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152 Cards in this Set

  • Front
  • Back
Accrual Basis
Method of accounting that recognizes revenue when earned, rather than when collected. Expenses are recognized when incurred rather than when paid.
Accumulated Depreciation
Total depreciation pertaining to an asset or group of assets from the time the assets were placed in services until the date of the financial statement or tax return. This total is the contra account to the related asset account.
Additional Paid In Capital
Amounts paid for stock in excess of its par value or stated value. Also, other amounts paid by stockholders and charged to equity accounts other than capital stock.
Adverse Opinion
Expression of an opinion in an auditor's report which states that financial statements do not fairly present the financial position, results of operations and cash flows in conformity with generally accepted accounting principles (GAAP).
Affiliated Company
Company, or other organization related through common ownership, common control of management or owners, or through some other control mechanism, such as a long-term lease.
American Institute of Certified Public Accountants (AICPA)
The American Institute of Certified Public Accountants is the national, professional organization for all Certified Public Accountants. Its mission is to provide members with the resources, information, and leadership that enable them to provide valuable services in the highest professional manner to benefit the public as well as employers and clients. In fulfilling its mission, the AICPA works with state CPA organizations and gives priority to those areas where public reliance on CPA skills is most significant.
Analytical Procedures
Substantive tests of financial information which examine relationships among data as a means of obtaining evidence. Such procedures include: (1) comparison of financial information with information of comparable prior periods; (2) comparison of financial information with anticipated results (e.g., forecasts); (3) study of relationships between elements of financial information that should conform to predictable patterns based on the entity's experience; (4) comparison of financial information with industry norms.
Annual Report
Report to the stockholders of the company which includes the company's annual, audited balance sheet and related statements of earnings, stockholders' or owners' equity and cash flows, as well as other financial and business information.
Annuity
Series of payments, usually payable at specified time intervals.
Audit Engagement
Agreement between a CPA firm and its client to perform an audit.
Auditor's Report
Written communication issued by an independent certified public accountant (CPA) describing the character of his or her work in the degree of responsibility taken. An auditor's report includes a statement that the audit was conducted in accordance with generally accepted auditing standards (GAAS), which require that the auditor plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, as well as a statement of the auditor believes the audit provides a reasonable basis for his or her opinion.
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 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.
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 a bearer instruments.
Budget
Financial plan that serves as an estimate of future cost, revenues or both.
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 a corporation.
Capitalized Cost
Expenditure identified with goods or services acquired and measured by the amount of cash paid for the market value of other property, capital stock, for 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.
Cash Basis
Method of bookkeeping by which revenues and expenditures are reported when they are received and paid.
Cash Flows
Net of cash receipts and cash disbursements relating to a particular activity during a specified accounting period.
Casualty Loss
Sudden property loss caused by theft, accident or natural causes.
Certified Financial Planner (CFP)
Individual who is trained to develop and implement financial plans for individuals, businesses, and organizations, utilizing knowledge of income and estate tax, investments, risk-management analysis and retirement planning. CFPs are certified after completing a series of requirements that include education, experience, ethics and an exam. CFPs are not regulated by a governmental authority.
Certified Fraud Examiner (CFE)
A specialist who is educated and trained in the detection and deterrence of a wide variety of white-collar crimes such as identity theft, fraud and embezzlement. CFEs gather evidence, take statements, write reports and assist in investigating fraud in its varied forms. CFEs are employed by most major corporations and government agencies, and others provide consulting and investigative services.
Certified Internal Auditor (CIA)
An international certification awarded by the Institute of Internal Auditors that reflects confidence in the principles and practices of internal auditing.
Combined Financial Statement
Financial statement comprising the accounts of two or more entities.
Common Stock
Capital stock having no preferences generally in terms of dividends, voting rights or distributions.
Comparative Financial Statement
Financial statement presentation in which the current amounts and the corresponding amounts for previous periods or dates also are shown.
Compensatory Balance
Funds that a borrower must keep on deposit as required by a bank.
Compilation
Presentation of financial statement data without the countenance assurance as to conformity with generally accepted accounting principles.
Conservatism
An investment strategy aimed at long-term capital appreciation with low risk. A concept which directs the least favorable effect on net income.
Consistency
Accounting postulate which stipulates that, except as otherwise noted in the financial statement, the same accounting policies and procedures have been followed from period to period by an organization in the preparation and presentation of its financial statements.
Consolidated Financial Statements
Combined financial statements of a parent company and one or more of its subsidiaries as one economic unit.
Consolidation
Business combination of two or more entities that occurs when the entities transfer all of their net assets to a new entity created for that purpose.
Contra Account
Account considered to be an offset to another account. Generally established to reduce the other account to amounts that can be realized or collected.
Control Risk
Measure of risk that errors exceeding a tolerable amount will not be prevented or detected by an entity's internal controls.
Corporation
Form of doing business pursuant to a charter granted by a state or federal government. Corporations typically are characterized by the issuance of freely transferable capital stock, perpetual life, centralized management, and limitation of owners' liability to the amount they invest in the business.
Cost Accounting
Procedures used for rationally classifying, recording, and allocating current or predicted costs that relate to a certain product or production process.
Credit Agreement
Agreement in which one party borrows or takes possession in the present by promising to pay in the future.
Credit Balance
Creditor
Party that loans money or other assets to another party.
Current Asset
Asset that one can reasonably expect to convert into cash, sell, or consume in operations within a single operating cycle, or within a year if more than one cycle is completed each year.
Current Liability
Obligation is liquidation is expected to require the use of existing resources classified as current assets, or the creation of other current liabilities.
Current Value
(1) Value of an asset at the present time as compared with the asset's historical cost. (2) In finance, the amount determined by discounting the future revenue stream of an asset using compound interest principles.
Debit
Entry on the left side of the double-entry bookkeeping system that represents the addition of an asset or expense or the reduction to a liability or revenue.
Debit Balance
Balance remaining after one or a series of bookkeeping entries. This amount represents an asset or an expense of the entity.
Default
Failure to meet any financial obligation. Default triggers a creditor's rights and remedies identified in the agreement and under the law.
Deferred Income
Income received but not earned until all events have occurred. Deferred income is reflected as a liability.
Deficit
Financial shortage that occurs when liabilities exceed assets.
Depletion
Method of computing a deduction to account for a reduction in value of extractable natural resources.
Depreciation
Expense allowance made for wear and tear on an asset over its estimated useful life.
Derivatives
Financial instruments whose value varies with the value of an underlying asset (such as a stock, bond, commodity or currency) or index such as interest rates.
Disbursement
Payment by cash or check.
Disclosure
Process of divulging accounting information so that the content of financial statements is understood.
Discount
Reduction from the full amount of a price or debt.
Distributions
Payment by a business entity to its owners of items such as cash assets, stocks, or earnings.
Double-Entry Bookkeeping
Method of recording financial transactions in which each transaction is entered in two or more accounts and involves two-way, self-balancing posting. Total debits must equal total credits.
Due Diligence
(1) Procedures performed by underwriters in connection with the issuance of the securities exchange commission registration statement. These procedures involve questions concerning the company and its business, products, competitive position, recent financial and other developments, and prospects. Also performed by others in connection with acquisitions and other transactions. (2) Requirement found in ethical codes that the person governed by the ethical rules exercise professional care in conducting his or her activities.
Earned Income
Wages, salaries, professional fees, and other amounts received as compensation for services rendered.
Equity
Residual interest in the assets of an entity that remains after deducting its liabilities. Also, the amount of a business' total assets less total liabilities. Also, the third section of a balance sheet, the other two being assets and liabilities.
Escrow
Money or property put into the custody of a third party for delivery to a grantee, only after fulfillment of specified conditions.
Estate Tax
Tax on the value of a decedent' s taxable estate, typically defined as the decedent's assets less liabilities and certain expenses which may include funeral and administrative expenses.
Ethics
The process of determining how one should hold the interests of various stakeholders, taking into account moral values/principles.
Exclusions
Income item which is excluded from a taxpayer's gross income by the Internal Revenue Code or an administrative action. Common exclusions include gifts, inheritances, and death proceeds paid under a life insurance contract. Also known as excluded income.
Exemption
Amount of a taxpayer's income that is not subject to tax. All individuals, trusts, and estates qualify for an exemption unless they are claimed as a dependent on another individual's tax return. Exemptions are also granted to taxpayers for their dependents.
Expenditure
Payments, either in cash, by assuming a liability, or by surrendering asset.
External Reporting
Reporting to stockholders and the public, as opposed to in internal reporting for management's benefit.
Financial Accounting Standards Board (FASB)
Independent, private, non-government group which is authorized by the accounting profession to establish generally accepted accounting principles in the US.
Fair Market Value
Price at which property would change hands between a buyer and seller without any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts.
Fiduciary
Person who is responsible for the administration of property owned by others. Corporate management is a fiduciary with respect to corporate assets which are beneficially owned by the stockholders and creditors. Similarly, a trustee is the fiduciary of a trust and partners owe fiduciary responsibility to each other and to their creditors.
Financial Statements
Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity's financial position at a point in time and its results of operations for a period then ended.
Fiscal Year
Period of 12 consecutive months chosen by an entity as its accounting period which may or may not be a calendar year.
Fixed Asset
Any tangible asset with a life of more than one year used in an entity's operations.
Forecast
Prospective financial statements that are entities expected financial position, results of operations, and cash flows.
Foreclosure
Seizure of collateral by a creditor when default under a loan agreement occurs.
Forensic Accounting
Provides for an accounting analysis that is suitable to a court of law which will form the basis for discussion, debate, and ultimately dispute resolution. Forensic accounting encompasses investigative accounting and litigation support. Forensic accountants utilize accounting, auditing, and investigative skills when conducting an investigation. Equally critical is the ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting.
Franchise
Legal arrangement whereby the owner of a trade name, the franchisor, contracts with a party that wants to use the name on a non-exclusive basis to sell goods or services, the franchisee. Frequently, the franchise agreement grants strict supervisory powers to the franchisor over the franchisee which, nevertheless, is an independent business.
Fraud
The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of employing an organization's resources or assets. This can include the fraudulent conversion and obtaining of money or property by false pretenses.
Fund Accounting
Method of accounting in presentation whereby assets and liabilities are grouped according to the purpose for which they are to be used. Generally used by government entities and not-for-profits.
General Ledger
Collection of all asset, liability, owners equity, revenue, and expense accounts.
Goodwill
Premium paid in the acquisition of an entity over the fair value of its identifiable tangible and intangible assets less liabilities assumed.
Guaranty
Legal arrangement involving a promise by one person to perform the obligations of a second person to a third person, in the event the second person fails to perform.
Income
Inflow of revenue during a period of time
Income Statement
Summary of the effect of revenues and expenses over a period of time.
Income Tax Basis
(1) For tax purposes, the concept of basis determines the proper amount of gain to report when an asset is sold. Basis is generally the cost paid for an asset plus the amounts paid to improve the asset less deductions taken against the asset, such as depreciation and amortization. (2) For accounting purposes, a consistent basis of accounting that uses income tax accounting rules while generally accepted accounting principles (GAAP) does not.
Insolvent
When an entity's liabilities exceed its assets.
Installment
One of the portions, usually equal, into which a debt is divided for payment at specified intervals over a fixed period.
Interest
Payment for the use or for parents of money.
Internal Control
Process designed to provide reasonable assurance regarding achievement of various management objectives such as the reliability of financial reports.
Internal Revenue Service (IRS)
Federal agency that administers the Internal Revenue Code. The IRS is part of the United States Treasury Department.
Inventory
Tangible property held for sale, or materials used in a production process to make a product.
Investment
Expenditure used to purchase goods or services that could produce a return to the investor.
Joint Venture
When two or more persons or organizations gather capital to provide a product or service. Often carried out as a partnership.
Junk Bonds
Debt securities issued by companies with higher than normal credit risk. Considered "non-investment grade" bonds, these securities ordinarily yield a higher rate of interest to compensate for the additional risk.
Letter of Credit
Conditional bank commitment issued on behalf of the customer to pay a third party in accordance with certain terms and conditions. The two primary types are commercial letters of credit and standby letters of credit.
Liability
Debts or obligations owed by one entity (debtor) to another entity (creditor) payable and money, goods, or services.
Limited Liability Company (LLC)
Form of doing business combining limited liability for all owners (called members) with taxation as a partnership. An LLC is formed by filing articles of organization with an appropriate state official. Rules governing LLCs vary significantly from state to state.
Limited Liability Partnership (LLP)
General partnership which, via registration with an appropriate state authority, is able to enshroud all its partners in limited liability. Rules governing LLPs vary significantly from state to state.
Liquidation
Winding up an activity by distributing its assets to the appropriate parties and settling its debts.
Litigation Support/Dispute Resolution
A service that CPAs often provide to attorneys -- e.g., expert testimony about the value of a business or other asset, forensic accounting (a partner stealing from his other partners, or a spouse understating his income in a matrimonial action). The lawyer hires the CPA to do the investigation and determine the amount of money stolen or understated.
Loss
Excess of expenditures over revenue for a period or activity. Also, for tax purposes, an excess of basis over the amount realized in a transaction.
Management Accounting
Reporting designed to assist management in decision-making, planning, and control. Also known as Managerial Accounting.
Matching Principle
A fundamental concept of basic accounting. In any one given accounting period, you should try to match the revenue you are reporting with the expenses it took to generate that revenue in the same time period, or over the period in which you will be receiving benefits from that expenditure. A simple example is depreciation expense. If you buy a building that will last for many years, you don't write off the cost of that building all at once. Instead, you take depreciation deductions over the building's estimated useful life. Thus, you've "matched" the expense, or cost, of the building with the benefits it produces, over the course of the years it will be in service.
Merger
Business combination that occurs when one entity directly acquires the assets and liabilities of one or more entities and no new corporation or entity is created.
Mortgage
Legal instrument evidencing a security interest in assets, usually real estate. Mortgages serve as collateral for promissory notes.
Negligence
The failure to use such care as a reasonably prudent and careful person would use under similar circumstances; it is the doing of some act which a person of ordinary prudence would not have done under similar circumstances for failure to do what a person of ordinary prudence would have done under similar circumstances. The term refers only to that legal delinquency which results whenever one fails to exhibit care which one ought to exhibit, whether it be slight, ordinary, or great.
Net Assets
Excess of the value of securities owned, cash, receivables, and other assets over the liabilities of the company.
Net Income
Excess or deficit of total revenues and gains compared with total expenses and losses for an accounting period.
Net Sales
Sales at gross invoice amounts less any adjustments for returns, allowances, or discounts taken.
Net Worth
Similar to equity, the excess of assets over liabilities.
Non-profit organization/tax-exempt organization
An incorporated organization which exists for educational or charitable purposes, and from which its shareholders or trustees do not benefit financially. Also called not-for-profit organization.
Operating Cycle
Period of time between the acquisition of goods and services involved in the manufacturing process and the final cash realization resulting from sales and subsequent collections.
Option
Right to buy or sell something at a specified price during a specified time period.
Partnership
Relationship between two or more persons based on a written, oral, or implied agreement whereby they agree to carry on a trade or business for profit and share the resulting profits. Unlike a corporation's shareholders, the partnership's general partners are liable for the debts of the partnership.
Perpetual Inventory
System that requires a continuous record of all receipts and withdrawals of each item of inventory.
Premium
(1) Excess amount paid for a bond over its face amount. (2) In insurance, the cost of specified coverage for a designated amount of time.
Present Value
Current value of a given future cash flow stream, discounted at a given rate.
Pro Forma
Presentation of financial information that gives effect to an assumed event (e.g., merger).
Projection
Prospective financial statements that include one or more hypothetical assumptions.
Promissory Note
Evidence of a debt with specific amount due and interest rate. The note may specify a maturity date or it may be payable on demand. The promissory note may or may not accompany other instruments such as a mortgage providing security for the payment thereof.
Pro Rata
Distribution of an expense, fund, or dividend proportionate with ownership.
Prospective Financial Information (Forecast and Projection)
Forecast: Prospective financial statements that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations, and changes in financial position. A financial forecast is based on the responsible party's assumptions reflecting conditions it expects to exist and the course of action it expects to take. Projection: Prospective financial statements that present, to the best of the responsible party's knowledge and belief, given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and changes in financial position.
Prospectus
Major part of the registration statement filed with the Securities and Exchange Commission (SEC) for public offerings. A prospectus generally describe securities or partnership interests to be issued and sold.
Proxy
Document authorizing someone other than the shareholder to exercise the right to vote the stock owned by the shareholder.
Public Company Accounting Oversight Board (PCAOB)
Five-member board created by Sarbanes-Oxley Act which has the authority to set and enforce auditing, attestation, quality control, and ethics (including independence) standards for public companies. It is also empowered to inspect the auditing operations of public accounting firms that audit public companies as well as impose disciplinary and remedial sanctions for violations of the board's rules, securities laws, and professional auditing standards.
Refinancing Agreement
Arrangement to provide funding to replace existing financing, the most common being a refinance of a home mortgage.
Research and Development (R&D)
Research is a planned activity aimed at discovery of new knowledge with the hope of developing new or improved products and services. Development is the translation of research findings into a plan or design of new or improved products and services.
Return on Investment (ROI)
Ratio measure of the profits achieved by a firm through its basic operations. An indicator of management's general effectiveness and efficiency. The simplest version is the ratio of net income to total assets.
Revenues
Sales of products, merchandise, and services; and earnings from interest, dividends, rents.
Risk Management
Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity's operating philosophy.
Sarbanes-Oxley Act
An act designed to improve quality and transparency in financial reporting and independent audit and accounting services for public companies, to create a Public Company Accounting Oversight Board, to enhance the standard-setting process for accounting practices, to strengthen the independence of firms that audit public companies, to increase corporate responsibility and the usefulness of corporate financial disclosure, to protect the objectivity and independence of securities analysts, to improve Securities and Exchange Commission resources and oversight and for other purposes.
Safe Harbor Rule
Concept in statutes and regulations whereby a person who meets listed requirements will be preserved from adverse legal action. Frequently, safe harbors are used were a legal requirement is somewhat ambiguous and carries a risk of punishment for an unintended violation.
SEC Filings
Financial and informational disclosures required by the SEC in order to comply with certain sections of the Securities Act of 1933 and the Securities and Exchange Act of 1934. Some of the more common filings that publicly owned companies must submit are the form 10-K, form 10-Q and form 8-K
Security
Any kind of transferable certificate of ownership including equity securities and debt securities.
Short Sale
Sale of an item before it is purchased. A person entering into a short sale believes the price of the item will decline between the date of the short sale and the date he or she must purchase the item to deliver the item under the terms of the short sale.
Special Report
Special report is a term applied to auditors' reports issued in connection with various types of financial presentations, including financial statements that are prepared in conformity with a comprehensive basis of accounting other than generally accepted accounting principles; specified elements, accounts or items of a financial statement. Compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements. Financial presentations to comply with contractual agreements or regulatory provisions. Financial information presented in prescribed forms or schedules that require a prescribed form of auditors' reports.
Spread
Difference between two prices, usually a buying and selling price.
Start-up Costs
(1) Costs, excluding acquisition costs, interned to bring a new unit into production. (2) Costs incurred to begin a business.
Statement of Cash Flows
A statement of cash flows is one of the basic financial statements that is required as part of a complete set of financial statements prepared in conformity with generally accepted accounting principles. It categorizes net cash provided or used during a period as operating, investing and financing activities, and reconciles beginning and ending cash and cash equivalents.
Stock Option
Right to purchase or sell a specified number of shares of stock at specified prices and times.
Tangible Asset
Assets having a physical existence, such as cash, land, buildings, machinery, or claims on property, investments, or goods in process.
Tax
Charge levied by a governmental unit on income, consumption, wealth, or other basis.
Trust
Ancient legal practice where one person (the grantor) transfers the legal title to an asset, called the principle or corpus, to another person (the trustee), with specific instructions about how the corpus is to be managed and disposed.
Variance
Deviation or difference between an estimated value and the actual value.
Venture Capital
Investment company whose primary objective is capital growth. New assets invested largely in companies that are developing new ideas, products, or processes.
Withholding
Amount withheld or deducted from employee salaries by the employer and paid by the employer, for the employee, to the proper authority.
Working Capital
Excess of current assets over current liabilities.
Yellow Book
Written by the general accounting office, the yellow book sets forth standards to be followed in auditing the financial statements of entities that receive federal financial assistance. "Yellow Book" is the name given to "Government Auditing Standards" issued by the Comptroller General of the United States which contains standards for audits of government organizations, programs, activities and functions, and of government assistance received by contractors, non-profit organizations, and other non-government organizations.
Yield
Return on an investment an investor receives from dividends or interest expressed as a percentage of the cost of the security.