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Call Option: Where the option holder has the right, but not the obligation, to buy shares at a preset price (p. 872).

Callable bond: Bonds that give the issuer the right to call and retire the bonds prior to maturity (p. 713).

Callable/redeemable preferred shares: When the issuing corporation can “call” or redeem at its option the outstanding preferred shares at specified future dates and at stipulated prices (p. 776).

Canadian Institute of Chartered Accountants (CICA): The main professional accounting body for Chartered Accountants. Unlike their US counterpart (AICPA), the CICA has primary responsibility for setting GAAP in Canada. (p. 8)

Capital allocation: The process by which accounting enables investors and creditors to assess the relative returns and risks associated with investment opportunities and thereby channel resources more effectively. (p. 3)

Capital approach: A method for accounting for contributions of assets where the increase in assets is treated as contributed (donated) capital (a Contributed Surplus account) rather than as earned revenue. (p. 510)

Capital cost allowance method: The method used in calculating taxable income and the tax value of an asset by Canadian businesses regardless of the method used for reporting purposes. (p. 575)

Capital expenditure: An expenditure that either increases an asset’s useful life, increases the quantity of units produced from the asset, or enhances the quality of units produced. (p. 513)

Capital gain: When the proceeds on disposal are greater than the original cost of an asset. (p. 578)

Capital lease: Where the lease agreements transfer substantially the entire benefits and risks incident to property ownership. The asset value is therefore capitalized. When the risks and benefits of ownership are assumed to be transferred to the lessee.(pgs. 612, 1020)

Capital maintenance: The notion of ensuring that the company maintains its capital base before paying out dividends (p. 798).

Capital maintenance approach: An approach to income measurement whereby income for the period is determined based on the change in equity after adjusting for capital contributions. (p. 117)

Capitalization approach: Pension plan assets and full pension obligations are reported as assets and liabilities in the employer company’s balance sheet (p. 971).

Capitalization criteria: Criteria used to establish whether the lease must be accounted for as a capital lease:

1) If there is reasonable assurance that the lessee will obtain ownership of the leased property by the end of the lease term.  If there is a bargain purchase option in the lease, it is assumed that the lessee will exercise it and obtain ownership.

2) If the lease term is such that the lessee will receive substantially all of the economic benefits expected to be derived from the use of the leased property.  This is usually assumed to occur if the lease term is 75% or more of the leased property’s economic life. 

3) The lease allows the lessor to recover its investment in the leased property and to earn a return on investment.  This is assumed to occur if the present value of the minimum lease payments is equal to substantially all (usually 90% or more) of the leased property’s fair value (p. 1020).

Capitalization method: When the risks and benefits of ownership are transferred from the lessor to the lessee, the lease must be accounted for as a capital lease (p. 1020).

Carrying value: The face amount minus any unamortized discount or plus any unamortized premium (p. 718).

Cash: The most liquid of assets, the standard medium of exchange, and the basis for measuring and accounting for all other items. It must be readily available to pay current obligations and free from any contractual restrictions that limit its use in satisfying debts. (p. 302) Cash on hand and demand deposits (p. 1129).

Cash and cash equivalents: Cash, demand deposits, and short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. (p. 165)

Cash debt coverage ratio: A long-run measure of financial flexibility that indicates a company’s ability to repay its liabilities from net cash provided by operating activities, without having to liquidate the assets employed in its operations. (p. 184)

Cash discounts: Sales discounts that are offered to induce prompt payment. (p. 308)

Cash dividend payable: An amount owed in cash by a corporation to its shareholders resulting from an authorization by the board of directors (p. 666).

Cash dividends: A dividend paid to shareholders in cash (p. 799).

Cash equivalents: Short-term, highly liquid investments that are readily converted to known amounts of cash and are subject to an insignificant risk of change in value (pgs. 305-6, 1129).

Cash flow per share: Total cash flow divided by the number of common shares outstanding (p. 1154).

Cash flow risk: The risk that cash flows related to a contract will fail to change over time and thus cause the other party loss (p. 869).

Cash flows: The inflows and outflows of cash and cash equivalents (p. 1129).

Cash surrender value: The value of an insurance policy that is an asset of the insurance company should the beneficiary cancel the policy at its own option. (p. 473)

Change in accounting policy: A change from one generally accepted accounting principle or the methods used in their application to another (p. 1081).

Change in accounting principle: When an accounting principle is adopted that is different from the one previously used. (p. 127)

Change in estimates: When estimates that are originally made are no longer accurate because of the passing of time, a change in circumstances, or as additional information is obtained. They are accounted for in the period of change and future periods if the change affects both. (p. 128)

Change in reporting entity: When major segments of a company’s operations are discontinued, the operations underlying the reporting entity's financial statements in the future also change (p. 1090).

Changes in estimate: Changes viewed as normal recurring corrections and adjustments that are handled prospectively (p. 1087).

CICA Handbook: A set of rules and guidelines for accounting and assurance. (p. 9)

Clean opinion: Where the auditor expresses an opinion that the financial statements present fairly, in all material respects, the entity’s financial position, results of operations, and cash flows, in conformity with generally accepted accounting principles (p. 1212). [synonym: unqualified opinion]

Closing entries: The journal entries that close the temporary accounts in order to start a new financial reporting period. These amounts are posted to retained earnings. (p. 82)

Closing process: The procedure generally followed to reduce the balance of temporary accounts to zero in order to prepare the accounts for the next period’s transactions. (p. 74)

Collectibility: When there is reasonable assurance as to the ultimate collection of a sale and revenues are therefore recognized. (p. 267)

Commodity-backed bond: Bonds that are redeemable in measures of a commodity, such as barrels of oil or tons of coal (p. 714). [synonym: asset-linked bond]

Common costs: Costs incurred for the benefit or more than one segment and whose interrelated nature prevents a completely objective division of costs among segments (p. 1207).

Common shares: Shares that represent the residual ownership interest in the company, bear the ultimate risks of loss, and receive the benefits of success (p. 764).

Comparability: Where information that has been measured and reported in a similar manner for different enterprises is considered comparable. This enables users to identify the real similarities and differences in economic phenomena because they have not been obscured by incomparable accounting methods. (p. 31)

Compensated absences: Absences from employment, such as vacation, illness, and holidays, for which employees will be paid (p 672).

Compensating balances: That portion of any demand deposit (or any time deposit or certificate of deposit) maintained by a corporation, which constitutes support for existing borrowing arrangements of the entity with a lending institution. (p. 304)

Completed-contract method: The revenue recognition method in which revenues and gross profit are recognized only when the contract is completed. (p. 258)

Complex capital structure: When a corporation has convertible securities, options, warrants, or other rights that upon conversion or exercise could dilute earnings per share (p. 854).

Composite amortization rate: The total amortization per year for the collection of assets as a percentage of their original cost. (p. 557)

Composite method: An amortization method used when a group of assets are heterogeneous and have different lives. An average cost is calculated and amortization is calculated from that basis. (p. 556)

Compound financial instruments: Financial instruments that have both a debt and equity component (p. 777, 837). [sometimes referred to as hybrid instruments]

Compound interest: Interest calculated on the principal and any interest earned that has not been paid (A-4).

Comprehensive income: An income measure that includes net income and all other changes in equity exclusive of owners’ investments and distributions. (p. 32)

Comprehensive revaluation: When the same party does not control the company both before and after a financial reorganization, and when new costs are reasonably determinable, the company’s assets and liabilities are revalued and retained earnings are brought to zero. (p. 815).

Conceptual framework: A coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function, and limits of financial accounting and financial statements. (p. 26)

Conservatism: A constraint of financial reporting that means: when in doubt choose the solution that will least likely overstate assets and income. (p. 41)

Consigned goods: Goods that are sold on consignment yet remain the consignor’s property and therefore must be included in inventory. (p. 366)

Consignment: A specialized method of marketing for certain types of products whereby the consignor (e.g., manufacturer) ships merchandise to the consignee (e.g., dealer) who acts as an agent for the consignor in selling the merchandise. (p. 255)

Consistency: When an entity applies the same accounting treatment to similar events from period to period, the entity is considered to be consistent in its use of accounting standards. (p. 31)

Consolidated financial statements: Financial statements that disregard the distinction between separate legal entities and treat the parent and subsidiary corporations as a single economic entity. (p. 467)

Constraints: In providing information with the qualitative characteristics that make it useful, two overriding constraints must be considered: cost-benefit relationship and materiality. Two other less dominant yet important constraints that are part of the reporting environment are industry practices and conservatism. (p. 39)

Contingency: An existing situation involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) that will ultimately be resolved when one or more future events occurs or fails to occur. (p. 174) Defined in the CICA Handbook as "an existing condition or situation involving uncertainty as to a possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur" (p. 678).

Contingent liability: As a liability incurred as a result of a loss contingency, they are obligations dependent upon the occurrence or nonoccurrence of one or more future events to confirm either its existence or the amount payable (p. 678).

Contingently issuable shares: Where a company promises to issue additional shares if a certain future event occurs (p. 858).

Continuing franchise fees: A periodic payment by the franchisee to the franchisor based on the franchisee’s operations. (p. 276)

Continuous earnings process/continuous sale: A process whereby performance of a sale requires numerous ongoing acts. (p. 258)

Contra account: An account on the balance sheet that reduces either an asset, a liability, or an owners’ equity account. (p. 177)

Contra asset account: An account that is offset against an asset account on the balance sheet. (p. 68)

Contra equity approach: Where subscriptions receivable are reported as a deduction from shareholders’ equity (p. 769).

Contributed (paid-in) capital: The total amount provided by the shareholders’ to the corporation for use on the business (p. 767).

Contributory plans: A pension plan where the employees bear part of the stated benefits’ cost or voluntarily make payments to increase their benefits (p. 967).

Control: When an investor owns more than 50% of a company and can exercise influence. (p. 467)

Conventional retail inventory method: A method to value inventory that uses the cost-to-retail ratio incorporating net markups but excluding net markdowns. This method is designed to approximate the lower of average cost and market. (p. 424)

Convertible bond: Bonds that can be converted into other securities of the corporation for a specified time after issuance (p. 713, p. 836).

Convertible preferred shares: Shares where the shareholders may at their option exchange preferred shares for common shares at a predetermined ratio (p. 776, 840).

Correction of an error: Where a mistake has been made and the financial statements are adjusted to reflect the correct treatment (p. 1088).

Corridor approach: A method for amortizing the net unrecognized pension gain or loss (p. 981).

Cost-benefit relationship: When deciding whether or not to disclose any given information, the preparer must consider the costs of providing the information weighed against the benefits that can be derived from using the information. (p. 39)

Cost flow assumption: The accountant must consistently apply one of several cost methods that are based on differing but systematic inventory because a specific identification of the items sold and unsold is expensive and almost impossible to achieve. (p. 374)

Cost method: The method used to record portfolio investments, where the investment is recorded at cost and income is not recognized until a dividend is declared or received. (p. 462)

Cost recovery method: A method of recognizing revenue whereby no profit is recognized until cash payments by the buyer exceed the seller’s cost of the merchandise sold. (p. 273)

Cost-to-cost basis: The process by which the percentage of completion is measured by comparing costs incurred to date with the most recent estimate of the total costs to complete the contract. (p. 259)

Cost-to-retail ratio: A ratio used in the retail inventory method determined by dividing goods available for sale at cost, by the goods available for sale at retail. (p. 422)

Counterbalancing errors: Errors that will be offset or self-corrected over two periods (p. 1096).

Counterparty: The other party to the contract (p. 869).

Coupon bond: A bond that is not recorded in the owners' name and may be transferred simply from one owner to another (p. 714). [synonym: bearer bond]

Coupon rate: The rate that is presented on a bond certificate (A-6,  p. 1128).  [synonym: stated, nominal, face rate]

Coverage ratios: Ratios that measure the degree of protection for long-term creditors and investors. (p. 188)

Credit: The right side of a general ledger account. (p. 58)

Credit risk: The risk that one of the parties to the contract will fail to fulfill its obligation under the contract and cause the other party loss (p. 869).

Critical event (earnings): The one main event in a discrete earnings process that signals substantial completion of performance whereby revenue can be recognized. (p. 36, 254)

Cumulative preferred shares: Preferred shares where dividends not paid in any year must be made up in a later year before any profits can be distributed to common shareholders (p. 775).

Current asset: Cash and other assets ordinarily realizable within one year from the date of the balance sheet or within the normal operating cycle where that is longer than a year. (p. 164)

Current liabilities: Amounts payable within one year from the date of the balance sheet or within the normal operating cycle where this is longer than a year (p. 662).

Current liability: The obligations that are expected to be liquidated either through the use of current assets or the creation of other current liabilities within one year from the date of the balance sheet, or within the normal operating cycle where that is longer than a year. (p. 170)

Current maturities of long-term debt: Bonds, mortgage notes, and other long-term indebtedness that mature within 12 months from the balance sheet date and are reported as current liabilities (p. 664).

Current operations performance approach: An income measurement approach that argues that the most useful income measure will reflect only regular and recurring revenue and expense elements. (p. 123)

Current ratio: The ratio that compares current assets to current liabilities, expressed as a percentage. (p. 369) The ratio of total current assets to total current liabilities (p. 684).