Following is the glossary from the text. However, other on-line accounting glossaries are available as well. Be sure to check out the AccountingNet glossary section.
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Accelerated-depreciation method
A depreciation method that produces higher depreciation expense in the early years than in the later years. (p. 429).
Account
An individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items. (p. 50).
Accounting
The process of identifying, recording, and communicating the economic events of an organization to interested users of the information. (p. 2)
Accounts payable (creditors') ledger
A subsidiary ledger that contains accounts with individual creditors. (p. D2).
Accounts receivable (customers') ledger
A subsidiary ledger that contains individual customer accounts. (p. D2).
Accrual basis of accounting
Accounting basis in which transactions that change a company's financial statements are recorded in the periods in which the events occur, rather than in the periods in which the company receives or pays cash. (p. 117).
Accrued expenses
Expenses incurred but not yet paid in cash or recorded. (p. 110).
Accrued revenues
Revenues earned but not yet received in cash or recorded. (p. 108).
Acid test ratio
A measure of a company's immediate short-term liquidity, computed by dividing the sum of cash, marketable securities, and (net) receivables by current liabilities. (p. 689).
Additions and improvements
Costs incurred to increase the operating efficiency, productive capacity, or expected useful life of a plant asset. (p. 432).
Adjusted trial balance
A list of accounts and their balances after all adjustments have been made. (p. 115).
Adjusting entries
Entries made at the end of an accounting period to ensure that the revenue recognition and matching principles are followed. (p. 101).
Administrative expenses
Expenses relating to general operating activities such as personnel management, accounting, and store security. (p. 215).
Aging of accounts receivable
The analysis of customer balances by the length of time they have been unpaid. (p. 336).
Amortization
The allocation of the cost of an intangible asset to expense. (p. 441).
Annuity
A series of equal dollar amounts to be paid or received periodically. (p. B5).
Asset turnover ratio
A measure of how efficiently a company uses its assets to generate sales, computed by dividing net sales by average assets. (p. 694).
Assets
Resources owned by a business. (p. 12).
Authorized stock
The amount of stock that a corporation is authorized to sell as indicated in its charter. (p. 527). Available-for-sale securities Securities that may be sold in the future. (p. 587).
Average cost method
An inventory costing method that assumes that the goods available for sale are homogeneous. (p. 382).
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Balance sheet
A financial statement that reports the assets, liabilities, and stockholder's equity at a specific date. (p. 20).
Bank service charge
A fee charged by a bank for the use of its services. (p. 303).
Bank statement
A statement received monthly from the bank that shows the depositor's bank transactions and balances. (p. 302).
Basic accounting equation
Assets = Liabilities + Stockholders' Equity. (p. 12).
Bearer (coupon) bonds
Bonds not registered. (p. 477).
Bond certificate
A legal document that indicates the name of the issuer, the face value of the bonds, and such other data as the contractual interest rate and maturity date of the bonds. (p. 477).
Bonds
A form of interest bearing notes payable issued by corporations, universities, and governmental entities. (p. 475).
Bonus
Compensation to management personnel and other employees, based on factors such as increased sales or the amount of net income. (p. C6).
Book value
The difference between the cost of a depreciable asset and its related accumulated depreciation. (p. 106).
Book value per share
The equity a common stockholder has in the net assets of the corporation from owning one share of stock. (p. 553).
Bookkeeping
A part of accounting that involves only the recording of economic events. (p. 6).
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Calendar year
An accounting period that extends from January 1 to December 31. (p. 99).
Callable bonds
Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer. (p. 477).
Capital expenditures
Expenditures that increase the company's investment in productive facilities. (p. 432).
Capital lease
A contractual arrangement that transfers substantially all the benefits and risks of ownership to the lessee so that the lease is in effect a purchase of the property. (p. E5).
Cash
Resources that consist of coins, currency, checks, money orders, and money on hand or on deposit in a bank or similar depository. (p. 293).
Cash (net) realizable value
The net amount expected to be received in cash. (p. 332).
Cash basis accounting
Revenue is recorded only when cash is received and an expense is recorded only when cash is paid. (p. 117).
Cash debt coverage ratio
A cash basis ratio used to evaluate solvency by dividing net cash provided by operating activities by average total liabilities. (pp. 634 and 648, 701).
Cash dividend
A pro rata distribution of cash to stockholders. (p. 538).
Cash equivalent price
An amount equal to the fair market value of the asset given up or the fair market value of the asset received, whichever is more clearly determinable. (p. 421).
Cash equivalents
Highly liquid investments, with maturities of three months or less when purchased, that can be converted to a specific amount of cash. (p. 309).
Cash payments (disbursements) journal)
A special journal used to record all cash paid. (p. D13).
Cash receipts journal
A special journal used to record all cash received. (p. D13).
Cash return on sales ratio
A measure of the cash generated by every dollar of sales. (p. 694).
Change in accounting principle
Use of an accounting principle in the current year different from the one used in the preceding year. (p. 706).
Chart of accounts
A list of accounts and the account numbers which identify their location in the ledger. (p. 63).
Check
A written order signed by the depositor directing the bank to pay a specified sum of money to a designated recipient. (p. 302).
Classified balance sheet
A balance sheet that contains a number of standard classifications or sections. (p. 163).
Closing entries
Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained Earnings. (p. 153).
Columnar journal
A special journal with more than one column. (p. D8).
Common stock
Issues in exchange for the owners' investment paid in to the corporation. (p. 53).
Comparability
Ability to compare accounting information of different companies because they use the same accounting principles. (p. 242).
Compensating balances
Minimum cash balances required by a bank in support of bank loans. (p. 309).
Compound entry
An entry that involves three or more accounts. (p. 59).
Compound interest
The interest computed on the principal and any interest earned that has not been paid or received. (p. B2).
Conceptual framework
A coherent system of interrelated objectives and fundamentals that can lead to consistent standards. (p. 241).
Conservatism
The approach of choosing an accounting method when in doubt that will least likely overstate assets and net income. (p. 250).
Consigned goods
Goods shipped by a consignor, who retains ownership, to another party called the consignee. (p. 371).
Consistency
Use of the same accounting principles and methods from year to year within a company. (p. 243).
Consolidated financial statements
Financial statements that present the assets and liabilities controlled by the parent company and the aggregate profitability of the affiliated companies. (p. 585).
Contingent liability
A potential liability that may become an actual liability in the future. (p. E2).
Contra asset account
An account that is offset against an asset account on the balance sheet. (p. 106).
Contra revenue account
An account that is offset against a revenue account on the income statement. (p. 204).
Contractual interest rate
Rate used to determine the amount of interest the borrower pays and the investor receives. (p. 477).
Control account
An account in the general ledger that controls a subsidiary ledger. (p. D2).
Controlling interest
Ownership of more than 50% of the common stock of another entity. (p. 584).
Convertible bonds
Bonds that period bondholders to convert them into common stock at their option. (p. 477).
Copyright
An exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work. (p. 442).
Corporation
A business organized as a separate legal entity under state corporation law having ownership divided into transferable shares of stock. (p. 11).
Correcting entries
Entries to correct errors made in recording transactions. (p. 160).
Cost method
An accounting method in which the investment in common stock is recorded at cost and revenue is recognized only when cash dividends are received. (p. 582).
Cost of goods available for sale
The sum of the beginning merchandise inventory plus the cost of goods purchased. (p. 376).
Cost of goods purchased
The sum of net purchases plus freight-in. (p. 376).
Cost of goods sold
The total cost of merchandise sold during the period, determined by subtracting ending inventory from the cost of goods available for sale. (p. 376).
Cost principle
Accounting principle that assets should be recorded at their historical cost. (p. 248).
Credit
The right side of an account. (p. 51).
Credit memorandum
A document issued by a seller to inform a customer that a credit has been made to the customer's account receivable for a sales return or allowance. (p. 203).
Cumulative dividend
A feature of preferred stock entitling the stockholder to receive current and unpaid prior-year dividends before common stockholders receive any dividends. (p. 536).
Current assets
Cash and other resources that are reasonably expected to be realized in cash or sold or consumed in the business within one year or the operating cycle, whichever is longer. (p. 163).
Current cash debt coverage ratio
A cash-basis measure of the short-term debt paying ability. (p. 690).
Current liabilities
Obligations reasonably expected to be paid from existing current assets or through the creation of other current liabilities within the next year or operating cycle, whichever is longer. (p. 165).
Current ratio
A measure used to evaluate a company's liquidity and short-term debt-paying ability, computed by dividing current assets by current liabilities. (p. 689).
Current replacement cost
The current cost to replace an inventory item. (p. 387).
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Debenture bonds
Bonds issued against the general credit of the borrower. Also called unsecured bonds. (p. 477).
Debit
The left side of an account. (p. 51).
Debit memorandum
A document issued by a buyer to inform a seller that a debit has been made to the seller's account because of unsatisfactory merchandise. (p. 198).
Debt investments
Investments in government and corporation bonds. (p. 579).
Debt to total assets ratio
Measures the percentage of total assets provided by creditors, computed by dividing total debt by total assets. (p. 699).
Declaration date
The date the board of directors formally declares the dividend and announces it to stockholders. (p. 539).
Declining-balance method
A depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset. (p. 428).
Deficit
A debit balance in retained earnings. (p. 546).
Defined benefit plan
A pension plan in which the benefits that the employee will receive at retirement are defined by the terms of the plan. (p. E8).
Defined contribution plan
A pension plan in which the employer's contribution to the plan is defined by the terms of the plan. (p. E8).
Depletion
The process of allocating the cost of a natural resource to expense in a rational and systematic manner over the resource's useful life. (p. 439).
Deposits in transit
Deposits recorded by the depositor that have not been recorded by the bank. (p. 305).
Depreciable cost
The cost of a plant asset less its salvage value. (p. 426).
Depreciation
The process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner. (p. 105).
Direct method
A method of determining the "net cash provided by operating activities" by adjusting each item in the income statement from the accrual basis to the cash basis. (p. 637).
Discontinued operations
The disposal of a significant segment of a business. (p. 703).
Discounting the future amount(s)
The process of determining present value. (p. B8).
Dishonored note
A note that is not paid in full at maturity. (p. 345).
Dividend
A distribution by a corporation to its stockholders on a pro rata (equal) basis. (p. 13, 54, 538).
Double-entry system
A system that records the dual effect of each transaction in appropriate accounts. (p. 52).
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Earnings per share
The net income earned by each share of common stock, computed by dividing net income by the weighted average common shares outstanding. (p. 697).
Earnings per share (EPS)
The net income earned by each share of outstanding common stock. (p. 254).
Economic entity assumption
An assumption that economic events can be identified with a particular unit of accountability. (p. 10, 245).
Effective-interest method of amortization
A method of amortizing bond discount or bond premium that results in periodic interest expense equal to a constant percentage of the carrying value of the bonds. (p. 494).
Effective-interest rate
Rate established when bonds are issued that remains constant in each interest period. (p. 493).
Electronic funds transfer (EFT)
A disbursement system that uses wire, telephone, telegraph, or computer to transfer cash from one location to another. (p. 297).
Elements of financial statements
Definitions of basic terms used in accounting. (p. 243).
Employee earnings record
A cumulative record of each employee's gross earnings, deductions, and net pay during the year. (p. C10).
Employees Withholding Allowance Certificate (Form W-4)
An Internal Revenue Service form on which the employee indicates the number of allowances claimed for withholding federal income taxes. (p. C8).
Equity method
An accounting method in which the investment in common stock is initially recorded at cost, and the investment account is then adjusted annually to show the investor's equity in the investee. (p. 583).
Ethics
The standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair. (p. 8).
Expenses
The cost of assets consumed or services used in the process of earning revenue. (p. 13).
Extraordinary items
Events and transactions that meet two conditions: (1) unusual in nature, and (2) infrequent in occurrence. (p. 704).
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Face value
Amount of principal due at the maturity date of the bond. (p. 477).
Factor
A finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the customers. (p. 338).
Fair value
Amount for which a security could be sold in a normal market. (p. 587).
Federal unemployment taxes
Taxes imposed on the employer that provides benefits for a limited time period to employees who lose their jobs through no fault of their own. (p. C14).
FICA taxes
Taxes designed to provide workers with supplemental retirement, employment disability, and medical benefits. (p. C7).
Financial Accounting Standards Board (FASB)
A private organization that establishes generally accepted accounting principles. (p. 8).
Financing activities
Cash flow activities that include (a) obtaining cash from issuing debt and repaying the amounts borrowed and (b) obtaining cash from stockholders and providing them with a return on their investment. (p. 618).
First-in, first-out method (FIFO)
An inventory costing method that assumes that the costs of the earliest goods acquired are the first to be recognized as cost of goods sold. (p. 380).
Fiscal year
An accounting period that is one year in length. (p. 99).
FOB destination
Freight terms indicating that the goods will be placed free on board at the buyer's place of business, and the seller pays the freight costs. (p. 201).
FOB shipping point
Freight terms indicating that goods are placed free on board the carrier by the seller, and the buyer pays the freight costs. (p. 201).
Franchise (license)
A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to render specific services, or to use certain trademarks or trade names, usually within a designated geographical area. (p. 443).
Full disclosure principle
Accounting principle that circumstances and events that make a difference to financial statement users should be disclosed. (p. 248).
Full-cost approach
Method in which both successful and unsuccessful exploration costs are included in the cost of a natural resource and the costs are written off to expense over the useful life of the successful wells. (p. 438).
Future value of a single amount
The value at a future date of a given amount invested assuming compound interest. (p. B3).
Future value of an annuity
The sum of all the payments or receipts plus the accumulated compound interest on them. (p. B5).
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General journal
The most basic form of journal. (p. 57).
General ledger
A ledger that contains all asset, liability, and stockholders' equity accounts. (p. 60).
Generally accepted accounting principles (GAAP)
A set of rules and practices, having a substantial authoritative support, that are recognized as a general guide for financial reporting purposes. (p. 240).
Going concern assumption
The assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments. (p. 245).
Goodwill
The value of all favorable attributes that relate to a business enterprise. (p. 443).
Gross earnings
Total compensation earned by an employee. (p. C5).
Gross profit
The excess of net sales over the cost of goods sold. (p. 194).
Gross profit method
A method for estimating the cost of the ending inventory by applying a gross profit rate to net sales. (p. 392).
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Held-to-maturity securities
Debt securities which the investor has the intent and ability to hold to their maturity date. (p. 587).
Horizontal analysis
A technique for evaluating a series of financial statement data over a period of time to determine the increase (decrease) that has taken place, expressed as either an amount or a percentage. (p. 682).
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Income from operations
Income from a company's principal operating activity determined by subtracting cost of goods sold and operating expenses from net sales. (p. 215).
Income statement
A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time. (p. 20).
Income Summary
A temporary account used in closing revenue and expense accounts. (p. 163).
Indirect method
A method of preparing a statement of cash flows in which net income is adjusted for items that did not affect cash, to determine net cash provided by operating activities. (p. 625).
Intangible assets
Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance. (p. 440). Intercompany eliminations Eliminations made to exclude the effects of intercompany transactions in preparing consolidated statements. (p. 593).
Intercompany transactions
Transactions between affiliated companies. (p. 593).
Interest
Payment for the use of another's money. (p. B2).
Interim periods
Monthly or quarterly accounting time periods. (p. 99).
Internal auditors
Company employees who evaluate on a continuous basis the effectiveness of the company's system of internal control. (p. 291).
Internal control
The plan of organization and all the related methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records. (p. 287).
Inventoriable costs
The pool of costs that consists of two elements: (1) the cost of the beginning inventory and (2) the cost of goods purchased during the period. (p. 378).
Inventory turnover ratio
A measure of the liquidity of inventory, computed by dividing cost of goods sold by average inventory. (p. 692).
Investing activities
Cash flow activities that include (a) acquiring and disposing of investments and productive long-lived assets and (b) lending money and collecting on those loans. (p. 618).
Investment portfolio
A group of stocks in different corporations held for investment purposes. (p. 581).
Invoice
A document that provides support for a credit purchase. (p. 197).
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Journal
An accounting record in which transactions are initially recorded in chronological order. (p. 57).
Journalizing
The procedure of entering transaction data in the journal. (p. 58).
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Last-in, first-out method (LIFO)
An inventory costing method that assumes that the costs of the latest units purchased are the first to be allocated to cost of goods sold. (p. 381).
Ledger
The entire group of accounts maintained by a company. (p. 60).
Legal capital
The amount per share of stock that must be retained in the business for the protection of corporate creditors. (p. 528).
Liabilities
Creditorship claims on total assets. (p. 12).
Licenses
Operating rights to use public property, granted by a governmental agency to a business enterprise. (p. 443).
Liquidating dividend
A dividend declared out of paid-in capital. (p. 538)
Liquidity
The ability of a company to pay obligations that are expected to become due within the next year or operating cycle. (p. 165).
Liquidity ratios
Measures of the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash. (p. 688).
Long-term investments
Investments that are not readily marketable or that management does not intend to convert into cash within the next year or operating cycle, whichever is longer. (p. 579).
Long-term liabilities (Long-term debt)
Obligations expected to be paid after one year. (p. 166, 475).
Lower of cost or market basis (LCM) (inventories)
A basis whereby inventory is stated at the lower of cost or market (current replacement cost). (p. 387).
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Maker
The party in a promissory note who is making the promise to pay. (p. 342).
Market interest rate
The rate investors demand for loaning funds to the corporation. (p. 479).
Matching principle
Accounting principle that expenses should be matched with revenues in the period when efforts are expended to generate revenues. (p. 246).
Materiality
The constraint of determining of an item is important enough to likely influence the decision of a reasonably prudent investor or creditor. (p. 249).
Monetary unit assumption
Accounting assumption that only transaction data capable of being expressed in monetary terms should be included in accounting records. (p. 244).
Mortgage bond
A bond secured by real estate. (p. 476).
Mortgage note payable
A long-term note secured by a mortgage that pledges title to specific units of property as security for the loan. (p. 490).
Multiple-step income statement
An income statement that shows numerous steps in determining net income (or net loss). (p. 214).
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Natural resources
Assets that consist of standing timber and underground deposits of oil, gas, and minerals. Also called wasting assets. (p. 438).
Net income
The amount by which revenues exceed expenses. (p. 13).
Net loss
The amount by which expenses exceed revenues. (p. 13).
Net pay
Gross earnings less payroll deductions. (p. C9).
Net purchases
Purchases less purchase returns and allowances and purchase discounts. (p. 375).
Net sales
Sales less sales returns and allowances and sales discounts. (p. 205).
No-par value stock
Capital stock that has not been assigned a value in the corporate charter. (p. 528).
NSF check
A check that is not paid by a bank because of insufficient funds in a customer's bank account. (p. 303).
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Operating activities
Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income. (p. 618).
Operating cycle
The average time required to go from cash to cash in producing revenues. (p. 163).
Operating expenses
Expenses incurred in the process of earning sales revenues that are deducted from gross profit in the income statement. (p. 195).
Operating lease
A contractual arrangement giving the lessee temporary use of the property with continued ownership of the property by the lessor. (p. E4).
Ordinary repairs
Expenditures to maintain the operating efficiency and expected productive life of the unit. (p. 432).
Organization costs
Costs incurred in the formation of a corporation. (p. 524).
Other expenses and losses
A nonoperating section of the income statement that shows expenses from auxiliary operations and losses unrelated to the company's operations. (p. 214).
Other revenues and gains
A nonoperating section of the income statement that shows revenues from auxiliary operations and gains unrelated to the company's operations. (p. 214).
Outstanding checks
Checks issued and recorded by a company that have not been paid by the bank. (p. 305).
Outstanding stock
Capital stock that has been issued and is being held by stockholders. (p. 534).
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Par value stock
Capital stock that has been assigned a value per share in the corporate charter. (p. 528).
Parent company
A company that owns more than 50% of the common stock of another entity. (p. 584).
Partnership
An association of two or more persons to carry on as co-owners of a business for profit. (p. 11).
Patent
An exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 17 years from the date of the grant. (p. 441).
Payee
The party to whom payment of a promissory note is to be made. (p. 342).
Payment date
The date dividend checks are mailed to stockholders. (p. 540).
Payout ratio
Measures the percentage of earnings distributed in the form of cash dividends, computed by dividing cash dividends by net income. (p. 698).
Payroll deductions
Deductions from gross earnings to determine the amount of a paycheck. (p. C6).
Payroll register
A payroll record that accumulates the gross earnings, deductions, and net pay by employee for each pay period. (p. C10).
Pension plan
An agreement whereby an employer provides benefits to employees after they retire. (p. E7).
Percentage of receivables basis
Management establishes a percentage relationship between the amount of receivables and the expected losses from uncollectable accounts. (p. 336).
Percentage of sales basis
Management establishes a percentage relationship between the amount of credit sales and expected losses from uncollectable accounts. (p. 335).
Periodic inventory system
An inventory system in which inventoriable costs are allocated to ending inventory and cost of goods sold at the end of the period. Cost of goods sold is computed at the end of the period by subtracting the ending inventory (costs are assigned to a physical count of items on hand) from the cost of goods available for sale. (p. 372).
Permanent (real) accounts
Balance sheet accounts whose balances are carried forward to the next accounting period. (p. 152).
Perpetual inventory system
A detailed inventory system in which the cost of each inventory item is maintained and the records continuously show the inventory that should be on hand. (p. 196).
Petty cash fund
A cash fund used to pay relatively small amounts. (p. 298).
Plant assets
Tangible resources that are used in the operations of the business and are not intended for sale to customers. (p. 420).
Post-closing trial balance
A list of permanent accounts and their balances after closing entries have been journalized and posted. (p. 155).
Posting
The procedure of transferring journal entries to the ledger accounts. (p. 61).
Postretirement benefits
Payments by employers to retired employees for health care, life insurance, and pensions. (p. E6).
Preferred stock
Capital stock that has contractual preferences over common stock in certain areas. (p. 535).
Prepaid expenses
Expenses paid in cash and recorded as assets before they are used or consumed. (p. 102).
Present value
The value now of a given amount to be invested or received in the future assuming compound interest. (p. B8).
Present value of an annuity
A series of future receipts or payments discounted to their value now assuming compound interest. (p. B11).
Price-earnings ratio
Measures the ratio of the market price of each share of common stock to the earnings per share, computed by dividing the market price of the stock by earnings per share. (p. 697).
Principal
The amount borrowed or invested. (p. B2).
Prior period adjustment
The correction of an error in previously issued financial statements. (p. 547).
Privately held corporation
A corporation that has only a few stockholders and whose stock is not available for sale to the general public. (p. 520).
Profit margin ratio
Measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales. (p. 693).
Profitability ratios
Measures of the income or operating success of an enterprise for a given period of time. (p. 693).
Promissory note
A written promise to pay a specified amount of money on demand or at a definite time. (p. 341).
Property, plant, and equipment
Assets of a relatively permanent nature that are being used in the business and not intended for resale. (p. 164).
Proprietorship
A business owned by one person. (p. 10).
Publicly held corporation
A corporation that may have thousands of stockholders and whose stock is regularly traded on a national securities market. (p. 520). ;Purchase discount A cash discount claimed by a buyer for prompt payment of a balance due. (p. 199).
Purchases journal
A special journal used to record all purchases of merchandise on account. (p. D11).
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Ratio
An expression of the mathematical relationship between one quantity and another. The relationship may be expressed either as a percentage, a rate, or a simple proportion. (p. 687).
Ratio analysis
A technique for evaluating financial statements that expresses the relationship among selected financial statement data. (p. 687).
Receivables turnover ratio
A measure of the liquidity of receivables, computed by dividing net credit sales by average net receivables. (p. 348, 691).
Record date
The date when ownership of outstanding shares is determined for dividend purposes. (p. 540).
Registered bonds
Bonds issued in the name of the owner. (p. 477).
Relevance
The quality of information that indicates the information makes a difference in a decision. (p. 242).
Reliability
The quality of information that gives assurance that it is free of error and bias. (p. 242).
Research and development costs
Expenditures that may lead to patents, copyrights, new processes, and products. (p. 444).
Retail inventory method
A method used to estimate the cost of the ending inventory by applying a cost to retail ratio to the ending inventory at retail. (p. 394).
Retained earnings
A financial statement that shows the changes in retained earnings during the year. (p. 547).
Retained earnings statement
A financial statement that summarizes the changes in retained earnings for a specific period of time. (p. 20).
Return on assets ratio
An overall measure of profitability, computed by dividing net income by average assets. (p. 695).
Return on common stockholders' equity
Measures the dollars of net income earned for each dollar invested by the owners, computed by dividing net income by average common stockholders' equity. (p. 696).
Return on common stockholders' equity ratio
A ratio that measures profitability from the stockholders' point of view. It is computed by dividing net income by average stockholders' equity. (p. 550).
Revenue expenditures
Expenditures that are immediately charged against revenues as an expense. (p. 432).
Revenue recognition principle
Accounting principle that revenue should be recognized in the accounting period in which it is earned (generally at the point of sale). (p. 246).
Revenues
The gross increase in stockholders' equity resulting from business activities entered into for the purpose of earning income. (p. 13).
Reversing entry
An entry at the beginning of the next accounting period that is the exact opposite of the adjusting entry made in the previous period. (p. 160).
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Salaries
Specified amount per month or per year paid to executive and administrative personnel. (p. C2).
Sales discount
A reduction given by a seller for prompt payment of a credit sale. (p. 204).
Sales invoice
A document that provides support for credit sales. (p. 202).
Sales journal
A special journal used to record all sales of merchandise on account. (p. D5).
Sales revenue
Primary source of revenue in a merchandising company. (p. 194).
Secured bonds
Bonds that have specific assets of the issuer pledged as collateral. (p. 476).
Securities and Exchange Commission (SEC)
A governmental agency that requires companies to file financial reports in accordance with generally accepted accounting principles. (p. 9).
Selling expenses
Expenses associated with the making of sales. (p. 215).
Serial bonds
Bonds that mature in installments. (p. 477).
Simple entry
An entry that involves only two accounts. (p. 59).
Simple interest
The interest computed on the principal only. (p. B2).
Single-step income statement
An income statement that shows only one step in determining net income (or net loss). (p. 216).
Sinking fund bonds
Bonds secured by specific assets set aside to retire them. (p. 476)
Solvency ratios
Measures of the ability of the enterprise to survive over a long period of time. (p. 699).
Special journal
A journal that is used to record similar types of transactions such as all credit sales. (p. D4).
Specific identification method
An actual physical flow costing method in which items still in inventory are specifically costed to arrive at the total cost of the ending inventory. (p. 379).
State unemployment taxes
Taxes imposed on the employer that provide benefits to employees who lose their jobs. (p. C14).
Stated value
The amount per share assigned by the board of directors to no-par stock that becomes legal capital per share. (p. 529).
Statement of cash flows
A basic financial statement that provides information about the cash receipts and cash payments of an entity during a period, classified as operating, investing, and financing activities, in a format that reconciles the beginning and ending cash balances. (p. 617).
Statement of earnings
A document attached to a paycheck that indicates the employee's gross earnings, payroll deductions, and net pay. (p. C12).
Stock dividend
A pro rata distribution of the corporation's own stock to stockholders. (p. 541).
Stock investments
Investments in the capital stock of corporations. (p. 581).
Stock split
The issuance of additional shares of stock to stockholders accompanied by a reduction in the par or stated value per share. (p. 543).
Stockholders' equity
The ownership claim of shareholders on total assets. It is to a corporation what owner's equity is to a proprietorship. (p. 166).
Stockholders' equity statement
A statement that shows the changes in each stockholders' equity account and in total stockholders' equity during the year. (p. 550).
Straight-line method
A method in which periodic depreciation is the same for each year of the asset's useful life. (p. 426).
Straight-line method of amortization
A method of amortizing bond discount or bond premium that allocates the same amount to interest expense in each interest period. (p. 483).
Subsidiary (affiliated) company
A company in which more than 50% of its stock is owned by another company. (p. 584).
Subsidiary ledger
A group of accounts with a common characteristic. (p. D2).
Successful efforts approach
Method in which only the costs of successful exploration are included in the cost of a natural resource. (p. 438).
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T account
The basic form of an account. (p. 50).
Temporary (nominal) accounts
Revenue, expense, and dividends accounts whose balances are transferred to retained earnings at the end of an accounting period. (p. 152).
Temporary investments
Investments that are readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer. (p. 579).
Term bonds
Bonds that mature at a single specified future date. (p. 477).
Three-column form of account
A form containing money columns for debit, credit, and balance accounts in an account. (p. 61).
Time period assumption
An assumption that the economic life of a business can be divided into artificial time periods. (p. 99, 245).
Times interest earned ratio
Measures a company's ability to meet interest payments as they come due, computed by dividing income before interest expense and income taxes by interest expense. (p. 700).
Trade receivables
Notes and accounts receivable that result from sales transactions. (p. 330).
Trademark (trade name)
A word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product. (p. 442).
Trading on the equity (leverage)
Borrowing money at a lower rate of interest than can be earned by using the borrowed money. (p. 696).
Trading securities
Securities bought and held primarily for sale in the near term to generate income on short-term price differences. (p. 587).
Transactions
The economic events of the enterprise recorded by accountants. (p. 14).
Treasury stock
A corporation's own stock that has been issued, fully paid for, and reacquired by the corporation but not retired. (p. 532).
Trial balance
A list of accounts and their balances at a given time. (p. 72).
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Unearned revenues
Revenues received in cash and recorded as liabilities before they are earned. (p. 106).
Units-of-activity method
A depreciation method in which useful life is expressed in terms of the total units of production or use expected from the asset. (p. 427).
Unsecured bonds
Bonds issued against the general credit of the borrower. Also called debenture bonds. (p. 476).
Useful life
The length of service of a productive facility. (p. 105).
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Vertical analysis
A technique for evaluating financial statement data that expresses each item within a financial statement in terms of a percent of a base amount. (p. 684).
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Wage and Tax Statement (Form W-2)
A form showing gross earnings, FICA taxes withheld, and income taxes withheld which is prepared annually by an employer for each employee. (p. C15).
Wages
Amounts paid to employees based on a rate per hour or on a piece-work basis. (p. C2).
Work sheet
A multiple-column from that may be used in the adjustment process and in preparing financial statements. (p. 146). Glossary - Financial Accounting Second Edition - Page 32
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