C
Cafeteria Plan - A benefit plan maintained by an employer for the benefit of the employees under which each participant has the opportunity to select the benefits they desire. Certain minimum choices and nondiscriminatory rules apply.
Call Loan - Loan repayable on demand. Also known as DEMAND LOAN.
Callable Instrument - BOND which accords an issuer the right to redemption before it is due.
Cap - To limit. Capital - ASSETS intended to further production. The amount invested in a PROPRIETORSHIP, PARTNERSHIP, or CORPORATION by its owners.
Capital Gain - Portion of the total GAIN recognized on the sale or exchange of a noninventory asset which is not taxed as ORDINARY INCOME. Capital gains have historically been taxed at a lower rate than ordinary income.
Capital Stock - Ownership shares of a CORPORATION authorized by its ARTICLES OF INCORPORATION. The money value assigned to a corporation"s issued shares. The BALANCE SHEET account with the aggregate amount of the PAR VALUE or STATED VALUE of all stock issued by a corporation.
Capitalized Cost - Expenditure identified with goods or services acquired and measured by the amount of cash paid or the market value of other property, CAPITAL STOCK, or services surrendered. Expenditures that are written off during two or more accounting periods.
Capitalized Interest - INTEREST cost incurred during the time necessary to bring an ASSET to the condition and location for its intended use and included as part of the HISTORICAL COST of acquiring the asset.
Capitalized Lease - LEASE recorded as an ASSET acquisition accompanied by a corresponding LIABILITY by the LESSEE.
Capital Projects Funds - Funds used by a not-for-profit organization to account for all resources used for the development of a land improvement or building addition or renovation.
Carrying Value - Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE SHEET of a company. Also known as BOOK VALUE.
Carryovers - Provision of tax law that allows current losses or certain tax credits to be utilized in the tax returns of future periods.
Cash Basis - Method of bookkeeping by which REVENUES and EXPENDITURES are recorded when they are received and paid. (See OTHER COMPREHENSIVE BASIS OF ACCOUNTING.)
Cash Equivalents - Short-term (generally less than three months), highly liquid INVESTMENTS that are convertible to known amounts of cash.
Cash Flows - Net of cash receipts and cash disbursements relating to a particular activity during a specified accounting period.
Casualty Loss - Any loss of an asset due to fire storm act of nature causing asset damage from unexpected or accidental force. Generally it is deductible regardless of whether it is business or personal.
B
Backup Withholding - Payors of interest, dividends and other reportable payments must withhold income tax equal at a rate equal to the fourth lowest rate applicable to single filers if they fail to supply a federal id # or if they fail to certify that they are not subject to it.
Bad Debt - All or portion of an ACCOUNT, loan, or note receivable considered to be uncollectible.
Balance - Sum of DEBIT entries minus the SUM of CREDIT entries in an ACCOUNT. If positive, the difference is called a DEBIT BALANCE; if negative, a CREDIT BALANCE.
Balance Sheet - Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis of ACCOUNTING used in its preparation and presentation of a specified date the entity"s ASSETS, LIABILITIES and the EQUITY of its owners. Also known as a STATEMENT OF FINANCIAL CONDITION.
Bankruptcy - Legal process, governed by federal statute, whereby the DEBTS of an insolvent person are liquidated after being satisfied to the greatest extent possible by the DEBTOR"S ASSETS. During bankruptcy, the debtor"s assets are held and managed by a court appointed TRUSTEE.
Bequest - A gift by will of personal property. If the bequest is money to the extent it is paid out of income from property it is taxable to the recipient. Generally bequest value is fair market at the date of the decedent"s death.
Blue Sky Laws - State laws that regulate the ISSUANCE of SECURITIES. These laws are coordinated with federal acts.
Board of Directors - Individuals responsible for overseeing the affairs of an entity, including the election of its officers. The board of a CORPORATION that issues stock is elected by stockholders. (See AUDIT COMMITTEE.)
Bond - One type of long-term PROMISSORY NOTE, frequently issued to the public as a SECURITY regulated under federal securities laws or state BLUE SKY LAWS. Bonds can either be registered in the owner"s name or are issued as bearer instruments.
Book Value - Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE SHEET of a company. Also known as CARRYING VALUE.
Boot - The no technical term used by some to describe any cash or other property that is received in exchange of property that would be otherwise nontaxable.
Budget - Financial plan that serves as an estimate of future cost, REVENUES or both.
Business Combinations - Combining of two entities. Under the PURCHASE METHOD OF ACCOUNTING, one entity is deemed to acquire another and there is a new basis of accounting for the ASSETS and LIABILITIES of the acquired company. In a POOLING OF INTERESTS, two entities merge through an exchange of COMMON STOCK and there is no change in the CARRYING VALUE of the assets or liabilities.
Business Segment - Any division of an organization authorized to operate, within prescribed or otherwise established limitations, under substantial control by its own management.
Bylaws - Collection of formal, written rules governing the conduct of a CORPORATION"S affairs (such as what officers it will have, what their responsibilities are, and how they are to be chosen). Bylaws are approved by a corporation"s stockholders, if a stock corporation, or other owners, if a non-stock corporation. (See GOVERNING DOCUMENTS.)
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A Misstatement is Inconsequential - If a reasonable person would conclude after considering the possibility of further undetected misstatements that the misstatement either individually or when aggregated with other misstatements would clearly be immaterial to the financial statements. If a reasonable person could not reach such a conclusion regarding a particular misstatement, that misstatement is more than inconsequential.
Abatement - complete removal of an amount due, (usually referring to a tax abatement a penalty abatement or an interest abatement within a governing agency.)
Accelerated Depreciation - Method that records greater DEPRECIATION than STRAIGHT-LINE DEPRECIATION in the early years and less depreciation than straight-line in the later years of an ASSET"S holding period. (See STRAIGHT-LINE DEPRECIATION.)
Account - Formal record that represents, in words, money or other unit of measurement, certain resources, claims to such resources, transactions or other events that result in changes to those resources and claims.
Account Payable - Amount owed to a CREDITOR for delivered goods or completed services.
Account Receivable - Claim against a DEBTOR for an uncollected amount, generally from a completed transaction of sales or services rendered.
Accountable Plan - An accountable plan is any reimbursement or other expense allowance arrangement of an employer that meets all of the following requirements (therefore excluding it from gross w-2 earned income and tax): (1) it provides reimbursements advances or allowances including per diem and meals, to employees for any job related deductible business expense; (2) employees must be able to substantiate expenses covered in the plan; (3) employee must return any excess advances or payments.
Accountant - Person skilled in the recording and reporting of financial transactions. (See CERTIFIED PUBLIC ACCOUNTANT.)
Accountants" Report - Formal document that communicates an independent accountant"s: (1) expression of limited assurance on FINANCIAL STATEMENTS as a result of performing inquiry and analytic procedures (Review Report); (2) results of procedures performed (Agreed-Upon Procedures Report); (3) non-expression of opinion or any form of assurance on a presentation in the form of financial statements information that is the representation of management (Compilation Report); or (4) an opinion on an assertion made by management in accordance with the Statements on Standards for Attestation Engagements (Attestation Report). An accountants" report does not result from the performance of an AUDIT. (See AUDITORS" REPORT)
Accounting - Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the FINANCIAL STATEMENTS.
Accounting Change - Change in (1) an accounting principle; (2) an accounting estimate; or (3) the reporting entity that necessitates DISCLOSURE and explanation in published financial reports.
Accounting Principles Board (APB) - Senior technical committee of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) which issued pronouncements on accounting principles from 1959-1973. The APB was replaced by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).
Accounting Terminology Guide
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The New York State Society of CPAs (NYSSCPA) General Committee on Public Relations has prepared this glossary as an educational tool for journalists who report on and interpret financial information. We encourage your comments and suggestions as we continue to develop materials to assist financial journalists.
How to Use this Guide
Capitalized terms that appear within definitions of other terms are also defined in this guide. Related terms are cross-referenced to provide a clearer understanding of their interdependent relationships. Commonly used acronyms (e.g., IRS) are listed in their abbreviated forms and defined as the complete term (e.g., Internal Revenue Service).
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The Society develops programs and other resources for financial journalists. These include the semi-annual Excellence in Financial Journalism Award, an annual spring seminar series "Understanding and Evaluating Financial Statements", and customized seminars specially tailored to meet the individual needs of interested news organizations.
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The "Big Four" accountancy firms
The "Big Four auditors" are the largest multinational accountancy firms.
These firms are associations of the partnerships in each country rather than having the classical structure of holding company and subsidiaries, but each has an international "umbrella" organization for coordination (technically known as a Swiss Verein).
Before the Enron and other accounting scandals in the United States, there were five large firms and were called the Big Five: Arthur Andersen, PricewaterhouseCoopers, KPMG, Deloitte Touche Tohmatsu and Ernst & Young.
On June 15, 2002, Arthur Andersen was convicted of obstruction of justice for shredding documents related to its audit of Enron. Nancy Temple (Andersen Legal Dept.) and David Duncan (Lead Partner for the Enron account) were cited as the responsible managers in this scandal as they had given the order to shred relevant documents. Since the U.S. Securities and Exchange Commission does not allow convicted felons to audit public companies, the firm agreed to surrender its licenses and its right to practice before the SEC on August 31, 2002. A plurality of Arthur Andersen joined KPMG in the
Enron turned out to be only the first of a series of accounting scandals that enveloped the accounting industry in 2002.
This is likely to have far-reaching consequences for the
