401(k) Plan
A retirement plan in the United States that allows qualified employees to contribute money from their paychecks into a tax-sheltered retirement account. Many employers match the employees' contributions.
 
A&E
Can mean either Appropriation & Expense or Analysis & Evaluation.

AAA
This is the highest rating given to a municipal bond. Bonds with a AAA rating are considered safe and a good investment by banks and other financial institutions.

ABA (Accredited Business Accountant or Accredited Business Advisor), in the US, is a national credential conferred by Accreditation Council for Accountancy and Taxation to professionals who specialize in supporting the financial needs of individuals and small to medium sized businesses. ABA is the only nationally recognized alternative to the CPA. Most accredited individuals do not perform audits. Generally, they are small business owners themselves. In addition to general accounting work, CPAs are also heavily schooled in performing audits; however, only a small fraction of America's businesses require an audit. In general, a CPA has majored in accounting, passed the CPA examination and is licensed to perform audits. An ABA has majored in accounting, passed the ABA comprehensive examination and in most states is not licensed to perform audits.

ABA Transit Number
A number that is assigned to a bank that identifies the institution when a check is processed. Every check has an ABA (American Bankers Association) transit number, usually in the upper-right corner. The number, which, actually is two numbers separated by a hyphen, identifies the bank's location and the bank's name.

Abatement, in accounting & legal general usage, means to reduce or lessen. In law, it is the termination or suspension of a lawsuit. In accounting it is the reduction in whole or in part of the amount of taxes owed.

ABC Management
An approach to cost accounting that tries to more accurately assign overhead costs and more precisely measure the profits of a firm's products, services, and business units.

Abnormal Returns
Is the difference between the actual return and that is expected to result from market movements (normal return).
 

Above the Line
In accounting, denotes revenue and expense items that enter fully and directly into the calculation of periodic net income, in contrast to below the line items that affect capital accounts directly and net income only indirectly.

Above the Line
For an individual, is a term derived from a solid bold line on Form 1040 and 1040A above the line for adjusted gross income. Items above the line prior to coming to adjusted gross income, for example, can include: IRA contributions, half of the self-employment tax, self-employed health insurance deduction, Keogh retirement plan and self-employed SEP deduction, penalty on early withdrawal of savings, and alimony paid. A taxpayer can take deductions above the line and still claim the standard deduction.

Abusive Tax Shelter
A tax shelter is considered "abusive" when its organizers knowingly misrepresent its tax benefits or value. The IRS imposes special penalties on abusive tax shelters.

ACAT
(Accreditation Council for Accountancy and Taxation) is a national organization established in 1973 as a non-profit independent testing, accrediting and monitoring organization. The Council seeks to identify professionals in independent practice who specialize in providing financial, accounting and taxation services to individuals and small to mid-size businesses. Professionals receive accreditation through examination and/or coursework and maintain accreditation through commitment to a significant program of continuing professional education and adherence to the Council's Code of Ethics and Rules of Professional Conduct.

Accelerated Depreciation
The method used to expense an asset by calculating depreciation with larger amounts in the first year(s).

Account
In the books (or general ledger) the detailed record of a particular asset, liability, owners' equity, revenue or expense.

Account Aging
Usually refers to the methods of tracking past due accounts in accounts receivable based on the dates the charges were incurred. Account aging can also be used in accounts payable, to a lesser degree, to monitor payment history to suppliers.

Account Analysis
Is a way to measure cost behavior. It selects a volume-related cost driver and classifies each account from the accounting records as a fixed or variable 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.

Accountant's Opinion
A signed statement regarding the financial status of an entity from an independent public accountant after examination of that entities records and accounts. Another brief definition is the results of an audit of an entity's records and books.

Account Distribution
The process by which debits and credits are identified to the correct accounts in a company's ledger.

Account Group
In accounting, is a designation of a group of accounts of like type (for example: accounts receivable and fixed assets) in a company's books (or ledger).

Accounting
Primarily is a system of measurement and reporting of economic events based upon the accounting equation for the purpose of decision making. Generally, when someone says "accounting" they are referring to the department, activity or individuals involved in the application of the accounting equation.

Accounting Period
The time period for which accounts are prepared, usually one year, but can be longer or shorter.
 

Accounting Ratio
Is the result of dividing one financial statement item by another. Ratios help analysts interpret financial statements by focusing on specific relationships.

Accounts Payable (AP)
Trade accounts of businesses representing obligations to pay for goods and services received.

Accounts Receivable
A current asset representing money due for services performed or merchandise sold on credit.

Accretion
Is the adjustment of the difference between the price of a bond purchased at an original discount and the par value of the bond; or, asset growth through internal growth, expansion or natural causes, e.g. the aging of wine or growth of timber/trees.

Accrual
The recognition of revenue when earned or expenses when incurred regardless of when cash is received or disbursed.

Accrual Basis of Accounting (also see Cash Basis)
An accounting method wherein revenue and expenses are recorded in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period. This is the accounting basis that generally is required to be used in order to conform to generally accepted accounting principles (GAAP) in preparing financial statements for external users.

Accrued Interest
Interest earned but not paid since the last due date.

Accumulated Amortization
The cumulative charges against the intangible assets of a company over the expected useful life of the assets.

Accumulated Depreciation
The cumulative charges against the fixed assets of a company for wear and tear or obsolescence.

ACMA
An acronym for Associate Chartered Management Accountant.

Acturial Method
Means the method of allocating payments made on a debt between the amount financed and the finance or other charges where the payment is applied first to the accumulated finance or other charges and any remainder is subtracted from, or any deficiency is added to the unpaid balance of the amount financed.

Additional Paid In Capital
The amount(s) paid for stock in excess of its par value; included are other amounts paid by stockholders and charged to equity accounts other than capital stock.

Adjusted Gross Income
The annual income after subtracting from income retirement contributions, alimony, and other deductions allowed by the IRS.
 

Adjusting Entries
Special accounting entries that must be made when you close the books at the end of an accounting period. Adjusting entries are necessary to update your accounts for items that are not recorded in your daily transactions.

Adverse Opinion
Expressed if the basis of accounting is unacceptable and distorts the financial reporting of the corporation. If auditors discover circumstances during the course of the audit that make them question whether they can issue an unqualified opinion, they should always discuss those circumstances with the client before issuing the opinion, in order to determine whether it is possible to rectify the problem.

Aged Trial Balance
Alphabetically lists accounts receivable with outstanding balances. It displays one balance for every account by age and is typically produced only once on demand to check receivable details against other reports.

Aggregate
The sum or total.

Aggregate Theory
Is a theory of partnership taxation in which a partnership is considered as an aggregate of individual co-owners who have bound themselves together with the intention of sharing gains and loses; under this theory, the partnership itself has no existence separate and apart from its members.

AICPA
The American Institute [of] Certified Public Accountants.

Allocate
To distribute according to a plan or set apart for a special purpose. Examples: a. spread a cost over two or more accounting periods; b. charge a cost or revenue to a number of departments, products, processes or activities on a rational basis.

Allocation is the act of distributing by allotting or apportioning; distribution according to a plan, e.g., allocating costs is the assignment of costs to departments or products over various time periods, products, operations, or investments. See Allocate.

Allonge
A piece of paper attached to a negotiable instrument to allow space for writing endorsements. Something that lengthens. A term from Old French, from alongier to make long, ultimately from Latin longus long. When there isn't enough room to write endorsements, a piece of paper attached to a check, draft, bill, or promissory note for writing endorsements. Under Uniform Commercial Code section 3-202(2), an allonge must be so firmly affixed to the instrument that it becomes part of it in order for the endorsement(s) to be valid.

Allowance for Bad Debts
An account established to record a subtraction from ACCOUNTS RECEIVABLE, to allow for those accounts that will not be paid.

Allowance Method
The accepted way to account for bad debt. 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.

Altered Check
A check upon which the signature, date, payee name, or amount has been changed or erased.

Alternate Payee Endorsement
Normally, it is when one payee endorses a draft over to another entity, then the new or alternate payee endorses the draft near the original payees endorsement (signature).

Alternate Valuation
The appraisal of a deceased person's gross estate at the fair market value six months after the person's death.

Alternative Minimum Tax (AMT)
A flat-rate tax that trusts, corporations, and individuals must pay, regardless of how much or how little regular income tax they owe. The AMT ensures that individuals and companies pay at least some tax.



 

Amalgamation
A consolidation or merger, as of several corporations. In business, the distinction being that the surviving entity incorporates the asset base of others into its base.

Amortization
1. is the gradual reduction of a debt by means of equal periodic payments sufficient to meet current interest and liquidate the debt at maturity. When the debt involves real property, often the periodic payments include a sum sufficient to pay taxes and hazard insurance on the property. 2. is the process of spreading the cost of an intangible asset over the expected useful life of the asset. For example: a company pays $100,000 for a patent, they amortize the cost over the 16 year useful life of the patent. 3. the deduction of capital expenses over a specific period of time. Similar to depreciation, it is a method of measuring the "consumption" of the value of long-term assets like equipment or buildings.
Also, the allocation of an intangible asset’s cost as expense over the life of the asset. Further, to pay off (as a loan) gradually by periodic payments of principal and interest or payments to a sinking fund.

Amortization Schedule
A schedule for making payments on a mortgage. The schedule shows the number of payments, when payments are due, how much of each payment goes toward the principal and how much goes toward paying interest. The schedule also shows the declining amount of money owed (or the principle balance) on the loan as payments are made.

Analysis Codes
In accounting, they represent software driven analysis methods which are independent of the normal grouping of account codes. An analysis code allows management to collect and monitor income and expenditure for a particular function or event that is not captured by the use of a project code or class, i.e. allows for much finer segmentation.

Annual Meeting
A meeting of shareholders that the law requires a corporation to hold each year for the election of directors and the transaction of other corporate business. In addition to the mandatory annual, a special meeting(s) of the shareholders can be called at other times during the year. In order for a vote to be taken at a meeting to be valid, shareholder must have received notice of the time, place, and date of the meeting within a certain period, and there must be enough shareholders present to make a quorum.

Annual Report
The requirement for all public companies to file an annual report with the Securities and Exchange Commission detailing the preceding year's financial results and plans for the upcoming year. Its regulatory version is called "Form 10 K." The report contains financial information concerning a company's assets, liabilities, earnings, profits, and other year-end statistics. The annual report is also the most widely-read shareholder communication. This shows the financial status of a corporation. Public corporations are required to issue annual reports to their shareholders. Smaller firms typically do not issue annual reports.

Annuity
In finance, is a series of fixed payments, usually over a fixed number of years; or for the lifetime of a person, in which case it would be called a life-contingent annuity or simply life annuity. It could also be described as an amount payable at regular intervals (as yearly or quarterly) for a certain or uncertain period.

Anomaly
Generally, is a deviation from the common rule. It is an irregularity that is difficult to explain using existing rules or theory. In securities, it is an unexplained or unexpected price or rate relationship that seems to offer an opportunity for an arbitrage-type profit, although not typically without risk. Examples include the tendency of small stocks to outperform large stocks, of stocks with low price-to-book value ratios to outperform stocks with high price-to-book value ratios, and of discount currency forward contracts to outperform premium currency forward contracts.

AP is an acronym for Accounts Payable.

Appraisal
An estimate of the current market value of an asset.

Appreciation  
The increase in the value of an asset in excess of its depreciable cost, which is due to economic, and other conditions, as distinguished from increases in value due to improvements or additions made to it.

AR is an acronym for Accounts Receivable.

Arbitrage
Is the movements of funds to take advantage of differences in exchange or interest rates; such movements quickly eliminate any such differences. Buying items in one market and selling them in another in order to profit on the difference between the two market prices.

Arm's-Length Transaction
A transaction that is conducted as though the parties were unrelated, thereby avoiding any semblance of conflict of interest. It is a transaction made between a buyer and seller who have no relationship to one another.

ARR
Is an acronym for Accounting Rate of Return.

Arrears
An unpaid overdue debt, or the state of being behind in payments, e.g. an account in arrears. Simply put, being behind in normal payments.

Articles of Association
The document under which an association is organized.

Articles of Incorporation
The primary legal document of a corporation; such serves as a corporation's constitution. The articles are filed with the state government to begin corporate existence. The articles contain basic information on the corporation as required by state law. This legal document  sets forth basic information  (as to the corporation's name, purpose, directors, and stock), as required by statute.

Articles of Partnership
The contract creating a partnership.

As-Is Condition
The transfer of title to a property in an existing condition without warranties or representations.
 

Ask Price
In the context of the over-the-counter market, the term "ask" refers to the lowest price at which a market maker will sell a specified number of shares of a stock at any given time. The term "bid" refers to the highest price a market maker will pay to purchase the stock. The ask price (also known as the "offer" price) will almost always be higher than the bid price. Market makers make money on the difference between the bid price and the ask price. That difference is called the "spread"".

Assessed Valuation
The estimated value of property used for tax purposes. Usually, property taxes are paid as a percentage of the assessed valuation of the property.

Assessment
a. A proportionate share of a shared expense; or, b. the amount of tax or other levied special payment due to a governmental municipality or association. ie; the amount charged, such as for property taxes.

Asset
Is anything owned by an individual or a business, which has commercial or exchange value. Assets may consist of specific property or claims against others, in contrast to obligations due others. An asset is any property that has value. Equipment, real estate, personal items, and even trademarks are examples of assets. (See also Liabilities).

Asset Availability  
The stated condition or availability of an asset for usability. The subject asset is not available if it is already in use, at capacity, undergoing maintenance, broken, etc.

Asset-Based Lending
A lending method used by financial institutions in which a company's accounts receivable and inventory are used as collateral for a loan, and as the basis for determining whether the company is worthy of receiving a loan.

Asset Dividend
A dividend that is paid as property instead of cash to a shareholder. For example, in lieu of cash, a corporation might pay dividends in the form of stock certificates to its shareholders.

Asset Earning
Is a common profitability measure used to determine the profitability of a business by taking its total earning before taxes and dividing that by total assets.

Asset Sale
The sale of certain named assets of a corporation, partnership or sole proprietorship. Usually the seller retains ownership of the cash and cash equivalents (such as Accounts Receivable) and the liabilities of the entity. The seller then will pay the liabilities with the cash, any down payment and the cash equivalents as they become cash. Assets named are typically trade name, trade fixtures, inventory, leasehold rights, telephone number rights and goodwill. Assets sold can be tangible or intangible.

Asset Turnover Ratio
Is a general measure of a firm's ability to generate sales in relation to total assets. It should be used only to compare firms within specific industry groups and in conjunction with other operating ratios to determine the effective employment of assets.

Asset Valuation
Is the process of determining the current worth of a portfolio, company, investment, or balance sheet item. The term is often used to describe the worth of an asset which may be incorporated into company accounts, where the ownership of the asset is not necessarily to be transferred but the valuation is required for the balance sheet, company takeovers, share flotation or mortgages.
 

Assigned Value
Is a value that serves as an agreed-upon reference for comparison; normally derived from or based upon experimental work of some national or international organization.

Assignee
A person to whom a right or property is transferred.

Assurance
Has been defined by the American Institute of Certified Public Accountants (AICPA) as "Independent Professional Services that improve information quality or its context". Such services are very broad and could include assessments of various industries, e.g., Internet security or quality of health facilities.

ATA (Accredited Tax Advisor)
In the US, is a national credential conferred by Accreditation Council for Accountancy and Taxation to professionals who handle sophisticated tax planning issues, including ownership of closely held businesses, qualified retirement plans and complicated estates.

At Risk
Is the exposure to the danger of economic loss; frequently used in the context of claiming tax deductions. For example, a person can claim a tax deduction in a limited partnership if the taxpayer can show it is at risk of never realizing a profit and of losing its initial investment.

Attorney-In-Fact
A person hired to act in the name of another person. Also called power of attorney.

Attrition
A reduction in numbers usually as a result of resignation, retirement, or death.

Audit
A formal inspection of the accounting records and procedures of an individual, a business, government unit, or other reporting entity by a trained accountant for the purpose of verifying the accuracy and completeness of the records. It could be conducted by a member of the organization (internal audit) or by an outsider (independent audit). A CPA audit determines the overall validity of financial statements. A tax audit (IRS in the U.S.) determines whether the appropriate tax was paid. An internal audit generally determines whether the company’s procedures are followed and whether embezzlement or other illegal activity occurred.

Audit Committee
In a larger or more sophisticated corporation, the board may find it useful to appoint an audit committee whose oversight extends not only to external audits, but also to internal audits, internal controls, and external reporting. Ideally, an audit committee is composed of three to five non-management directors and, as needed, outsiders with accounting and financial expertise. In a smaller corporation the audit committee may be a single director with financial expertise and audit experience who takes the lead in exercising the board's audit oversight responsibility.

Audit Evidence
Includes written and electronic information (such as checks, records of electronic fund transfers, invoices, contracts, and other information) that permits the auditor to reach conclusions through reasoning.

Audit Failure
Is an Instance where the auditor said that the financial statements were fairly stated when in fact, they were not.

Auditing Standards
Provide minimum guidance for the auditor that helps determine the extent of audit steps and procedures that should be applied to fulfill the audit objective. They are the criteria or yardsticks against which the quality of the audit results are evaluated.

Audit Opinion Letter
A signed representation by an auditor as to the reliability and fairness of a set of financial statements. It is usually presented at the beginning of an audit report.

Auditor
An accountant usually certified by a national professional association of accountants, if one exists in the corporation's country, or certified by another country's recognized national association of accountants. Corporations will often work with both internal auditors and external auditors.

Audit Report
A signed, written document which presents the purpose, scope, and results of the audit. Results of the audit may include findings, conclusions (opinions), and recommendations.

Audit Risk
A combination of the risk that material errors will occur in the accounting process and the risk the errors will not be discovered by audit tests. Audit risk includes uncertainties due to sampling (sampling risk) and to other factors (non-sampling risk).

Audit Trail
Is a step-by-step record by which financial, business, and quality assurance data can be traced to its source. For example: checking the validity of an accounting entry through the step-by-step record by which accounting data can be traced to their source.

Auditor's Opinion
The results of an audit of a company’s records and books.

Authorized Capital Stock
The maximum number of shares of common stock that can be issued under a company's Articles of Incorporation. Issued shares are normally less than the number of authorized shares.

Automated/Automatic Teller Machine (ATM) 
An unattended machine (outside some banks) that dispenses money or allows an individual to conduct unassisted business transactions with the ATM when a personal coded card is used.

Average Age Of Inventory
Calculated by the formula: 365 / inventory turnover.

Average Cost
The total cost for all units bought (or produced) divided by the number of units.

Average Cost Method  
Using a weighted average cost for items in inventory rather than actual cost for each specific item.

Axiom
Generally, it is a saying that is widely accepted on its own merits; in logic, it is a proposition that is not susceptible of proof or disproof; its truth is assumed to be self-evident.