of financial statements, FOOTNOTES, or supplemental

schedules so that readers of a company's financial position and operating results can make proper investment and credit decisions. ADJUNCT ACCOUNT One that accumulates either additions or subtractions to another account. Thus the original account may retain its identity. Examples include premiums on bonds payable, which is a contra account to bonds payable; and accumulated depreciation, which is an offset to the fixed asset. ALLOCATION Process of partitioning a VALUATION ACCOUNT and assigning the resulting subsets to periods of time. Allocation includes the assignment of assets to expense as well as the assignment of liabilities to revenue over a time frame. Examples of the former are the depreciation of a fixed asset or the amortization of an intangible asset over the period benefited. An example of the latter is reflecting unearned fee revenue (deferred revenue) into revenue over the period the services are performed. Allocations result from applying rules for the assignment of costs to products or period expenses and the assignment of the value of the product to specific periods as revenue. ALLOWANCE METHOD Accepted way to account for bad debts. Bad debt expense may be based on the percent of credit sales for the period, an aging of the accounts receivable balance at the end of the period, or some other method (e.g., percent of accounts receivable). The allowance method results in a good matching of bad debt expense against sales. The journal entry at year-end to record anticipated uncollectibility of accounts receivable is to debit bad debts and credit allowance for bad debts. When it is known that a customer will actually not pay the balance, because of bankruptcy, for example, the entry is to debit allowance for bad debts and credit accounts receivable. If for whatever reason the customer does pay at a later date, there is a recovery; reverse the last entry and make a second entry debiting cash and crediting accounts receivable. It should be noted that firms other than small financial institutions are required to use the DIRECT WRITE-OFF METHOD for tax purposes. AMORTIZATION Gradual reduction of an amount over time. Examples are amortized expenses on intangible assets and deferred charges. Assets with limited life have to be written down over the period benefited. For example, all intangible assets must be amortized using the STRAIGHT-LINE METHOD not exceeding 40 years; the amortization entry in that case is to debit amortization expense and credit the intangible asset. See also ALLOCATION; DEPRECIATION. AMORTIZE

To write off a regular portion of an asset's cost over a fixed period of time. Examples are amortization expense on an intangible asset and depletion expense on a natural resource. See also SALES RETURN. ASSET TURNOVER Ratio revealing the efficiency of corporate assets in generating revenue. A higher ratio is desired. What is considered a high ratio for one industry, however, may be considered a low ratio for another industry. If there is a low turnover, it may be an indication that the business should either utilize its assets in a more efficient manner or sell them. Asset turnover ratios can also be calculated for specific assets such as the ratios of sales to cash and sales to inventory. Higher ratios reflect favorably on the firm's ability to employ assets effectively. AUDIT CYCLE Period of time in which the accountant conducts audit procedures. Different parts of the audit may be carried out at different times. For example, inventory may be counted in November while accounts receivable confirmation may be conducted in December. The audit cycle also relates to when a particular business unit is examined. For instance, Production Department X may be examined once a year, while Production Department Y is audited biyearly. AUDIT SOFTWARE Computer programs designed to assist in examining and testing clients' accounting records. Different audit software packages accomplish varying objectives. Some packages assist in gathering evidence, conducting analytical tests, sampling data, evaluating internal control, documenting the audit, scheduling the audit, printing exception reports (e.g., employee salary exceeding a prescribed limit), preparing audit reports, sending out confirmations and management letters. AUDIT TEST Procedure applied to a sample within a population. For example, it might examine supporting evidence for half of promotion and entertainment expenses or send out confirmations for 75% of accounts receivable. The purpose of an audit test is to assure that no material exceptions are included in the sample. Audit tests are also applied in microcomputer applications to assure that the accounting software package is processing data correctly. A "dummy file" with predetermined manual results is processed by the computer to see if the computerized result is the same as the manually determined figure. AUDIT TRAIL Recorded flow of a transaction from initiation (e.g., source document) to finalization (e.g., financial statement), or vice versa. The auditor, assuring that data are processed correctly, appraises the material that forms the audit trail. An audit trail may be either visible or invisible (e.g., magnetic storage). Components of an audit trail include: (1) source records,

(2) list of transactions processed, and (3) transaction identifiers so that reference can be made to the source of a transaction. An audit trail allows the tracing of transactions to control totals and from the control totals to supporting transactions. An audit trail is good when the tracing process is easy to accomplish. AUTHORITY Power to direct and exact performance from others. It includes the right to prescribe the means and methods by which work will be done. However, the authority to direct is only as good as one individual's willingness to accept direction from another. Moreover, with authority comes RESPONSIBILITY and ACCOUNTABILITY. AUTHORIZED CAPITAL STOCK Maximum number of shares of common stock that can be issued under a company's Articles of Incorporation. If a public issue of stock is involved, the SEC and the relevant state must approve it. Issued shares are usually less than the authorized shares. AUTONOMOUS One of 12 criteria that must be met to account for a BUSINESS COMBINATION as a POOLING-OF-INTERESTS. Autonomous means that a combining company must not have been a subsidiary or division of any other corporation within two years prior to the initiation date of the business combination. If a combining company is not autonomous, then the PURCHASE (ACCOUNTING) METHOD must be used. The initiation date is the date that stockholders are notified in writing of an exchange offer. AVOIDABLE COST Cost that will not be incurred if an activity is suspended; also called escapable cost. For example, it is the cost that can be saved by dropping a particular product line or department (e.g., salaries paid to employees working in a particular product line or department). All costs are avoidable, except (1) SUNK COSTS and (2) costs that will continue regardless of the decision. ACCRUAL ACCOUNTING A method of accounting in which revenue is recorded when earned, expenses are recorded when incurred, and other changes in the condition of an organization are recognized as they occur, without regard to the timing of related cash receipts and expenditures. For example, sales revenue is recognized when goods are delivered to a customer even though payment for those goods may not be received for several weeks; interest expense on a note payable is recognized at the end of each accounting period, based on the time elapsed, even though the interest might not be paid until several months hence; depredation is recorded as an asset is used, while the cash expenditure for that asset may have occurred several years earlier.

Accrual accounting is used by larger companies. Contrast with cash basis accounting. See also accrued expense, accrued income. ACCOUNTING EQUATION Double entry bookkeeping where there is an identity of debit and credit elements of a transaction. For each transaction, the total debits equal the total credits. For example, the payment of $100 to a creditor requires a debit to accounts payable and a credit to cash for $100. The accounting equation can also be expressed as: A = L+OE An increase (or decrease) in total assets is accompanied by an equal increase (or decrease) in liabilities and capital. ACCOUNTING EVENT Transaction entered in the accounting records of a business. It can be an external transaction that is, one with an outsider, such as recording a sale. It can also refer to an internal transaction such as making an adjusting entry (e.g., expense or revenue accrual). BACKFLUSH COSTING Product costing approach, used in a JUST-INTIME (JIT) operating environment, in which costing is delayed until goods are finished. Standard costs are then flushed backward through the system to assign costs to products. The result is that detailed tracking of costs is eliminated. The system is best suited to companies that maintain low inventories because costs then flow directly to cost of goods sold. Work-in-process is usually eliminated, journal entries to inventory accounts may be delayed until the time of product completion or even the time of sale, and standard costs are used to assign costs to units when journal entries are made, that is, to flush costs backward to the points at which inventories remain. BAD DEBT Account or note receivable that proves to be entirely or partially uncollectible despite collection efforts. If the allowance method of estimating bad debts is used, the entry at time of uncollectibility is to debit allowance for bad debts and credit accounts receivable. If the direct write-off method is employed, the entry is to debit bad debt expense and credit accounts receivable. BAD DEBT RECOVERY Account receivable previously written off as uncollectible is now collected. The entry is to reverse the original write off by debiting accounts receivable and crediting allowance for bad debts. A second entry is required for the collection by debiting cash and crediting accounts receivable. A high ratio of recoveries to write-offs may signify to the analyst that the firm writes off uncollected debts too quickly.

BALANCED SCORECARD Approach using multiple measures to evaluate managerial performance. These measures may be financial or nonfinancial, internal or external, and short-term or long-term. The scorecard allows a determination as to whether a manager is achieving certain objectives at the expense of others that may be equally or more important. BALANCE OF PAYMENTS Record of the transactions of a country with the rest of the world. There are three main accounts in the balance of payments: (1) the current account, (2) the capital account, and (3) gold. The current account records trade in goods and services, as well as transfer payments. Services include freight, royalty payments, and interest payments. Transfer payments consist of remittances, gifts, and grants. The balance of trade simply records trade in goods. The capital account records purchases and sales of investments, such as stocks, bonds and land. BALANCE SHEET Statement showing a company's financial position at the end of an accounting period; also called Statement of Financial Position. It presents the entity's ASSETS, LIABILITIES, and STOCKHOLDERS' EQUITY. It is classified into major groupings of assets and liabilities in order to facilitate analysis. Examples are current assets, fixed assets, current liabilities, and noncurrent liabilities. The accounting equation for the balance sheet is

BANK RECONCILIATION Term used when settling differences contained in the BANK STATEMENT and the cash account in the books of the bank's customer. Rarely do the ending balances agree. To reflect the reconciling items, a bank reconciliation is required. Once completed, the adjusted bank balance must prove to the adjusted book balance. When it does, it indicates that both records are correct. Journal entries are then prepared to update the records and to arrive at an ending balance in the cash account that agrees with the ending balance in the bank statement. BARTER Exchange of products or services by two companies without cash involvement. The companies contract for a specified amount of the items and the proportions representing full payment. For financial reporting purposes, barter transactions should be reported at the estimated fair market value of the product or service received. This same requirement holds for tax purposes in that each party has to recognize as revenue the fair value of the exchange. For example, a barter takes place when an accountant renders services to a computer store in exchange for a personal computer. BASE STOCK METHOD

Inventory valuation method in which the base amount of goods is valued at acquisition cost; also called normal stock method. The base amount should be continually maintained. Additional quantities above the base level are valued on a LIFO basis. The method is not accepted. BEHAVIORAL ACCOUNTING 1. Approach to accounting that stresses psychological considerations in decision making; also called HUMAN RESOURCE ACCOUNTING. For example, a budget should be participative so departmental managers who are involved with it will internalize the goals. Also profit centers engage a manager's ego because the financial results of the entity are a direct reflection of the manager's performance. In human resource accounting, a valuation is placed on people and reflected as an asset in the balance sheet. 2. Theory that the management accounting function is essentially behavioral. The theory states that the nature and scope of accounting systems is materially influenced by the view of human behavior that is held by the accountants who design and operate these systems. PARTICIPATIVE BUDGETING is a simple application of behavioral accounting. BETA Measure of systematic or undiversifiable risk of a stock. A beta coefficient of more than 1 means that the company's stock price has shown more volatility than the market index (e.g., Standard & Poor's 500) to which it is being related; usually, that indicates it is a risky security. If the beta is less than 1, it is less volatile than the market average. If it equals 1, its risk is the same as the market index. High variability in stock price may indicate greater business risk, instability in operations, and low quality of earnings. BOND Written promise by a company, government, or other institution to pay the face amount at the maturity date. Periodic interest payments are usually required. Bonds are typically stated in $1000 denominations. Bonds may be secured by collateral or unsecured (debenture). A registered bond has the name of the owner on the issuer's records, whereas the holder of a BEARER BOND presents coupons for interest payments. SINKING FUND bonds require the company to make annual deposits to a trustee. At maturity, the amount in the sinking fund (principal plus interest) is sufficient to pay the face of the bond. From the company's perspective, a bond issue has several advantages over a stock issue. Interest expense is tax deductible, whereas dividend payments are not. During inflation, debt is paid back in cheaper dollars. When bonds are issued at face value, the entry is to debit cash and credit bonds payable. When bonds are issued at a discount, such as with zero-coupon bonds, the entry is to debit cash and bond discount and credit bonds payable. The entry to record the interest each period is to debit interest expense and credit cash. BOND CONVERSION

Exchange of a convertible bond for stock. While conversion is typically at the option of the investor, in some cases it may be at the option of the issuing company (e.g., forced conversion). The conversion may be accounted for under the BOOK VALUE METHOD or MARKET VALUE METHOD. BOND DISCOUNT The amount below FACE VALUE at which a bond is issued. A bond may be issued at a discount when the interest rate on the bond is below the prevailing market interest rate, the company has financial problems, and the bond has a long maturity period. Bond discount is a CONTRA ACCOUNT to bonds payable to arrive at the CARRYING VALUE. Assume a $300,000 bond is issued at 93%. The bond discount is $21,000 ($300,000 7%). BOOKKEEPER Individual basically concerned with accounting support functions within the firm. Duties include recording journal entries in the various journals, posting and maintaining the ledger, preparing a trial balance, making up the payroll, and preparing a bank reconciliation. In a smaller firm, the bookkeeper often has a broader responsibility, such as accounts receivable collections. BUDGET Quantitative plan of activities and programs expressed in terms of assets, liabilities, revenues, and expenses. Budget participants will be involved in carrying out the plan, or in other quantitative terms such as units of product or service. The budget expresses the organizational goals in terms of specific financial and operating objectives. Advantages of budget preparation are planning, communicating company-wide goals to subunits, fostering cooperation between departments, maintaining control by evaluating actual figures to budget figures, and revealing the interrelationship of one function to another. BUDGETARY ACCOUNTABILITY In GOVERNMENT ACCOUNTING, process of recording budgetary amounts in the accounts of a fund. Recording the balances has a dual effect. (1) The control aspect of the budgetary function is stressed, and (2) recognition is given to the legal foundations of the budget. The need for such recording is consistent with the responsibility of fund accounting. It is concerned with performance in terms of authority to act and the action itself. Recording both the budget and actual transactions helps to fix responsibility. BUFFER Area of a computer's memory set aside to hold information temporarily. The buffer compensates for the different rates that hardware devices process data. For instance, the buffer holds data waiting to be printed so that the central processing unit is free to perform other tasks. A buffer is also used to hold information received from a computer in a remote

location when doing TELECOMMUNICATIONS. This is known as a capture buffer. Adown-loaded ASCII file may be loaded into a word processing program and edited. Further, the ASCII data file may then be loaded into asmart telecommunications software program's transmit buffer and uploaded to another remote computer over the telephone lines. BULL Stock market jargon for an individual or institution that believes a given stock or the stock market in general will experience a price rise. It is also an adjective to describe an upward price stock movement. BUSINESS COMBINATION Alliance of a company and one or more incorporated or unincorporated businesses into a single accounting entity that then carries on the activities of the separate entities. A business combination can be accounted for under the POOLING-OF-INTERESTS method or the PURCHASE (ACCOUNTING) METHOD. It does not cover the transfer of a business to a substitute corporation. The business combination date comes before the CONSOLIDATION date when consolidated financial statements are prepared. BY-PRODUCT Item emerging from a single production process that has a relatively low sales value in comparison with the firm's main or JOINT PRODUCTS. Examples of by-products are sawdust or wood chips in lumber mill operations. Because the relative value of by-products is not very important, it is usually considered undesirable to use a refined accounting method in dealing with by-product costs. Generally, the sales value of by-products is used to reduce the cost of the main products. An alternative accounting approach is to treat the sales value of the by-products as "other revenue." CAPACITY Ability to produce during a given time period, with an upper limit imposed by the availability of space, machinery, labor, materials, or capital. Capacity may be expressed in units, weights, size, dollars, man-hours, labor cost, etc. Typically, there are five different concepts of capacity. CAPACITY MANAGEMENT Management of a company's costs of unused (excess) capacity. The unused capacity in production facilities, distribution channels, marketing organizations, and so on are ordinarily not assigned to products or services on a cause-and-effect basis, so their inclusion in overhead rates may distort pricing decisions. Including the fixed costs of unused capacity in a cost-based price results in higher prices and in what is known as the downward (black hole) demand spiral.

CAPACITY MANAGEMENT Management of a company's costs of unused (excess) capacity. The unused capacity in production facilities, distribution channels, marketing organizations, and so on are ordinarily not assigned to products or services on a cause-and-effect basis, so their inclusion in overhead rates may distort pricing decisions. Including the fixed costs of unused capacity in a cost-based price results in higher prices and in what is known as the downward (black hole) demand spiral. CASH Money deposited in a bank and items that a bank will accept for immediate deposit (e.g., paper money, coins, checks, money orders). Items not included in the definition of cash are postdated checks, IOUs, and notes receivable. The cash on hand and cash on deposit in the bank are shown in the balance sheet as one figure. Cash is the most liquid of the current assets and is listed first. Note that restricted cash in a bank account is not considered a current asset. An example is cash held in a foreign country where remission restrictions exist.