The cost of giving up entirely the ownership or use of an asset. These costs can be extremely high in some industries and give rise to problems as to which periods the costs should be charged to.
A reduction in or a cancellation of, for example, a tax payment.
Financial statements filed with the Registrar of Companies in which advantage has been taken of the exemptions available to small and medium companies.
A measure of taxable capacity. Ability to pay based on attributes of taxpayers such as income (the most common in account earnings.
An index of non-systematic changes in share prices used to study the effects of unexpected changes in accounting earnings.
Shrinkage which should not arise under efficient operations.
The value of a number ignoring its plus or minus sign.
A method of costing which both variable and fixed overhead is treated as product coast the extent that goods manufactured during the period remain unsold, carried forward as part of the cost of stocks (inventories). Depreciation charged at a faster rate than is justified by elapse of economics usefulness, especially in order to gain advantages for taxation as accelerated cost recovery system.
In international trade, a credit opened by a bank against which an exporter can draw a bill of exchange
In an audit context, a sampling plan designed to control the levels of both alpha and beta risk. The auditor must specify a minimum unacceptable error rate together with a predetermined level of beta risk, and maximum unacceptable rejection rate together with a predetermined level of alpha risk.
A capital tax based liability on the total of the gifts made to the done, rather than, as in the case of capital transfer tax, on the wealth of he donor. Such a tax is more in accordance with the principle of horizontal equity.
The time taken to obtain information form or give information to a computer memory.
A bill of exchange signed by a person who acts as guarantor and who is liable to pay the bill if the acceptor fails to do as at maturity.
A record in ledger of the transactions that have taken place with a particular person or thing. Accounts may be classified in a number of ways. For example - Personal accounts are those that relate to persons such as debtors and creditors; Real accounts are those that deal With non monetary assets; and Nominal accounts are those that deal with revenues and expenses.
The obligation of stewards or agents to provide relevant and reliable information relating to resources over which they have control and which have effects on others (principals). Stewards and agents include such diverse persons as company directors, civil servant; include owners (notably shareholders) but also persona as company directors, civil servants, university councils and trustees in bankruptcy. Principals include owners (notably shareholders) but also persons without an ownership stake such as creditors, employees, consumers and taxpayers. The scope of accountability can thus be said to extend to all parties affected by the behavior of those in control of the resources of organization. The relevant information may therefore be non-financial as well as financial. Accountability places two obligations upon stewards or agents: they must provide information of their dealings with the resources under their control and they must submit to an audit by or on behalf of the person or body to which they are accountable. Accountability procedures becomes more difficult if, as is now typical, the steward is larger and more powerful than the person to whom he accounts; there is doubt as to exactly what is being accounted for and the manner in which the account should be rendered; and the consequences of the steward s decisions and actions are delayed and cannot be understood immediately. For these reasons the process of accountability is often subject to regulation by law.
Often used merely as a synonym for accounting, but some writers distinguish between accounting and the profession of accountancy.
A statement in debit and credit form setting out in chronological order the transactions that have taken place between two persons or organization. Interest is sometimes calculated at agreed rates on the balances outstanding form time to time.
Buying and selling securities within the same stock exchange account.
Arrangement of a financial statement as a two-sided account.
In broad terms, the preparation and communication to users of financial and economic information. The information ideally possesses certain qualitative characteristics. Accounting involves the measurement, usually in monetary terms, of transactions and other events pertaining to accounting entitles. Accounting information is used for stewardship, control and decision-making. Accounting and accountancy are often as synonyms but it is more usual to refer to the accountancy profession rather than the accounting profession. The distinction between bookkeeping and accounting is to some extent arbitrary but the latter involves analysis and interpretation as well as recording.
The unit for which accounts are prepared. In defining the boundaries of an accounting entity it is necessary to ask for whom the information about the entity is intended and for what purpose the information to be provided.
The study of the evolution of accounting thought, practices and institutions in response to changes in the evolution on the environment and the needs of society, and of the effect of this evolution on the environment.
(Accounting equation). The relationship which holds among assets, liabilities and capital i.e. assets equals liabilities plus capital or assets minus liabilities equals capital. The former expresses an entity view of a business s operations; the latter expresses a proprietary view.
A system which provides quantitative information about the effect of transactions and other event on an accounting entity.
Journals aimed at professionals or academic accountants or both.
A machine designed for the operation of a particular accounting function such as, for example, sales ledger accounting. Accounting machines form a link between manual accounting systems and computerized accounting systems.
A detailed description of an organization s accounting policies and procedures.
The person in a government department or agency who is responsible for the accounts.
The period between two successive balance sheets and that for a profits and loss accounts (income statements) and cash flow statements are prepared. For managers it may be any period of convenient length (e.g. a month) but for a shareholders and tax authorities it us usually a year.
Company law the principles according to which the amounts of all items in a company s accounts are to be determined. The principles may be summarized as: going concern, consistency, prudence, accruals the separate determination of individual items in determining aggregate amounts, and no setoffs.
Profit as measured by generally accepted principles of accounting as contrasted with taxable income.
A method of capital invest mental appraisal which measures the average net profit of a project as a percentage of the average book value. The projects as a percentage of the average book value. The project with the highest such return is assumed to be the best. This method uses some data (e.g. depreciation) which are not cash flows and ignores the time value of money but it remains a popular method of investment appraisal in practice. It can be shown that over the lifetime of project, the accounting rate of return is a weighted average of the internal rate of return (IRR), i.e. over long periods average ARR may be a good approximation to IRR.
A set of records and procedures designed so as to handle in routine fashion the transactions (especially those concerning cash, sales and purchases) and other events affecting an enterprise s operations, performance and financial position.
An accountant who is not a member of one of the six major professional Accountancy Bodies. Not all accounting technicians are members of the Association of Accounting Technicians.
Words used on a crossed cheque to indicate that it may be paid into the bank account of the payee only.
In general, all the Accounting Records of enterprises. The term is also used to mean the Financial Statements prepared form those records.
A document showing the gross and net proceeds of a consignment of goods sold by one person for the account and risk of another, and giving details of the expenses and charges in connection with the sale.
Amounts owing by an enterprise, distinguished form accrued expenses and other current liabilities not arising out of the trading transactions.
Amounts owing to an enterprise, distinguished form prepaid expenses and other current assets not of trading transactions.
The increase in the value of an asset through physical change (e.g. a growing crop) rather than by changes in market prices.
An accounting system which, unlike cash flow accounting, recognizes revenues and expenses as they are earned or incurred, not as cash is received or paid. So far as possible, expenses are matched against the revenues for the generation of which they have been incurred.
Benefits due under a pension scheme or life policy.
In the context of pensions, a method in which the actuarial value of liabilities relates at a given date to (a) the benefits, including future increases promised by the rules, for current and deferred pensioners and their dependents; and (b) the benefits which the members assumed to be service on the given date will receive for service up to that date only.
Expenses (e.g. wages) which have been incurred but not yet paid at balance sheet date. In accordance with the accruals convention the charge to profit and loss accounts is increased accordingly and current liability established.
Revenue (e.g. interest) which has been earned but not yet received at balance sheet date. In accordance with the accruals conventions and subject to considerations of prudence, profits are increased accordingly and current assets established.
The cumulative amount sheet date. A credit balance, it represents a valuation adjustment which is deducted form the historical cost (or revalued amounts) of a fixed assets in the balance sheet. It is also referred to as provision for depreciation.
The members interest of a non-profit-making organizations such as a club.
Units in unit trust on which interest is rolled up or reinvested so as to increase unit value.
A device which converts electrical pulses to found Waves for transmission along telephone lines, thus enabling a computer to communicate with a remote terminal.
The surplus of an enterprise existing at the date at which another enterprise acquires control; the initial surplus (retained earnings) of a successor enterprise where there has been a pooling of interests and no full capitalization of prior retained earnings; the excess over the cost of acquisition of dividends received by a parent company form subsidiary s reacquisition earnings.
A business combination in which one enterprise takes over another.
Preferred stock the dividends on which are linked to current interest rates. Such stock is very similar to debt but will be recorded as minority interest in a consolidated balance sheet.
Entries made at balance sheet date in an Accrual Accounting System in order to take account of such items as depreciation, closing stock, prepaid expenses, accrued expenses, provisions for doubtful debts and accrued interest receivable.
An order of court, made in relation to a company that is insolvent or likely to become insolvent, and with the purpose of preserving the company s business.
A person appointed by the court to manage a company that is subject to an administration order. Also, a person appointed to administer the estate of a person who dies without making a will.
A sum paid by way loan or as a payment on account. In partnership accounts it represents an amount paid into the partnership over and above a partner s agreed capital contribution.
The tax payable in advance when a company pays a dividends. The amount payable is tied to the basic rate of income tax. It deductible from the total corporation tax liability, the balance being known as Mainstream Cooperation Tax (MCT). Act helps to maintain the government s cash and also ensures that tax credit passed on to shareholders is always paid for even if for example a company has no taxable income. This is so because ACT is not recoverable if the total corporation tax liability is insufficiently and back for a number of years. In a company s balance sheet, ACT payable is a creditor due within one year, but ACT recoverable is a deferred rather than a current asset because it is insufficiently large. Unrelieved ACT may, however, be carried forward inefficiently and back for a number of years. In a company s balance sheet, ACT payable is creditor due within one year, but ACT recoverable is a deferred rather than a current asset because it is not recoverable unit the following accounting period. It is usually deducted form deferred taxation account where one exists. Where ACT is irrecoverable it is written off to profit and loss account.
A product’s superior feature(s) that can be referred to in designing a commercial or advertisement.
A credit card whose use provides funds for a charitable or other organization.
Stock exchange dealings conducted after the official close of business.
An illusory visual image remaining with a spectator after the actual image is no longer visible.
A periodic listing of debtors accounts (accounts receivable) analyzed by the debt. Age analysis is an essential part of credit management and control.
Costs that arise out of agency relationship is a contract under one or more persons (the principals) engage another person (the agent) to perform some service on their behalf that involves delegating some decision making authority to the agent, Agency costs arise because the agent may not always act in the best interests of the principal is likely to incur monitoring costs in order to limit the aberrant activities of the agent. Monitoring involves not only measuring or observing the behavior of the agent but also efforts on the part of the principal to control the behavior of the agent. The agent away incur bonding costs in his efforts to guarantee that he will not take certain actions that would harm the principal or that if this happened the principal would be compensated. Apart form monitoring and costs, further costs may arise form the fact that the agent may take decisions different form those which maximize the welfare of the principal. These are termed the residual loss. Agency costs are thus the sum of monitoring costs, bonding costs and residual loss. The concepts of agency theory have been employed in business finance, management accounting, financial accounting and auditing. Using the last two of these as an illustration, it has been argued, for example, that the desire to minimize agency costs explains why, even in an unregulated economy, financial statements may be provided voluntarily by managers to creditors and shareholders and independent auditors engaged to testify to the truth and fairness of such statements. Creditors will prefer a covenant by the shareholders restricting the payment of dividends (since otherwise the managers and shareholders might steal the assets); shareholders may wish to tie management wealth to shareholder wealthy, for example, managerial bonuses based on profits. Originally such audits were typically performed by shareholders but professional auditors were later regarded as both more components and more independent.
The adding together of separate gifts made during a donor s lifetime.
A takeover bid supported by a majority of the shareholders of the company being bid for.
A rule or set of rules for solving a mathematical problem systematically in a finite number of steps.
The inclusion in the profit and loss account (income statement) of all items of profits or loss including extraordinary items and prior year adjustment.
The problem of low to allocated cost of services purchase, when only part of the services are used up in one accounting period.
A slip do paper attached to a bill of exchange for the purpose of receiving endorsements.
A deduction forms an invoice granted for a reason other than prompt payment; the amount that an employee is entitled to spend on, for example, travel or entertainment.
In Portfolio Theory, a coefficient that measures how well a managed portfolio has performed compared with risk free portfolio after making allowance for the beta of the managed portfolio.
In an audit sampling context, the risks that an auditor will reject a population when he should have accepted it (alpha risk) and that an auditor will reject a population when he should have rejected it (beta risk).
A person nominated by director of a company to act in his or her place during absence.
Budgets drawn up on different assumptions about future costs and revenues.
Agency working on a fee basis
The absorption by one company of the business and net assets of another company, the latter company being dissolved or both companies being dissolved and new company formed to take over both businesses.
The redemption of a loan by means of systems into a sinking fund; also used as a synonym for deprecation, especially, where the asset being depreciated, e.g. a lease, has a fixed life or is an intangible asset.
The cost of an asset less any amortization written off.
In statistics, the analysis of the total variation in dependent variable into the proportions accounted for by the explanatory variables and the unexplained or residual variation.
The process of examining and comparing figures, financial and non-financial, with internal and external data, in order to help an auditor to form judgments. It forms part of an auditor s substantive tests. Analytical review involves the use of comparison (with e.g., external economic conditions, other companies, other parts of a business, budgets, past data), rations, graphs and statistical techniques such as regression analysis and time series analysis.
Accounting and financial reporting as practiced in English-speaking courtiers. Accounting in these courtiers is based mainly on a common philosophy of presenting a fair view to investors but there are many differences of detail.
The annual financial statements of an organization presented in ties annual reports.
A variant of the Net Present Value (NPV) method of Capital Investment Appraisal. The NPV is converted into an annual equivalent cost method is particularly appropriate for choosing between projects with differing lengths of life where continual replacement can be assumed.
The annual general meeting of an organization and in particular, a meeting of the members (i.e. the shareholders) of a company held at intervals of not more than 15 months. The first AGM must be held within 18 months of information of the company. Most AGMs are formal and brief. The usual business transacted includes reception and consideration of the directors, report and accounts and the auditors report, declaration of a dividend, election of directors and the appointment of and fixing the remuneration of the auditors. Apart from annual general meetings the law makes provision for extraordinary general meetings and separate meetings of classes of shareholders.
Any report prepared at yearly intervals and in particular the report required by law or other regulation to be made annually by the directors of a company to its shareholders.
A document which has to be completed by a company within 42 days of the annual general meeting and forwarded forthwith to the registrar of companies. Its main elements are: (i) address or registered office; (ii) address where registers of members and debenture-holders are kept; (iii) summary of share capital and debentures, giving number of issued shares of each class, the consideration for them, details of shares not fully paid-up addresses of past and present shareholders giving number of shares held and particulars of transfers; (vi) names, addresses and occupations of directors and secretaries (and nationality of directors).
A series of equal periodic payments occurring at equal intervals of time. An ordinary or immediate annuity is one in which the payments are made at the each period; and annuity due is one in which the payments are made at the beginning of each period.
A bond without a maturity date on which interest is paid perpetually.
An annuity where payable for a fixed period of time.
An annuity where payment is made at the beginning of each period. Contrast Ordinary Annuity.
Accounting standards issued by such body or bodies as may be prescribed under the Companies Act. The body presently so prescribed is the Accounting Standards Board. Companies must state whether their accounts have been prepared in accordance with such standards and give particulars of any material departure therefore and the reasons therefore.
An offer by an investor to subscribe for a specified number of shares in company.
A ledger account used to record the application and allotment of shares.
An application by a company for a listing of its security on a stock exchange.
The form attached to a prospectus which must be completed when making an application for and allotment of shares in a new issue.
The amount per share or unit of stock payable on application for new issue of shares or debentures.
A transaction that reduces the funds (cash, working capital) available to an organization, e.g. purchasing a fixed asset or repaying a loan.
The valuation of an asset or a liability by an expert in such valuations.
An increase in the market value of fixed asset; a rise in the value of one currency in terms o another.
In public sector accounting, a specified amount authorized to be spent for a particular purpose.
1. An account prepared at the end of the financial year of the spending by central government departments of monies voted by parliament. It compares the Supply Estimate and any Supplementary Estimates with actual payments made and receipts brought to account, and explains any substantial differences. An Appropriation Account is prepared for each individual Supply Estimate.
The use of profits for a specific purpose, e.g. provision for a dividend, transfer to reserve.
A transaction in which goods are supplied to customers who has the option of retaining or returning them. Only if the goods are retained has a sale taken place.
The development and denationalization of systems of accounting valuation and measurement means of deductive reasoning. A priori theories precede form cause to effect making use of assumed axioms rather than of experience. The production of a priori theories of accounting reached a peak in the 1960s.
Simultaneous purchases of a security, currency, or other asset in markets in which there are differences in price. In aiming to profit form the price difference, the arbitrageur helps to eliminate it.
A theory which challenges the Capital Asset Pricing Model (CAPM) by using more than one factor to explain movements in security prices.
Acronym for the autoregressive integrated moving average time series process.
A measure of the central tendency of a group of numerical data, obtained by dividing the sum of the quantities by the number of items.
A sequence of numbers in which each number increases or decreases by a constant amount.
Money unpaid or a liability not discharged by a due date. Dividends in arrears re disclosed in the notes to financial statements.
The internal regulations of a company, usually conversing such matters as rights of various classes of shares; calls on shares; transfer, transmission and forfeiture of shares; alternation of share capital; general meetings (notice, proceedings ); votes and proxies; directors; dividends and reserves; accounts; capitalization of profits; audit; winding up; and similar matters.
Accounts in which the it profit and loss account (income statement) and the balance sheet form part of the same double entry System, so that the residual balance on the form are matches the changes in owners s equity in the latter.
The ability of a computer to perform functions associated with human intelligence, such as reasoning and learning form experience.
An organization recognized by law as person but which is not a natural person but which is not a natural person, ASEAN Federation of accounts (AFA). A regional accountancy group formed in Bangkok in 1977 and comprising the professional accountancy bodies of the ASEAN counters.
A person’s expectations about his or her performance. Knowledge of aspiration levels is relevant to Standard Costing and Budgetary Control. Research suggests that a constant achievement to too easily attained goals may adversely affect motivation and performance: as may also a constant failure to achieve goals that have been set so high that they can never be reached. Also, persons tend to have higher expectations and work harder it achieve them when they have been directly involved in setting goals and have developed a personal commitment to their establishment.
In computing, a low-level language in which each statement corresponding to an instructions in machine code.
Bonds In respect of which the holders have assented to a variation in rights.
Any resource, tangible or intangible, controlled by an enterprise as a result of past and form which future economic benefits are expected to flow to the enterprise.
Assets are usually selling off the easily separable assets of a company that has been the object of a successful takeover bid. The assets sold have usually been shown in the balance sheet at less than their net realizable value.
An undertaking other than a subsidiary in which a group has a participating interest and exercises a significant influence over its operating and financial policies.
A standard cost attainable under very efficient operating conditions, allowance being made for normal spoilage, ordinary machine breakdowns and cost time.
The signing of a document as witness to the signature of another.
The expression of an audit as to the truth and fairness of statements.
In an audit or quality control context, sampling based on the qualitative rather than the monetary characteristics of sampling units.
The graphic identity of a corporation, as represented by the physical appearance of its publicly visible property, communications and employees.
The sale of a commodity or security at which the highest bid is successful.
In general, the mechanism within the process of accountability whereby the performance of those in control of the resources of an organization is checked or monitored by or on behalf of interested parties.
A committee appointed by a company as a liaison between the board of directors and external auditors. The committee normally has a majority of non-executive directors and is expected to view the company’s affairs in a detached and dispassionate manner.
Information obtained by auditors in arriving at the conclusions on which they base their option financial statements.
The gap between what the users of audit expect form auditors and what think they are currently receiving. The gap can be divided into a standards gap (that between what users expect and what auditors believe they should give) and a performance gap (that between what auditors think they should give and what users think they are receiving).
The successor body to the Accounting Practices Committee (APC). The APB is designed to be more independent of the audit profession than the APC. Half of its members are practicing auditors and the other half non-practitioners, the latter coming form business, academia, the law the public sector.
A written set instructions setting out auditing policies and procedures. The audit manuals of several auditing firms have been published.
A description of the work it be done in an audit, serving both as a planning document and as a control on procedures carried out.
A report made by an auditor upon financial statements.
The risk that an auditor will fail to detect a material error and thus issue an unqualified audit opinion when a qualified or an adverse opinion would be more appropriate.
A check of part only of the accounting records under the scrutiny of a auditor, An audit sample should, if possible, not only be statistically reprehensively of the total accounting population but also be protective, in that is allows the auditor to sample high value items more intensively than low value items; preventive, in that it is drawn in such away that it is difficult for the organization being audited to predict the items which will be drawn; and corrective in, that is increases the chance of identifying and correcting errors.
Computer packages used by an audit in the audit of computer operations.
A cost accounting system which focuses upon the output of an organization and works backward to allocate costs between cost of goods sold and inventory.
The right of shareholders of a company threatened by a takeover bid to sell their shares back to the company at a price agreed by its board of directors. An example of a position pill.
A storage medium which exists independently of computer s main memory backlog depreciation. The under provision that arise when the amount of accumulated depreciation recorded for tangible asset is inadequate to cover the cost of its replacement Backlog depreciation can be subdivided into between-year. The former arises when current cost depreciation provided in a prior year is less than that provided in the current year because prices have continued to rise. The latter arises if depreciation is charged on, say a mid-year basis, in order to base it on average costs, and the asset is revalued on an endear basis. Backlog depreciation can be charged either to income or to capital. The latter is the more commonly advocated and practiced; on the grounds that depreciate if depreciation is regarded as a fund for the replacement of a specific asset.
Loans made to each other by the parent companies of two groups based in different countries. Each loan is denominated in the parent s home currency. Each parent then to its subsidiary in the other country the currency it has borrowed form the other parent. Such loans may tax or exchange control advantages.
A copy kept for reference in case the original data are destroyed.
On the London Stock Exchange, the amount paid by a seller of stock in order to delay delivery.
An amount owing which is not expected to be received and therefore written off either to a bad debts accounts or to a previously established provision for a bad debts
Collection in whole or part of debts originally written off a bad.
The difference between two sides of accounts. It is entered on the lesser side to make both sides equal and then brought down to the opposite side. A debit balance results if the total of the debits in an account exceed the total of the credits; a circuit balance if the total of the credits exceeds the total of the debits.
In the context of national accounting, the balance on the rest of the world account, in which are recorded transactions between a nation and overseas countries The balance of payments on current account represents the balance on visible trade or trade in goods plus the balance on indivisibles or services. Adding investment and other capital transactions to this gives, subject to any balancing items arising from unrecorded transactions and timing discrepancies, the balance for official financing. Details of official financing are then recorded.
A statement of the assets, liabilities and capital of an organization at a particular date. The Companies Act prescribes Balance sheet format and that every balance sheet shall give a true and fair view of the state if affairs of the company.
An audit restricted to verifying the existence and valuation of assets and liabilities.
Methods of presenting the items in a balance sheet. Unit recently, few regulations existed on this matter but certain formats had become generally accepted The formats developed on different lines in the countries and an accountant who crosses the
Repayment of an loan by a series of payments in which the last payments is much the largest
Charges made by a bank for services rendered. A common item in a bank reconciliation statement since banks informs customers of such charges by debiting their accounts.
A request by an auditor to a auditor to a bank to confirm details of a n audit client s accounts, assets of the client held by the bank, and other financial information.
A sum of money standing to the credit of a customer in a bank ledger.
A cheque issued by a bank in its own name and thus more acceptable to a payee than a personal cheque.
A loan for making transfers between accounts at different banks without the use of cheque.
A loan made by a bank usually for a fixed period and for specified purpose Such loans are usually secured and repaid by regular installments.
An overdrawn balance on cash at bank account. Bank overdrafts are a very common form of borrowing in the UK. The bank and the borrower agree upon the maximum size of the overdraft, but interest is only charged to the extent that the overdraft is used.
A statement reconciling as at a particular date the balance of cash at bank as shown in enterprises own records and that indicated on the bank statement. In principle the two balances should be a equal and opposite but differences may arise for a number of reasons, e.g., cheque drawn but not yet presented to the bank, deposits not yet recorded by the payment made to or by the bank and not recorded by the enterprise. The last two sets of items should be adjusted for before the bank reconciliation statement is prepared
A person against whom a bankruptcy order has been made by the court. The order deprives of his or her property which is sold for distribution among the creditors. The official receiver becomes the manager and receiver of the bankruptcy. The bankruptcy must prepare a statement of affairs for the official receiver within 21 days of the bankruptcy order.
The legal status of persons against whom a bankruptcy order has been made, primarily because of their inabilities. Bankruptcy proceedings are started by a bankruptcy petition. The main objects of a bankruptcy laws are to secure an equitable distribution of the property of a debts and to make a fresh start; and to protect the interests of the creditors and the public.
A petition to the court for the start of bankruptcy proceedings. It may be presented by (i) a director or creditors (ii) a person affected by a voluntary arrangement set up by the debtor (iii) the Director of Public Prosecutions (iv) the debtor
The statement rendered, usually monthly, by a bank to a customer. It is an exact of the customer s account form the point of view of the bank and in principle should disclosed a balance equal and opposite to that shown in the customer s cash at bank account in his own ledger.
A code of parallel lines of varying thicknesses representing numbers and /or letters and used for data entry into a computer, especially in retail shops and libraries.
On a stock exchange, a stock whose price is regarded as a good indicator of the libraries.
The direct exchange of goods and services without the use of money as either a means of payment or a unit of account. Pure barter suffers from three serious inconveniences: a want of a means of sub division. A butcher wishing to exchange mutton for rum, for example, has to find an innkeeper who needs mutton and who possesses a quantity of rum that can be agreed to be equivalent to the quantity of mutton on offer.
The rate quoted by a British bank on which it bases its lending rates. The equivalent US term is prime rate.
In the context of inventory valuation, the calculation of the cost of inventories on the basis that a fixed unit value is ascribed to a predetermined number of units of stock, any excess over this number being valued by some other method. If the number of units is less than the predetermined minimum the fixed unit value is applied to the number in stock. The base stock method appears to be permitted by company law in the UK but it is not an acceptable method in standard accounting practice.
A calculation of earning per which not take accounts of dilution.
A group of currencies used to establish a value for some other currency. The value of the European Currency Unit (ECU) is determined in this way.
A costing system used by organizations whose products are easily identified by batches.
The processing of groups of similar data or jobs as a single unit rather than individually.
A formula by which one can determine the revised probabilities of various states of nature given the prior probabilities of states and the results of an experiment Bayesian techniques provide a way in which subjective impressions may be included in quantitative analysis.
Short headline in large type, placed above the smaller type headline.
An investor who sells a stock bond, currency or commodity in the expectation of a decline in its price and the hope of buying it back at a lower price. An uncovered bear is one who sells stock. etc., that he does not yet posses. A bear squeeze occurs if action is taken, e.g., by a central bank, to maintain the level of the price. A bear market is one in which prices in general are falling and in which further price falls are expected. A bear raid involves heavy short selling in the hope of pushing down prices so as to repurchase at lower rates.
A stock exchange transaction in which, for capital gains tax purposes, a security is sold on one day and bought back on the next.
The study of the way in which the behavior of the preparers, users and subjects of accounting and financial reports is affected by the accounting process.
Coordination of the behavior of superiors and their subordinates rather than of their goals. An advantage of behavior congruence is that organizational goals need not be specified.
A rather vague term best interpreted as meaning that part of the profit and loss account below the measure of earnings on which Earning Per Share (EPS) is based Thus, extraordinary item, but not exceptional items, are below the line.
A phrase used by the International Accounting Standards Committee to indicate the preferred option out of those allowed in an accounting standard.
A test to assess the Performance of a computer system under typical conditions of use.
The owner of a security who receives the benefits although the security may a registered in the name of a nominee.
Remuneration by means other than money, e.g. use of a company car Such benefits do not always escape tax.
Action by an investment bank to sell a new issue of shares of a company without any commitment to accept shares that cannot be sold to third parties.
A measure of the systematic risk of a company s shares, i.e. the sensitivity of the share price to movement in the market. A share with a beta greater than 1.0 will on average go up faster in a bull market and down faster in bear market. A share with a beta of less than 1.0 will on average fluctuate less than the market as a whole Betas change over time but most are reasonably stationary. Betas can be measured form market data or form accounting data. In the UK, market data are calculated and published by the London Business School Risk Measurement Service. The University of Exeter publishes betas for unit trusts and investment trusts.
Formerly, those stocks on the London Stock Exchange which, after the alpha stocks, were the most frequently traded.
An error by an announcer or talent reading a script.
On a stock exchange, the price at which a market maker will buy stock. Also, the price at which a unit holder in a unit trust can sell units.
Colloquial expression for the deregulation of the London Stock Exchange on 27 October 1986.
Colloquial expression for writing off assets as much as possible to the profit and loss account in the current period in order to show increase profits and return on investment in future periods.
Colloquial expression for those generally accepted accounting principles which apply to large businesses, some of which, it is implied do not or ought not to apply to small businesses.
An unconditional order in writing, addressed by one person to another signed by the person to whom it is addressed to pay on demand, or at fixed or determined future time, a sum certain in money to, or the order of, a specified person or to the bearer. There are three parties to a bill of exchange: the drawer; the drawee; and the payee. A cheque is bill of exchange, drawn on a banker and payable on demand. Bills of exchange other than cheque are of much greater importance in international than in domestic trade.
A document signed by the master of a ship on behalf of the owners, acknowledging the receipt of goods put on board and setting out the terms and conditions under which the goods will be carried.
A specification of the nature and quantity of the materials, required for a particular product.
A document by which the owner of goods transfers ownership to another person.
A bill of exchange due for payment at future date and hence a liability.
A bill of exchange on which payment is expected to be received at a later date and hence an assets.
Arithmetic on base two rather than base ten as in decimal arithmetic. Binary arithmetic is used by most computer systems.
A decimal number in which each digit is represented separately by four binary digits e.g.24 is represented as 0010 0100.
The digits 0 and I as used in binary arithmetic.
A card recording, for a particular materials held in store, receipts and issues and the balance which should be on hand. It is usually kept in quantities only.
Shortened form a binary digit. A bit is the smallest unit of information used in a computer
A communication satellite
That part of an economy that is hidden form the government and is statisticians and on which taxes are not paid.
In a takeover, a predatory bidder, unwelcome to the target company management
A model developed by F. Black and M. Scholes for determining the equilibrium value of an option given certain assumptions. According to the model the value of an option is functions of the short-term to expiration, and of the variance of the rate return on the shares, but is not function of the expected return on the shares.
A stock transferor but in which the name of the transferee is left blank. Blank transfers are used when shares are held by a nominee or as security for a loan.
Money which cannot for exchange control reasons be transferred to another country.
In public sector accounting, a grant made to an organization which the later is allowed to decide by its own internal procedures hw to spend.
An ordinary share of a large and well established company considered to be a safe investment
An association of persons regarded in law as a single legal person such corporate may be achieved, for example, by registration under he Companies Act, by Royal Charter or by a special Act of Parliament. Examples of bodies corporate are limited liability companies, professional institutions, universities and county councils. Most bodies corporate are required by law to disclose accounting information about their activities.
In general, fixed interest security issued by central or local government authority or by a company. Bonds are usually redeemable for a fixed amount at a future date. Interest is paid periodically, usually half-yearly or yearly. Bonds may be short term, medium term or long term
A clause in an arrangement to issue bonds which restricts in some way the future borrowing activities of the issuer.
The weighted average period of time which will elapse before the cash flows form a bond are received, the weights used being the present values of the individual cash flows expressed as a fraction of the total present value of the bond. Bond duration is measure of the sensitivity of bond price o changes in the market rate of interest and is therefore a useful tool for assessing the risk associated with the holding of bonds.
Imported goods on which neither customs duties nor excise have been paid. The goods are stored in a bonded warehouse until duty has been paid or the goods re-exported.
Hedging in such a way that the mean duration of bond investments is set equal to the means term of the liabilities which the investments are required to satisfy.
A table in which are set out the yields to maturity of bonds for which is known the coupon rate, the present market price and the value at maturity.
The sale of fixed interest securities cum dividend immediately before interest is due to be received, followed by their repurchase ex div. The effect is to transform for tax purposes the interest element form income into a capital gain.
An amount received or paid in addition to a regular receipt or payment
An additional dividend declared with the implication that it will not be paid on a regular basis
Bonus issues do not represent a source of funds to a company. In most cases they are created by the conversion of retained earning s or other reserves into share capital. In principle, shareholders are not better off as result of a bonus issue, since the market price per share might be expected to fall proportionately. In practice the market price may perform differently, partly because unrelated factors may be affecting share prices at the same time and partly because the issue may have draw favorable attention to the future prospects of the company.
The systematic recording of financial and economic transactions and other events.
A system of barter in which money is used as a unit of account but not, or only infrequently, as a means of payment.
The monetary amount of an asset or liability as stated in the balance sheet and books of account. In conventional accounting practice it will seldom represent a current market value.
Algebra, used in the operation of computers, devised for the expression of logical relationships.
Financial costs incurred by an enterprise in connection with the borrowing of funds, i.e. interest, amortization of discounts or premiums arising on the issue of debt securities, loan fees, gains and losses on foreign currency differences related to borrowed funds and regarded as an adjustment to interest costs.
The purchase by an investment bank of a new issue of shares of a company with a commitment to accept nay shares that cannot be sold to third parties.
The reductions by decision takers of their range of review of decisions to be taken in recognition of the limitations both of the information available to them their ability to handle its complexity.
Accounting for geographically separated sections of enterprises. The accounting system adopted depends upon the degree to which the branch is controlled from its head office. A completely non-autonomous bench receives all its merchandise form head office and keeps only memorandum records of cash, debtors, sales and stocks at selling prices, making a periodic return to head office in a prescribed form. Branch managers are encouraged and motivated to maximize sales rather than profit as well as sales and keeps a complete set of double entry records and prepares financial statements in which the capital sections is represented by head office control account.
An intangible fixed asset. Brands are means of distinguishing a product form its competitor.
A chart on which are plotted total revenue and total cost at various levels of activity. Total revenue and total cost are assumed to be linear over the relevant range of production. This is in contrast to the assumption of non- linearity usually made by economists, who do not assume constant unit variable costs or unchanging selling prices.
The estimated price receivable for the assets of an enterprise if the enterprise where to be closed down
The point at which total revenue equals total cost It can be expressed either in monetary units or in units of product sold.
An offer of money, goods or services to a person in order to persuade him or her to perform an action, in many cases illegal, in the interests of the person offering the bribe
A temporary loan to cover the gap between the purchase of one asset and the sale of another asset.
An association of persons interested in higher education and research in accounting.
A process that involves the preparation of an initial plan consistent with the goals of a business.
A quantitative expression of an action. Budgets serve not only a planning function but also the functions of evaluating, coordinating, communicating, motivating and authorizing.
Part of an organization for which a separate budget is prepared.
A committee assisting a budget director. It may offer advice, reconcile divergent views and help to coordinate budgetary activities.
The person responsible in relation to a budget for its preparation, and for such matters as establishing procedures, designing forms, collecting and co-coordinating data, verifying information and reporting performance.
A cost included in a budget. It may also be a standard cost budget. A mechanism for transferring funds to a governmental body and a statement of resources to be made available and a statement of planned future operations.
A written set of instructions serving as rule book and a reference book for a budget programme.
The period for which a budget is drawn up: typically a year. An error in a computing program or system.
A feature of a tax system resulting in a rise or fall in tax revenue as national income or falls.
An ad which becomes inconspicuous among other ads.
A contract giving the right to buy securities or commodities within or at the end of a given time period at an agreed price.
An English legal case on the liability of auditors to shareholders both actual and prospective. The House of Lords decision in this case held that auditors owe a duty of care to existing shareholders as a body rather to individual shareholders. The decision has been criticized as being neither in the public interest nor in the long-term interest of the auditing profession.
A word used by accountants and economists in many different senses. The primary meaning in accounting is proprietorship interest as represented in a balance sheet by the contributed and accumulated capital equal in amount to the asset and the liabilities. The primary meaning in economics, on the other hand, is of capital goods, i.e. the fixed assets and inventories. Both accountants and economists, however, use the word on occasion to refer to both sides of the balance sheet.
An account recording a proprietorship interest of a fixed rather than a fluctuating account. In a company limited by shares, accounts are kept for each class of share capital but not for each shareholder, the latter s interest being recorded in a register of members. The term capital account had a different meaning in the now defunct double account system.
A model of the securities market based on portfolio analysis. According to the CAPM the expected return in equilibrium on nay risky asset in a perfect capital market is given by: Rj = i + (Rm - i) bj Where Rj s the expected rate of return for security j, Rm is the expected rate of return for the market portfolio, i is the risk-free rate of return and bj is the measure of the systematic risk of security. The model rests on the assumption that securities are traded in a perfect market in which there are no transaction costs or taxes, all relevant information is freely available to all investors, all investors can borrow or lend nay amount in the relevant ranger without affecting the interest rate and with no risk of insolvency, there is a given uniform investment period for all investors, and investors are risk averse and reach decisions using the mean variance rule. The CAPM has proved a fruitful framework for financial research, with important implications for capital structure and measurement of the cost of capital.
The process of identifying, appraising, selecting and monitoring capital investment projects. Capital budgeting is of great importance to a company since not only are larger sums of money usually involved but the choice of project may affect the business for many years to come. Capital budgeting procedures include the following: searching for and identifying investment opportunities; deciding which potential investments to consider in detail; estimating the cash flows associated with them and also their qualitative characteristics; evaluating their economic worth in accordance with the criteria in use in the company; obtaining approval within the company for inclusion of the project in the capital budget; incurring the necessary outlays; continuous checking of actual outlays and receipts against budget estimate; and a post completion of audit. It is sometimes argued that too much attention is paid in the literature to the capital investment appraisal aspect of capital budget and too little to finding suitable projects to appraise.
Capital expenditure which an enterprise has already contracted for or which has been authorized but not contracted for.
A measure of depreciation used in national income and expenditure accounts and based on current replacement costs.
A term normally used in balance sheets to mean the total of shareholders equity plus long-term debt but sometimes used to refer to the fixed assets plus net current assets.
Expenditure on assets, i.e. on items that are not written off completely against in the accounting period in which the expenditure is made. All other expenditure is revenue expenditure but the dividing line is not always easy to draw. More narrowly, the term capital expenditure is sometimes used to refer to expenditure on fixed assets.
A tem sometimes applied to the capital account of a non-profit making organization. The more usual term is accumulated fund.
A gain resulting not from operations but form the holding of an asset. In practice, the term is usually applied to fixed tangible assets and investments, does not always exclude any inflationary element and for some purposes does not include unrealized gains. Some types of capital gains are really income in disguise.
The appraisal of capital investment projects to determine which should be selected. A capital project can be regarded as a set of expected incremental cash flows, i.e. the appraisal involves forecasting those cash flows which are expected. Once estimated, the cash flows can be analyzed by use of one or more of four main methods: pay back period; accounting rate of return; and internal rate of return and; net present value; The two last are discounts cash flow methods. Many companies use more than one method and, in rate of return, the most popular method, according to surveys of practice, is the payback period, and the internal rate of return is more popular than net present value. The payback period method measures the expected length of time over which the undercounted receipts equal the undercounted outlays and favors the project with the shortest such period. The accounting rate of return method measures the average book value of the projects, and favors the project with the highest such rate of rate of return. The method is faulty in that it is based on accrual accounting rather than cash flows. Both methods suffer form the fact that they ignore the time value of money. The discounted cash flow methods avoid these faults. The net present value (NPV) method measures the NPV of a project at the required rate of return. All Independent projects with a positive NPV are deemed to be acceptable; in the case of mutually exclusive projects the one with the highest NPV is selected. The internal rate of return (IRR) method measures that rate of interest at which the NPV is zero. An independent project is acceptable if its IRR is greater than the required rate of return; if projects are mutually exclusive the one with the highest IRR is selected. IRR methods give the same result as shown in the first diagram: the project is acceptable over the range where the NPV is positive, which is the same as that where the required rate of return is less than the IRR. If two projects are mutually exclusive, however, there is a conflict between the NPV and IRR methods. The indication of the IRR method is that B is always superior to A since it has the higher rate of return, whereas the NPV method indicates that project A is superior at required rates of return less than C but that project B is to be preferred at required rates of return greater than C. The two methods may be reconciled by varying the internal rate of return method for mutually exclusive projects: The incremental rate of return as between projects is calculated and compared with the required rate of return. In certain situations there may be multiple internal rates of return. A variant of the NPV is the profitability index. It gives the same indication as the NPV method for independent projects but not for mutually exclusive projects. It is often necessary to choose between machines with differing lengths of life. This can be done by assuming the continual replacement of both machines, and comparing the annual, equivalent costs. Capital rationing exists, a company attempts to select the optimal combination of capital projects. This may mean the substitution of a project with a lower NPV for one with higher NPV.
A concept in which income results only after capital has been maintained. The problem is thus how to define capital in this context. It can be thought of in either financial or physical terms, the choice depending upon whether a proprietary view or an entity view is taken. The proprietary view emphasizes the value of the proprietor’s investment in an enterprise whether in nominal or constant pounds or dollars. A financial capital maintenance concept can be based on either nominal monetary units or on units of constant purchasing power. The former underlies both historical cost accounting and business profit; the latter current purchasing power accounting. If an entity view is taken, the emphasis is on the ability of an enterprise to maintain its physical capacity and to continue operating at the same level. Physical capacity is hard to define both conceptually and practically. The physical capital maintenance concept underlies current cost accounting. Some capital maintenance concepts combine elements of both financial and physical maintenance.
A term of several related meanings. It can refer to the composition of a company s long term sources of funds, i.e. its capital structure, or to the total market value of its issued shares. The conversion of retained profits and reserves into share capital by means of a bonus issue is also known as a capitalization. Finally, the term can refer to the process of obtaining a net present value by applying an annuity or perpetuity formula to future earnings or cash flows.
A line which expresses graphically all the available combinations of the market portfolio with risk less borrowing and lending.
A budget constraint on the amount of funds that can be devoted to capital investment in any period. Such a constraint may be applied by a company to its divisions or by governments to, for example, universities. Capital rationing may be self-imposed or imposed form outside.
An un-distributable reserve arising form the redemption of shares or the purchase by a company of its own shares. The purpose of the capital redemption reserve is to protect creditors by preventing what would otherwise effectively be a reduction in share capital.
The composition of an enterprise s sources of funds, especially long term. It has been shown by Modigilaini and Miller that if individuals can borrow or lend at the same market rate of interest as companies, there is no risk of financial failure, there are no transaction costs or barriers to the free flow of information, and there are no taxes, the following propositions can be proved: a company cannot increase its value by increasing its gearing: increasing gearing increases both the cost of equity and the cost of debt in such a way that the increases cancel each other out. The processes by which, this is achieved include arbitrate and homemade gearing which, on the assumptions stated, is a perfect substitute for corporate gearing. In practice capital structure is influenced by such factors as the relative costs of the various sources of capital, the amount and stability of earnings, the risk of insolvency dividend policy, and desire to retain control.
The tax, unlike an accessions tax, is based on the earth of the donor but may be paid by either the donor or the done. There were several exemptions and relief s and although CTT was introduced in part to reduce the avoidance associated with estate duty it is doubtful whether it did in fact do so.
An insurance company set up by one or more commercial or industrial companies to insure their risks. Such self-insurance may be cheaper and may have tax benefits.
Delivery costs incurred by a purchaser of goods. If the latter represent fixed assets to the purchaser the costs are capitalized.
The cost of holding inventory form the date of receipt to the date disposal.
The amount that a person or enterprises has in a bank whether on current account or deposit account.
The recording of cash transactions without taking account of debtors, creditors, prepayments, accruals, inventories fixed assets etc.
A book of account containing a record of cash receipts and cash payments. Receipts and payments not made through a bank are normally made through a separate petty cash book. The cash book may be regard both as specialized journal, in that it records one type of transaction in chronological order, and an account separate form the rest of the ledger in that it recorded all the transactions relating to particular asset. In larger businesses it may be divided into a cash payments journal. The ruling of cash book depends upon the needed of the business in which it is used.
A plan of future cash receipts and payments based on specified assumptions about such items as sales growth, credit terms, issue of new capital and sales and purchases of fixed assets. The purpose of drawing up neither cash nor keeps cash idle when it could be profitably invested.
A profitable product with a low market growth rate of which a company has high market share. The cash generated form such products can be used to finance new products that hit is hoped will grow at a faster rate and which the company hopes to obtain a high market share.
The process in which cash is used to obtain inventories which are then sold on credit or for cash, and the debtors converted into cash, which are the used to buy inventories.
A discount receivable or allowable on payment of an invoice within an agreed period. Alternatively, purchases may be record net. A merit of this approach is that a cash discount lost account is debited and drawn to management s attention if a cash discount is not taken.
A mach8ne form which customers of a bank or other financial institution can obtain cash up to a maximum amount by inserting a cash card and using a personal identification number (PIN).
In the context of cash statements, short term highly liquid investments which are both readily convertible into known amounts of cash without notice and were within three months of maturity when acquired, less advances form banks repayable within three months form the date when the advance was made.
The flow of cash into out of a business. The term is often used loosely to refer to an amount equal to net profit plus depreciation which is the result of movements in working capital rather than cash.
Measuring and recording the financial activities and performance of an enterprise in cash term. CFA thus records only cash receipts and cash payments and, unlike accrual accounting, does not record accruals, prepayments, debtors and creditors and stocks. It is argued in favor of CFA that it avoids the arbitrary allocations and subjectivity s of accrual accounting and that it is easier to understand. Forecast as well as historical cash flows can be reported and it is claimed that CFA is more closely related than accrual accounting to investor’s models based on expected cash dividend flows. CFA may be used as substitute for or in addition to conventional accounting. If it is used as a substitute and a statement of financial position is required this needs to be stated in terms of net realizable values, since these represent potential cash flows. Such a statement would disclose net realized cash assets, readily realizable assets, non-readily realizable assets and no realizable assets. CFA has been criticized for overemphasizing liquidity and for inadequately measuring performance.
Methods of presenting the items in cash flow statement. Under the direct method an enterprise reports, in classified form, its cash receipts and cash payments, to give a net increase/decrease in cash flow form operating activities form back to profit before tax and extraordinary items, any deprecation charged and increase/ decrease in debtors, dieters and stocks. The direct method is the straightforward one but it lacks the link with the profit and loss account of the indirect method. ERS 1 requires as note to the cash flow statement a reconciliation between the operating profits reported in the profit and loss account and the net cash flow form operating activities.
Cash being transferred form one business to another, or between two parts of a business to another, or between two parts of business If it is not recorded as an asset in either an adjusting entry may be necessary.
The management of the cash balances of an enterprise in such a fashion as to maximize the availability of cash not invested in fixed assets or inventories and also so as to avoid the risk of insolvency. In Keynes s terminology there are three motives for holding cash; the transactions motive; the precautionary motive; and the speculative motive. The precautionary motive; and the speculative motive. The most useful technique of cash management is the cash budget. An enterprise also needs efficient systems for collecting cash as quickly as possible models of inventory control can be adapted to cash management.
Colloquial expression describing the large cash holdings, apparently surplus to requirements, of certain companies.
A journal recording payments of cash out of an enterprise s bank account. The ruling of cash payments journal depends upon the needs of the business in which it is used, but it is common to provide a separate column for payments to trade creditors.
A purchase made for cash as distinct form a credit purchase. Cash purchases are entered in the cash book not the purchase journal.
A journal recording receipts of cash into an enterprise bank account. The ruling of a cash receipts journal depends upon the needs of the business. In which it is used. But it is common to provide a separate column for receipts form trade debtors In smaller business it is combined with the cash payments journal t form a cash book.
A sale made for cash as distinct form a Credit sale. Cash sales are entered in the cash book, not the sales journal.
A decoration panel or border outlining a graphic.
A bank whose functions include, inter alia, acting as a lender of fast resort; influencing the structure of interest rates; accepting deposits form and making loans to the commercial banks; supervising the banking system; controlling the note issue; and acting as the bank for the government.
The theorem that may distribution of sample means, logic and control functions are carried out.
That part of a computer system where the arithmetic, logic and control functions are carried out.
A document providing evidence of a fact, e.g. a share certificate, a certificate of deposit. An audit report, on the other hand, is a statement of option not a certificate.
A certificate issued by a bank in which the bank acknowledges that it holds the sum of money stated on the face a certificate.
A professional accounting journal published since 1905 by the chartered association of certified accountants.
A term used, especially in taxation, for the discontinuance of a business. Special tax rules to the assessment of taxable income on the cessation of an unincorporated business.
The person who has the beneficial interest or enjoyment of property, the legal ownership of which is vested in the trustee.
A statement made by a Chairman of a company at its annual general meeting and often included in the annual report. The statement is not required by law and there are no regulations as to its contents but it often contains interesting and useful information. Shareholder surveys suggest that it is the most read section of an annual report, perhaps because it is narrative form and also likely to deal with future prospects.
The linear relationship between the return on security and the return on the market portfolio. The slop of the characteristic line is the beta of the security. Characters set the numbers, letters, symbols and graphics available on a particular computer system or printer.
An arrangement whereby a customer may purchase goods on credit form and retailer pay for them periodically on the rendering of a statement.
An account in which, under properly analyzed heads, a person charges himself with certain sums or estate he or she should receive, and in the discharge, credits him or herself with the sums paid away. Charge and discharge accounting was the basis of manorial accounting in the Middle Ages. It is still found in Scotland in retain to trust accounts
The imposition by central government of a limit on the amount that local authorities could raise by means of the community charge.
A card entitling its holder to have amounts charged to an account maintained by the company issuing the card, The holder is usually required to settle the account in full on a monthly basis.
The financial statements published by charities. In England and Wales Charities Act 1960 and the Charities regulations 1960 and file accounts with the scheme of classification adopted by the enterprise. It serves both as an index to the ledger and as a description of the accounting system.
An extra digit used to check for errors in set of digits. It is calculated mathematically form the other digits in the set.
A list of questions or instructions relative to a particular procedure or objective.
Plastic cards issued by bank to their customers. The purpose of the card is to act as guarantee that a cheque up to a specified amount will be honored.
An invisible barrier or imaginary wall erected between two departments of the same business in order to inhibit the flow, directly or indirectly, of information between them and thus to prevent conflicts of interest frequencies.
A statistical test of whether observed frequencies correspond with expected frequencies.
Excessive buying and selling of security by person managing investment funds for another so as to create large commission fees.
A legal action in which one or more persons sue as representative of a class persons with a common claim.
A system of taxing corporations under which the corporations under which the corporation pays tax on earnings and the shareholder pays tax on dividends paid there out but the latter does not receive a tax credit for the double taxation of the profits distributed.
An arrangement of data into classes, each class having some common significant characteristic or group of characteristics which distinguishes it from other classes. A good classification should have four consistently; there should be sufficient subsets to exhaust a given universe; all subsets should be mutually exclusive; and hierarchical integrity should be preserved. Classification is necessary in accounting when preparing financial statements At a different level, a number of attempts have been made to classify national systems of company financial reporting. A very broad classification can be made into microbes systems and macro-uniform systems.
The process of setting items off against each other and dealing only with net balances.
An account used as a temporary resting place for amounts which are eventually transferred to there account.
An organization through which accounts may be debited and credited, thus avoiding numerous bilateral settlements.
The attraction of shareholders to companies which have a dividend policy which is suited to their needs. Once a particular dividend policy has been established the clientele effect makes it more difficult to alter it since would lead to changes in shareholders and undesirable transactions costs.
In the context of foreign exchange translation the exchange rate between two currencies for spot transactions at the balance sheet state. It is calculated as the arithmetic mean of the buying and selling rates.
The grouping of objects for which there are measurements of several variables.
In an audit context, a method of drawing a sample in which the auditor chooses one more cluster at random and then examines all the items within the clusters. It is a limitation of cluster sampling that the sample clusters may not be representative of the whole population.
A method of testing the readability of an advertisement by leaving out words or letters to be filled in the by the reader.
Rules established by bodies exercising persuasive power puppies of making some addition or alteration.
A measure of the total variance in a dependent variable that is explained by its liner relationship to an independent variable. It is usually denoted R2 and lies between zero and unity; the closer to unity, the greater the explanatory power.
An unsolicited approach to a prospective customer.
A combination of two options which is used to provide protection against too wide a fluctuation of a rate of interest. it is a straddle of a cap and a floor
In Britain, the community charge paid by landlords of buildings with mostly short-term residents.
An error in double bookkeeping system in which a transaction is incorrectly entered, e.g. the wrong debtors account is debited with a credit sale. Errors of commission are not revealed by taking out a trial balance.
The body responsible for supervising the stock exchange in France. COB has had great influence on prospectuses and has been the driving force behind the publication of more consolidated financial statements.
An independent body established by the local Government Act 1973. The commission has statutory responsibility for arranging the external audit of all Scottish local authorities. The equivalent English body is the audit commission.
In public sector accounting, a method of accounting which recognizes expenditure as soon as an organization is committed to it regardless of whether the necessary resources have actually been acquired.
Fixed costs that raise form having fixed assets and an organization, e.g. depreciation, rates, long-term lease rentals. They are controlled through a capital expenditure budget. Committed costs are long run costs whose amounts are typically large and often hard to predict.
The committee of the American Institute of Certified Public Accountings responsible for the issue between 1939 and 1959 of 51 accounting research bulletins.
Financial statements in which items are expressed as percentages of other items.
The persons responsible for a company complying with the provisions of company law. He or she is responsible for all formal administrative matters. Every company must have a secretary, who may not also be the sole director.
Consistent accounting treatment of items in the financial statements of different entities at the same point in time so as to enable valid comparisons to be made. It is often cited as desirable characteristic of financial statements but, in spite of the existence of accounting standards much diversity of treatment still exists.
In a set of financial statements referring to a previous year or years and core-spending to it, of the current year. Cooperative figure for the previous year are required by British company legislation.
An error in a double entry book keeping system which cancels out another error or errors. Compensating errors are not revealed by taking out a trial balance.
An accounting method which recognizes revenue on contracts as earned as earned only the contract has been substantially complete.
A situation in which markets exist for all commodities and claims and hence a market price for any commodity or claim is publicly observable. In other words, complete markets allow investors to engage in whatever trading they consider desirable.
An audit whose function is to test whether statutory obligations have been complied with rather than to test whether a company or other entity is being managed efficiently, effectively and economically.
Auditing tests the purposes of which are to obtain evidence that internal control procedures are being applied as presented and thus to indicates the necessary level of substantive tests.
The difference between a future sum (S) and its present value (P), i.e., if S = 1, (1 + I) n (1 + I)-n Where I is the compound rate of interest per period and n is the number of periods. The compound rate of discount per period.
Is Calculated not only on the original sum (Principal) invested but also on the interest An initial principal P invested at the beginning of period 1 at a compound interest rate of I per period will have an accumulated or terminal value (S) after n periods of P ( 1 + I ) n. It follows that the present value (P) of a future sum S, n periods hence, at a compound interest rate I is S (1 + I) -n. Tables of accumulated and present values can easily be calculated.
A journal entry recording a complicated transactions or more than one transaction and thus containing more than one debit or credit.
The change in an entity s assets during as accounting period arising form transactions and other envenoms excluding contributions of capital by owners or distributions of profits or capital to them. Comprehensive income thus includes both operating profits and holdings gains. Compulsory liquidation of a company ordered by the court, usually as a result of a petition to the court by a creditor.
An electronic device for the input, Storage, processing and output of data in accordance with and performance.
An organization that provides computer or data processing usually to the detriment of the computer system.
A computer program with the ability to modify other programs usually to the determent of the computer system.
An abstract idea forming part of the theory underlying a set of practices. Concepts may be used to (a) explain practices already generally accepted; (b) achieve consistency between existing practices; (c) assist in the working out of new practices.
A set of interrelated concepts, explicit or implicit, underlying the procedures of financial accounting. There is no general agreement as to the contents of a conceptual framework but a possible model based on the publications of the financial accounting standard Board includes: a statement of objectives; a set of definitions; a specification of what to measure; and set of rules concerning how to measure.
A regional accountancy organization covering the Asia Pacific area. The ASEAN countries (Brunei, Indonesia Malaya, the Philippines, Snippiness, Singapore and Thailand) have formed within it the ASEAN federation of accountants (AFA).
Contains the true value of an audited amount with a chosen probability. The width of the confidence interval is an important determinant of sample size.
The measure of probability associated with a confidence interval. An auditor may, for example, wish to achieve a 95 percent confidence level that a reported account balance is not materially different form the audited amount. The range of values is a measure of precision.
An audit technique in which the audit requests third parties or the client to confirm statements made in the accounts or financial statements. A distinction can thus be made between external confirmation and internal confirmation. The circularization of debtors takes two forms; a positive circular requesting confirmation of the amounts shown as outstanding; and a negative circular, requesting a reply only if the debtor disputes the amount shown.
A letter form an expert named in a prospectus in which the expert consents to the issue of the prospectus with the inclusion of any report by, or reference to, the expert.
An accounting convention which, where there is a choice of accounting treatments, chooses the one with the least favorable immediate effect on reported profit and financial position. It may lead to financial statements showing a weaker state of affairs than actually exists and to the creation of secret reserves.
Accounts recording transactions relating to goods on consignment, i.e. goods sent by a consignor to a consignee for the purpose of sale, the goods remaining the property of the consignor and the consignee receiving a commission for goods sold the consignee.
Financial statements incorporating the financial position, annual results and cash flows of a parent undertaking and its subsidiary undertakings into one set of statements. This is usually achieved by substituting the parent undertaking s investments in its subsidiaries by the underlying assets and liabilities of the subsidiary undertakings.
The difference between the price paid for an investment in another business entity and the sum of the values ascribed to the tangible and identifiable intangible assets, less liabilities acquired. The difference needs to be accounted for when the financial statements of the investor and invest are consolidated.
A system of inflation accounting in which all amounts are indexed by means of a general index reflecting changes in the purchasing power of money.
Anything that restricts or limits the productions or sale of a given product. Where there is more than one constraint the use of lines programming techniques becomes necessary.
The maintenance intact of a future receipts. There is a stronger element of expectations in consumption maintenance than in capital maintenance concept, since no resort can be had to past or current market prices.
Contango is a term used in the futures market to describe an upward sloping forward curve (as in the normal yield curve).
An academic accounting journal published since 1984 by the Canadian Academic Accounting Association.
Conditions which exist at the balance sheet date the outcomes of which will be confirmed only on the occurrence or nonoccurrence of one or more uncertain future events. They do not include uncertainties practice connected with accounting estimates. Under standard accounting practice contingent losses but not contingent gains may be accrued in financial statements. Material contingencies not so accounted for are disclosed as notes
Theories of management accounting which argue that accounting systems should fit the organizational context in which they are used. The relevant contingent variables may include the nature of the external environment, the type of production technology, the structure of the organization, and the strategy selected by the organization to achieve its objectives.
A budget which is continuously updated, a period being added at the end at the same time that period at the beginning is dropped.
The calculation of compound interests on the assumption that the length of the compounding period is infinitely small.
A system of accounting, associated with Professor Chambers of the University of Sydney that defines financial position as the measure of the ability of an enterprise to adapt to a changing environment. By adaptation is meant the disposal of assets no longer appropriate and the acquisition of new assets that will serve the enterprise better. Therefore, it is argued it is the current cash equivalent (CCE) of assets that needs to be measured and disclosed. Profit is deemed to be realized as it accurse rather than at the point of sale. By the use of price variation adjustment and capital maintenance adjustment accounts, CoCoA can be extended to take account of general price level changes. CoCoA has received strong support in some academic circles but has not been adopted in practice. Critics of CoCoA argue that although Cues undoubtedly provide useful measures such as replacement cost.
Accounts which offset each other. Where two enterprises are both debtors and creditors of each other a complete or partial contra settlement may be made.
Costs which arise form the need to prepare and/or audit accounting records and financial statements required by persons entering into financial contracts.
The excess of revenues over variable costs which is available to cover an enterprise s fixed costs and if sufficiently large, to provide a profit.
An income statement which discloses a contribution margin and emphasizes the distinction between variable and fixed costs.
An account which contains in summary form the detailed accounts in a subsidiary ledger. For example creditors ledger can be summarized in a creditor’s ledger control account to which is credited the total form the purchases journal or cash book, the creditor’s column representing cash payments plus any cash discount. Returns outwards are also debited in total to the control account. The balance on the control account should equal the sum of the balances in the subsidiary ledger. The control account is kept in the general ledger, the subsidiary ledger being outside the double entry system. If it is desired to make the subsidiary ledger self-blanching, this can be achieved by including within it a general ledger control account. The use of control accounts makes possible a division of labour improved internal check and the control quicker preparation of accounting reports. The general principle of control accounts is of very wide application and is used in cost accounting as well as financial accounting.
A contract between two undertakings giving on the right to direct the operating and financial policies of the other subsidiary undertaking
An investment in another business entity which is sufficiently large to enable the investor to control the activities of the investment.
The translation of the language and sometimes also the currency and the accepting numbers of a set of financial statement issued in one country into the languages and currency of another. Such translations do not later the GAAP of the statements and should not be confused with the foreign currency translation of an overseas subsidiary. The financial statements are sometimes abridged or otherwise amended.
A rule of practice adopted by common consent, express or implied. It can be distinguished form an assumption, axiom or postulate in that it need not represent what is thought to be a self-evident truth.
Securities which may be converted at given price ratios at the option of the holder at future date or dates into securities of a different form.
The processes by which corporate entities, especially limited liability companies, are governed. It is thus concerned with the way in which power is exercised over the management and direction of the entity; the supervision of executive actions; accountability to owners and other; and the regulation of corporate bodies by the state.
The construction and use of a computer-based model of an organization to carry out the calculations required to produce results of business activities based on given sets of assumptions and predictions. The objective of the model is to assist managers to prepare effective plans for future operations.
By companies of social rather than financial information and /or users other than shareholders. It includes value added statements, employment reports, employee reports and narrative information on which topics as human resources, fair business practices, energy, community involvement, the environment and product safety.
A measure of the strength of the linear relationship between two statistical series. It takes on values between +1 and -1, a value of -1 indicating a prefect negative relationship, of +1 a perfect positive relationship, and zero no relationship. The correlation coefficient is the square root of the coefficient of determination (R2). A high correlation coefficient indicates that two variables move together but does not indicate cause and effect.
Perversion or destruction of integrity in the performance of person’s duties, especially in relation to the state or state-owned enterprises. In computing, corruption refers to data that has been changed in an undesired manner during transmission or in storage.
A term with many uses but always with the connotation of sacrifice of resources. Whereas accountants have traditionally emphasized historical cost accounting and the allocation of expired costs It to accepting periods, economists have emphasized opportunity costs. It is now generally recognized, however, that there is a need for different costs for different purposes. Whilst the use of historical costs rather than replacement costs in stewardship accounting increases objectivity it usually decreases relevance. Much of cost accounting is based upon actual costs but budget costs and standard costs are also of great practical importance. The cost accountant classifies costs in many ways. In his scorekeeping role he measures direct cost, indirect costs, distinguishes between product costs and period costs and may even attempt to allocate common cost and joint costs. When producing information for control and decision making they distinguish variable costs form fixed costs and controllable cost form uncontrollable costs.
In its narrow meaning, the accumulation and assignment of historical costs to units of product and departments primarily for purposes of stock valuation and profit measurement. In its broader meaning. It is difficult to distinguish form management accounting, but may be considered to combine parts of both management s accounting and financial accounting in that it serves stewardship as well as control and decision-making purposes.
An analysis of the costs and benefits of a project including the social and social benefits. The phrase is also loosely used to mean nay comparison and benefits.
The smallest segment of activity or area of responsibility for which costs are accumulated. A cost center may be a department but one department may contain several cost centers.
Achievement of particular objective at the least cost. A cost effectiveness approach is most useful where outcomes cannot be quantified in monetary terms whereas costs can be.
In the context of inventory valuation assumptions made about the flow of individual items of inventory which cannot be physically identified. Cost flow assumptions are not strictly necessary under current cost accounting (CCA) as distinct form historical cost accepting (HCA).
The relationship, expressed as an equation, between a cost and a one or more variables. In choosing a cost function both economic plausibility and goodness fit are relevant.
The minimum required rate of return on new investment. It is usually calculated as the weighted, average cost of the long term sources of finance available. The weights should ideally be market values based on a company s optimum capital structure, The specific costs of each source is the minimum rate of return required by the suppliers of that source is the and can be decomposed into the risk less interest rate plus a premium for risk. The specific cost of debt is equal to its after-tax redemption yield after allowing for flotation costs; that of preference shares is higher because preference dividends are not tax deductible. The cost of retained earnings is equal to the cost of ordinary shares with an adjustment for flotation costs.
Expenditures during a period on the manufacturing of goods. It is equal prime cost plus factory overhead. Adjustments are made for inventories of raw materials and for work in progress.
An adjustment in current cost accounting (CCA) systems to eliminate stock appreciation form reported profit. In principle the adjustment should be made each time a sale takes place in order to base cost of sales on the cost current at the date of consumption instead of at the date of purchase.
A contract under which a customer agrees to pay the cost of goods supplied plus an agreed percentage for profit. Difficulties may arise in determining an appropriate measure of cost, especially in relation to overheads.
Those holding gains that represent the excess of the current cost over the historical costs of inputs used in producing outputs sold. They measure the effects of buying goods in advance of price rise.
A slip of paper which has to be detached form a bond or share certificate and presented to the agents of the issuing authority or company in order to receive payment of interest or a dividend.
A measure of the relation between two variables. The correlation coefficient is equal to the covariance of x and y divided by the product of the standard deviation of x and the standard deviation of y.
The use of accounting to mislead rather than help the intended user. Creative accounting deliberately takes advantage of areas where there is no standard treatment or where there are ambiguities or arbitrary cut-off points. The creative accountant often employs transactions that involve (a) the severance of legal title to an items form the ability to enjoy the principal benefits and exposures to principal risk associated therewith (b) the linkage of one transaction with others in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole and (c)inclusion in the terms of transaction of one or more options or conditions whose terms make it reasonably probable that the option will be exercised or the conditions fulfilled.
A card issued by banks or any other financial institutions to enable card holders to obtain goods and services with out immediate payment. Payment is usually made monthly with interest charge on any unpaid balance.
An entry in a double-entry bookkeeping system recording an increase in a liability; an owner’s equity item or revenue or a decrease in an asset or an expense. Credit entries are conventionally made on the right-hand side of T accounts. Credit management of enterprises debtors. It involves the credit rating of customers, deciding on credit terms and discounts, collection policies and procedures age analysis of debtors and factoring.
Amounts (representing either cash or a claim to service) owed to an accounting entity. The balance sheet formats distinguish between amounts failing due within one year and amounts falling due after more than one year.
The subsidiary ledger in which creditors accounts are recorded. Also known as the bought ledger or purchase ledger. Each creditor s account is credited with purchases and debited with cash paid, discounts received and returns outward. The detail in the creditor’s ledger is summarized in the creditors ledger control account kept in the general ledger.
An account in the general ledger which summarizes the entries in the creditor’s ledger. This is achieved by posting to the account totals form the purchases journal and cash payments journal. The balance on the creditors ledger control account should at any time equal the sum of the schedule of creditor balances.
A form of network analysis suited projects where past experience provides a useful to guide to the future and the relevant information can be fairly accurately estimated. The critical path is that path through the network that provides the minimum time for the project, obtained by summing the activity times of the path having the longest duration. The only way in which the duration of projects can be shortened is to reduce the time allotted to activities on the critical path.
A cheque with tow lines drawn across its faces so that it can only be paid into a bank account. The crossing can be made specific to a particular bank.
A mutual holding of shares between two or more companies. A subsidiary company may not hold shares in its parent company.
The rate of exchange between two currencies measured by comparing them with a third currency.
Colloquial expression for a highly valued asset. Faced with a hostile takeover bid the directors of a target company may prefer to sell the crown jewel in order to keep the rest of the company intact.
A television or radio commercial for an alternately scheduled sponsor that is not the main sponsor for the broadcast in question.
An agreement under which two companies swap an agreed amount of funds in their respective currencies. At a future date same amount of the currencies is re-exchanged.
An account kept at a bank on which cheque can be drawn and on which interest is not usually paid; also an account in the books of sole traders and partnerships recording fluctuating amounts of proprietorship interest (i.e. shares of profit less drawings).
In company law any asset other than a fixed asset i.e. a current asset is one which is not intended for a use on a continuing basis in enterprise s activities. The UK balance sheet formats subdivide current assets into stocks (inventories), debtors, investments and cash at bank and in hand. Prepayments and accrued income may also be shown under this heading.
The measure of assets and liabilities used in continuously contemporary accounting.
An accounting system base on the matching of current revenues with current costs (Usually current replacement costs) and the maintenance of physical capital intact. CCA takes account of changes in specific prices and produces different figures form historical cost accounting (HCA) even in the absence of changes in the general price level. Unlike current purchasing power accounting, It is based on an entity view of enterprise. There are many variations of detail both in what is practiced and in what is recommended in authoritative accounting standards and in the literature. It is generally agreed that if current cost accounts are drawn up by adjustments to HCA it is necessary to adjust HCA profit by a cost of sales adjustment (COSA) and depreciation adjustment. There is less agreement about the necessity for In the balance sheet. Monetary assets are valued as under HCA but no monetary assets and shown at current replacement cost (RC) or if value to the business is combined with CCA, at Rc or the recoverable amount, whichever is the lower. To achieve this appropriately named reserve is credited on the other side of the balance sheet. Empirical research has found little impact of CCA upon share prices. This suggests that either CCA information was already available to the stock market or that it was not considered relevant. Other research has shown that investment analysts do make a limited use of CIA information.
Depreciation based on current costs rather than historical costs. Current cost depreciation may be based on the cost of historical costs. Current cost depreciation may be based on the cost of modern equivalent assets or of replacing the services received form the existing asset. Current costs In be either those at the end of the accounting period or the average for the period. In practice specific price indexes may be used.
A liability which is expected to have been paid within one year form the date of the balance sheet. The UK balance sheet formats refer to current liabilities as creditors: amounts failing due within one year They include trade creditors, bills of exchange payable, amounts owed to group and related companies, taxation and social security creditors, proposed dividends, accruals and deferred income, payments received on account, and to the extent that they are due for repayment within one year bank overdrafts, bank loans and debenture loans. In the USA, current liabilities include amounts payable, short-term notes payable, interest payable, dividends payable, accrued expenses, income and other taxes payable, and the current portion of long-term debt.
The inclusion in the profit and loss account (income statement) of item s relating only to the normal activity of each year, i.e. extraordinary items and prior year adjustments are excluded. Such a concept has been considered by standard setters in both the UK and USA as giving too much discretion to management. Also known in the USA as the clean surplus concept, it can be contracted with the all-inclusive capital.
The profit that results the matching of current revenues form operations with the current cost of those operation. It can be derived form conventional accounting profit by deducting a cost of sales adjustment, a depreciation adjustment, and, according to some accountants, monetary working capital adjustment. Current purchasing power accounting (CPP accounting): A System of inflation accounting in which nominal pounds or dollars are replaced by constant pounds or dollars. As applied to HCA, CPP accounting is based on a proprietary view of income and wealth, the former being regarded as the difference between the generalized purchasing power of an enterprise s owners it the beginning and end of an accounting period. Thus, a financial capital maintenance concept is retained but money is replaced by purchasing power. In the balance sheet, monetary assets and liabilities are carried at the same amount as in HCA but non-monetary assets are valued at historical cost adjusted by a general price index (except that, in accordance with the prudence concept, stocks are not recorded at a higher amount than their net realizable value). All profit and loss account (income statement) times are rested in terms of the general price level prevailing at the end of the accounting period. In addition the profit and loss account is debited or credited with a purchasing power loss or gain. The owner s equity is not adjusted directly but by means of the adjusted retained profit transferred form the profit and loss account. In order to compare, say, this year s CPP financial statements with those of last year, the previous year s statements must be updated for the further change in general price index. CPP accounting is dependent on the reliability of the general price level indexes used. In most developed countries government-calculated indexes are published at fairly frequent intervals. In principle, the index should be constructed so as to reflect the consumption patterns of particular company s shareholders. In practice, more general indexes have to be used. CPP accounting provides figures that are slightly easier to manipulate than HCA figures and less easy to manipulate than the figures produced by current value accounting systems, CPP accounting is rather more complicated than HCA, its figures take longer to produce and fir less obviously into the double entry but process. Unlike HCA, it does not ignore changes in general prices but specific price changes are still ignored. Profits are less likely to be overstated and assets are less likely to be understated but may bear no relation to current values. Additively is achieved within an historical cost framework. But CPP accounts are no more relevant to decision making then historical cost accounts. CPP is most popular in countries with highly inflationary economies (as in some parts of Latin America). It has been tried and abandoned in the UK, where a provisional accounting standard recommending supplementary CPP financial statements was issued in 1974 but later withdrawn, as a result of the Report of the Sandilands committee, in favor Of current cost accounting. In the USA, the FASB issued a CPP exposure draft in 1974 but was then confronted by an SEC preference for replacement costs. FAS 33 required some CPP information (income form containing operations adjusted for the effects of general inflation and the purchasing power gain or less on net monetary items) but also required current cost data. Empirical research suggests that stock markets ignore CPP figures. This may be either because such data are regarded as irrelevant or because the market has already made its own assessment of the effects of inflation.
The ratio of current assets to current liabilities. It is a widely used test of liquidity, of less short-term nature then the quick ratio. The inclusion in the numerator of stocks (inventories), if they are slow-moving, may give a false impression of liquidity.
A general term for accounting systems that take account of charges in specific prices rather than changes in the general price level and which assets are valued current replacement cost. The underlying capital maintenance concept may be either physical of financial. Whilst current purchasing power accounting substitutes constant for nominal monetary units, current value but accounting retains nominal units but substitute’s current for historical asset valuations.
A rotating drum that’s used to create effects such as that of passing trains, car lights etc.
Money ordered by court to be paid by one person to another as compensation for a loss.
A debit balance on goodwill account deducted form shareholders funds instead of being shown as an asset.
Things which are known or assumed to be true. Accounting data are expressed in the form of numbers and words which can be stored and processed. Data is the plural of datum, a singular noun.
An organized collection of data on a particular subject usually held on a computer. A data base be maintained by an organization for its own purpose only, or may be made available, usually on payment of a fee, to others.
The systematic performance of computer programs or data against loss or corruption.
The systematic performance of operations on data in order achieves a desired objective.
Methods used to protect individuals and others form the misuse of information stored in data bases.
A set of data bearing a logical relation to each other and ordered in prescribed manner.
A sudden acquisition of substantial shareholdings in a company in circumstances which appear to deny to some shareholders the opportunity of selling their share at the price offered.
One of the specialized journals, a memorandum book of transactions to be subsequently entered in a journal.
Person who make purchases and sales for their own accounts or on behalf of others financial marketplace.
An instruction acknowledging in interest- bearing loan, usually, but not necessarily, secured on the assets of company. Debentures are always fixed or ascertainable sums whereas debenture stock can be transferred in fractional amounts.
The discount which arises form issuing debentures at less than their par value.
A capital reserve set up voluntarily by transfers out of Profits. By the date redemption the amounts transferred should be equal to the redemption value of the debentures. The establishment of a reserve limits the amount of distributable profits but does not provide the cash needed on redemption. To do this it is also necessary to establish by means of periodic sinking fund payments a debenture redemption reserve fund matched among the assets by investments earmarked to the fund.
A debenture which has been split into units which can be treated on a stock exchange.
The balancing figure of an account whose debit entries exceed in total the credit entries. Debit balances usually represent expenses or assets.
A plastic card used to make payments, or to withdraw cash. It acts as an alternative to cheque. No credit period is allowed.
An entry in a double-entry bookkeeping system recording an increase in an asset or an expense, or a decrease in liability, owner s equity item or reserve. Debit entries are conventionally made on the left-hand side of T accounts
The document which speechifies the terms and conditions of a loan between a lender and borrower.
Amounts representing either cash or a claim to service owing to an accounting entity. The balance sheet formats include the following debtors (arising from the sale of a good or service), amounts owed by group undertakings, amounts owed by undertakings in which the company has a participating interest, other debtors, called-up share capital not paid, and prepayments and accrued income. The US term is accounts receivable and does not include prepaid expenses and other current assets not arising out of trading transactions.
The subsidiary ledger in which debtors accounts are recorded. Also known as the sold ledger or sales ledger. Each debtor s account is debited with sales and credited with cash received, discounts allowed and returns inward. The detail in the debtor’s ledger is summarized in the debtors ledger control account kept in the general ledger.
An account in the general ledger which summarizes in the debtors ledger. This is achieved by posting to the account totals form the sales journal and cash receipts journal. The balance on the debtors ledger control account should at any time equal the sum of the set of outcomes or payoffs.
A method for deciding among course of action. A formal decision model requires an objective function, a set of alternative actions to be considered, a set of probabilities of each state of nature accounting, and a set of outcomes, and data base.
A man/ machine system designed to help managers make decisions. The components of a decision support system are a manager, decision models, and a computer, a communication device linking manager and computer, and data base.
A systematic statement in table form of the contemplated actions, states of nature, probabilities and outcomes contained in a decision model. In a situation of complete uncertainly where no probabilities are available the following criteria can be used" the optimistic maximum i.e. select the action with the largest minimum outcome ; the criteria ion of regret, i.e. select the action that minimizes regret; and the Laplace criterion which assigns equal probabilities to each state of nature. If uncertainly is not complete, subjective or objective probabilities can be assigned to each state of nature and the outcome with the highest expected monetary value (or, if the decision maker is not risk neutral, the highest utility) selected.
A diagram setting out possible actions, their outcomes and associated probabilities in tree form.
A statement by the directors of a company that a dividend of a stated amount is re-commended to be paid.
A statutory declaration by the directors, where it is proposed to wind up a company voluntary, that they have made a full enquiry into the affairs of the company and, that having done so, they have formed the opinion that the company will be able to pay its debts in full within a specified period not exceeding 12 months form the commencement of the winding up.
In computing, equipment reserved for one user or one type of application.
Mandatory deduction of taxation form a payment (e.g. of wages, salaries) so that the player acts as an unpaid collection of taxes.
A contract made between an insolvent individual and his or her creditors under which an arrangement is made for as much of the debts as is possible and the creditors agree to abandon their claims to payment in full. The property of the insolvent may be transferred to a trustee for this purpose.
A legal document used to implement a covenant. Such covenants are often useful as means of tax-effective giving to charities and others.
Bonds carrying a low or zero interest coupon (zero coupon bonds) and issued at a substantial discount. The conventional UK accounting treatment of bonds issued at a small discount has been to show them in the balance sheet at par and to write off the bonds should be included in the balance sheet amount should then be built up over the life of the bond to its redemption value by crediting the profit and loss account. The choice of accounting method may have an important impact on a company s reported earnings per share and gearing ratio.
Securities issued at a large discount, with the amount payable on redemption known at the date of issue.
Redeemable securities which are capable of giving rise to a large (deep) gain on redemption and which are not deep discounted securities.
Colloquial expression for the financial condition of a person or company with seemingly inexhaustible funds, and thus worth suing. Large accountancy firms with heavy professional liability insurance may be perceived as having deep pockets.
The misappropriation or Embezzlement of property belonging to another person.
Failure to fulfill the terms of an agreement, e.g. failure to repay when due the interest or principal on a debt.
Published accounts which do not comply with company legislation or applicable accounting standards.
A takeover bid which is opposed by the directors of the target company. Various defenses are open to the directors.
A measure of how many days operating expenses can be paid out of quick assets. Also known as the credit interval, it is an attempt to treat liquidity as something to be measured over a period rather than at a point in time. The calculation can be made using actual or forecast data.
An asset representing the right to receive cash, goods or services at a date or dates beyond the current accounting period.
An agreement drawn up to the sale and purchase of a business that calls for additional consideration to be paid if certain conditions are fulfilled.
Income received or recorded before it is deemed to be earned, a portion of which is transferred annually to the credit of the profit and loss account, the balance being shown in British balance sheets as separate items or under creditors (amounts falling due after more than one year or within one year, according to circumstances). Government grants received in respect of expenditure on fixed assets may be treated in this manner.
An agreement between a customer and a retailer (or a finance house acting as an intermediary) to pay for a good or service by installments.
A mortgage in which the mortgagor (borrower) is allowed to defer a portions of the interest due to the loan for one or more years at the outset of the mortgage term.
The taxation attributable to timing differences, i.e., to differences between profits as computed for taxation purposes and profits as stated in financial statements or, more generally, to temporary differences. Unlike permanent differences, timing differences are capable of being reversed in future periods. Distinctions can be made between full provision for deferred taxation (US: comprehensive tax allocation). Under the former, the tax charge is calculated on the reported accounting profit (excluding permanent differences); under the latter, timing differences are taken into account only to the extent that it is reasonably probable that a tax liability or asset will crystallize in the foreseeable future. It is also necessary to choose a method for determining the amount of taxation deferred. The deferred (or deferral) method, treats deferred taxation balances as deferred credits or deferred charges depending upon the direction of the difference, and requires these amounts ultimately due to by the company and therefore requires these amounts to be adjusted as tax rat change. The first method may be though of as an income statement approach; the second as a balance sheet approach. In the USA, timing differences have no been so large and standard account in practice required for a long time comprehensive allocation (full provision) and the deferral method. SFAS 96 and SFAS I abandon the latter in favor of the liability method. It can be argued that UK practice produces more relevant deferred taxation figures than that of the USA, but that the figures are more subjective. The discounting of deferred tax liabilities to their present values is not general practice and has not been adopted in an accounting standard.
A pension scheme in which the benefits are directly determined by the value of contributions paid in respect of each member of the scheme. The rate of contribution is normally specified in the scheme. The cost of providing the pension is fixed and known the outset of the scheme.
An agent who bears the risk of nonpayment by a customer to whom the agent sold goods on behalf of a principal.
An extra commission paid by a principal to a del credere agent to cover the risk of nonpayment by a customer to whom the agent has sold goods on behalf of the principal.
A document, issued by the suppliers, which accompanies a delivery of goods, specifying their type and quantity.
A technique for arriving at the collective opinion of a group of recognized experts on a particular topic. Each expert gives his or her opinion independently in writing and is then asked if he or she wishes to modify it in the light of the written answers of the other participants.
The relationship between an option price and the price of the underlying financial instrument.
An account with a bank or other financial institution whose holder has the right to make withdrawals without giving prior notice.
Departments have varying degree of autonomy, but are not usually separated geographically form the rest of the business. They may be concerned with manufacturing or, in the case of a department store, with retailing. Departmental accounts usually include a trading account and may also include a profit and loss account to which overheads are allocates or imputed.
A method of depreciation appropriate to wasting assets in which the cost or other valuation amount of the asset is apportioned over accounting periods in proportion to the rate of extraction.
A lodgment of an asset (especially cash or securities) with another person; a payment by a customer into an account with a bank or other financial institution; a part payment of a purchase price when a contract is entered into.
An interest-bearing account at a bank or other financial institution. It is not possible to make withdrawals by means of a cheque or without prior notice.
A certificate of a depositary bank or company stating that a specified number of share in a company have been deposited. The use of such certificates enables trading in a company s shares even when it does not fully meet local requirements for listing on stock exchange.
A measure of the wearing out, consumption or other loss of value of a fixed asset, arising form use, effusion of time or obsolescence. Depreciation as term is sometimes restricted to fixed tangible assets but in the UK is usually regarded as a general term that also includes the amortization of intangible assets and of assets and of assets such as leases whose useful life is determined in advance, and the systematic allocation over time of the historical cost accounting, the purchase price of a fixed assets is regarded as a prepayment for services to be received over the accounting periods constituting the asset s estimated economic life. By historical cost is meant either purchase price (including expenses incidental to acquisition in the latter of a reasonable proportion of direct costs and interest on capital borrowed to finance production. In order to make the allocation it is necessary to estimate not only a historical or current replacement cost but also the asset s useful economic life and its residual or scrap value. The latter is difficult to estimate and in practice is often regarded as zero. Useful life may be predetermined, as in leaseholds; governed by extraction (as in mines) or consumption; dependent on physical deterioration or obsolescence through technological and market changes. Estimates of useful life may be influenced by guidelines laid down by tax authorities. There are many different ways of allocating the cost of a fixed asset over its useful life but it practice, given the uncertainties involved, they tend to be heavily influenced by considerations of simplicity or of taxation. In the UK, where capital allowance often reflects the government s economic policy rather than an attempt to measure capital consumption, the straight line method is by far the most widely used. The straight line method is also very popular in the USA but changes in tax laws in recent years have encouraged declining balance methods. In many continental European countries depreciation charges in financial statements must equal those granted for tax purposes unless fiscal benefits are to be lost. Depreciation is measure, however inaccurate, of a reduction in the use value of fixed asset, so that, except in accounting systems avowedly based on exchange values, the written-down value (WDV) of asset is not meant to represent its net realizable value (NRV). Depreciation accounting is not intended to provide a fund for replacement and is not a source of funds, even though the adding back of depreciation in a source and application of funds statement may gives the misleading impression that it is. Cash to purchase a new fixed asset depends not on the allocation of a historical, or even available when required. Profit after tax is, of course, increased by taking advantage of generous capital allowances. In the UK, company law requires both the charging of depreciation and its disclosure. Standard accounting practice (SSAP12) requires disclosure, for each major class of depreciation rates used, total depreciation allocated for the period, and the gross amount of depreciable assets and the related accumulated depreciation. Investment properties are, however, required by accounting standard not be depreciated but to be included in the balance sheet at their open market value. In the USA, Accounting Principles Board Opinion No. 12 requires disclosure of depreciable expenses for the period; balances of major classes of depreciable assets, by nature or function, at balance sheet date; accumulated depreciation, either by major classes of depreciable assets or in total, at balance sheet date; and general description of the method or methods used in computing depreciation with respect to major classes of depreciable assets.
An adjustment in current cost accounting systems to eliminate form reported profit the difference between current cost depreciation and historical cost depreciation. It can be based on either the average current value at the end of the period.
Methods of allocating the cost or revalued amount (less estimated residual value) of fixed assets systematically over its estimated economic life. Depreciation methods may be based on time or on use. Possible methods based on time include: immediate write-off; allocation of an amount to each period; allocation of a decreasing amount to each period; allocation of an increasing amount to each period. In both the UK and the USA, the straight-line method (linear depreciation) is the most popular method. Under this method the cost or revalued amount less estimated residual value is divided by the estimated economic life, i.e. C-R n Where D is the depreciation charge, C the cost or revalued amount, R the estimated residual value, and n the estimated economic life. The reason for the popularity of straight-line depreciation is probably simplicity of operation in the face of uncertainty. Allocation of decreasing amount to each period can be achieved by the reducing balance method (US; declining balance method) and the sum of the year’s digits method. Under the reducing balance method, the second most year decreases over the asset, a constant percentage rate being applied to the written down value. Under the sum of the year’s digits method, the depreciation charge is determined by applying to the cost or other amount (less estimated residual value) a fraction based on the sum of the number of periods of the estimated economic life. All of the depreciation methods described so far ignore the time value of money and result (misleadingly, it can be argued) in increasing rates of return on investment on constant net cash flows. The charges in the second year are equal to that of the first year plus interest at the rate i on the first year s charge, and so on. Thus, in the illustration on page 93 the first year s charge is $1,000/15.937 =$63, and the second year s charge $63 (1.1) = $69. Because of the method of calculation this method is often called the sinking fund method. These compound interest methods do not assume an actual investment of depreciation funds, but they can be adapted to such an assumption and if desired the amounts charged for depreciation can be invested in secondary assets and held for replacement purposes. The depreciation methods described so far are illustrated in the example on page 93, where the cost of the asset is $1, 100, the estimated residual value $100, the estimated economic life ten years and the cost of capital 10 per cent. Methods of depreciation based on usage rather than time are possible with some assets. Truck for example, can be depreciated on the basis of so much per mile the depreciation charge per mile being (C -R) divided by the estimated total number of miles. Plant and machinery can similarly be depreciated on units-of production basis. The depletion of mines and oil and gas wells is also normally calculated in this manner. These methods assume that depreciation is a variable rather than a fixed cost. A few fixed assets are depreciated on renewals of parts and are charged to revenue, or to maintenance equalization account which is credited with constant annual transfers form profit and loss account. For tax purposes enterprises tend to choose depreciation methods (known in the UK as capital allowances) that write fixed assets as quickly as possible but in Anglo-Saxon accounting are not required to use the same methods as in the financial statements.
The rate at which depreciation is charged. In the table above, the straight line depreciation rate, for example, is 10 per cent p.a. and the reducing balance depreciation rate is 21 per cent p.a.
The retracing by an auditor of the chronological equine of documents related to transaction. For example, the purchase of raw materials may involved the following documentary references: copy of official order; delivery note form supplier; copy of internal goods inwards note; invoice received form supplier; entry in purchases journal or equivalent; ledger postings; supplier s statement; counterfoil of cheque; postings form cash book. Depth testing is facilitated by the use of flow charts and is related to the concept of an audit trail.
The abolition, in whole or in part, of controls imposed by governments, institutions or professional bodies.
Financial products such as options and futures which are derived form an underlying security or commodity.
A downward change in the official parity of an exchange rate.
An area in which enterprises may be given government assistance (including Government Grants) in order to future economic development.
The costs incurred before the commencement of commercial production of developing or technical scientific or technical knowledge so that it can use to produce new or substantially improved produce new or substantially improved products, processes, systems or services. In the USA such costs are written off; in the UK they may be capitalized in certain circumstances.
Tax on land subject to development. First imposed in 1974 it was replaced in 1976 on land available for development. It was repealed in 1985.
The most prolific and influential of the early British writers on accounting (as distinct form bookkeeping) and auditing, and the first professor of accounting (part-time) in a British university. Dicksee came form a family of successful artists and qualified as a chartered accountant in 1986, being one of the first to do so by examination. He was in public practice throughout his life but his contributions to accounting were mainly through teaching and authorship.
The philosophy, now widely accepted, that a measure of cost is dependent upon the purpose for which it is required. In particular, costs for stewardship purposes may be different form those required for control for decision- making purposes.
The different in the expected total cost of project if a given decision is made. Also referred to as represented in discrete not continuous units.
The decrease in control and earning per share suffered by existing shareholders on a new issue of shares or conversion of other securities into shares in which they have a less than proportionate share.
The term for what usually referred to in the UK as marginal costing. A more precise term is variable costing.
A system for periodical payments (both fixed and variable) in which the debit to the purchaser s account is initiated by the seller, not the purchaser.
Investment in a foreign asset or enterprise with the intention of exercising management control or significant influence.
Instructions to member states of the EC to amend domestic laws in the interests of harmonization. They have been especially important in the fields of company law and taxation.
All labour that can be identified with a manufactured good and can be traced to it an economically feasible manner.
An organization with its own employees, as distinct form one using the employees of a contractor. Local authorities, for example, have a choice of using a DLO or a contractor for refuse collection.
All materials that can be identified with a manufacturing good and can be traced to it in an economically feasible manner.
A person appointed by shareholders to run-a company.
Amounts paid to directors, including pensions and compensation for loss of office. In the UK, they must be disclosed in the Notes. The rules relating to this disclosure, which are very detailed and complex, are out in Schedule 6 to the Companies Act 1985 as amended.
The holdings of directors in the shares of their company
A tax which is assessed on and collected from those who are intended to bear it. Examples are income tax, corporation tax, inheritance tax and capital gains tax. Unlike an indirect tax it can take individual circumstances into account.
The reporting of information (Both financial and non-financial) to bear of accounting reports, especially to investors. Disclosure can be made in accordance with legislation or accounting standards or can be voluntary. Companies in their Annual Reports disclose information in financial statements and the notes thereto in accordance with formats which in many countries are specified by law. They also disclose the accounting policies underlining these statements.
An Arbitrage in which an option is purchased and at the same time an opposite position is taken in the underlying security.
The discounting of expected future cash flows to take account of the time value of money. It is the basis of two methods of capital investment appraisal: net present value and internal rate of interest.
A financial institution which specializes in discounting flow analysis. Less generally, the rate at which a bill of exchange is discounted. The official discount rate is the rate at which a central bank will discount bills for financial institutions.
The interest rate used by a company in discounted cash flow analysis. Less generally, the rate at which a bill of exchange is discounted. The official discount rate is the rate at which a central bank will discount bills for financial institutions.
In an audit context, a sampling plan designed to control the level of beta risk, i.e. the risk that an auditor will accept a population when he should have rejected it. The auditor must specify a minimum unacceptable error rate together with a predetermined level of beta risk. Discovery sampling leads to smaller sample sizes than acceptance sampling but at the expense of a much higher level of alpha risk.
Fixed costs that arise form periodic appropriation decisions. It is difficult to establish a best relationship between inputs and outputs in relation to discretionary costs and the value and quality of the outputs may be difficult to ascertain. An obvious example is advertising of which one managing director is supposed to have said: Half these costs are waste of money, but I am not sure which half. An example form the public sector is the costs of travel grants to university researchers. As the latter are painfully aware, discretionary costs can be cut quite sharply and quickly in times of acute financial stress. Control of discretionary costs is difficult and has to be done through negotiated static budgets. The feedback time is longer than for engineered costs. A favorable discretionary cost variance, unlike a favorable engineered cost variance, may indicate not less costly performance but less output or output of a lower quality. Not all cost is innately engineered or discretionary and discretionary cost has sometimes been successfully transformed into engineered costs. A discretionary cost may behave as if it were variable is managers are allowed to incur costs in accordance with a formula arbitrarily linked to output. Discretionary cost may be fixed for decision making purposes but variable for control purposes. The Accounting Standards Broad has proposed that the amount of discretionary costs or expenses incurred should be disclosed by way of note to the profit and loss account.
A trust in which the trustees have absolute discretion as to how much of the income of the trust distributed to the beneficiaries.
A statistical methods or predicting into which of two or more groups an object is likely to fall.
Refusal to accept or pay a bill of exchange when it is duly presented for acceptance or payment.
In computing, a mechanism for rotating a DISK and controlling its movements.
The income available to person for consumption or investment. It will often represent a salary after deduction of taxation, social security and pension contributions.
A measure of the variation of a group of numerical data forms a measure of central tendency. Measures of dispersion include the range, the average deviation and the standard deviation.
In the context of consolidate financial statements and group accounts, activities of a subsidiary undertaking which are so different form those of its parent undertaking that the inclusion of the subsidiary s accounts would not give a true and fair view. If this is the case, the accounts must, under UK company law be excluded form consolidation. The exclusion does not apply, however, merely because some of the subsidiaries are industrial, some commercial and some provide services, or because they provide different products or services. An example of a dissimilar activity is banking or insurance in the context of a manufacturing group. The excluded subsidiary undertaking would normally be accounted for by the equity method with separate financial also being provided.
Those profits that a company or rather undertaking is allowed by law to distribute. A company is permitted to distribute its accumulated realized profits, so far as previously analyzed by distribution or capitalization, less its accumulated realized losses, so far as not previously written off in a reduction or reorganization of capital duly made. A public company is prohibited form making s distribution unless its net assets are at least equal to the aggregated of its called up share capital and its un-distributable reserves.
In accounting, a sharing out of cash or other assets, e.g. when a company pays a dividend to its shareholders, redeems shares or distributes assets on liquidation; or when trustee in bankruptcy makes a distribution to creditors of amounts realized form the sale of the bankrupts assets. In statistics, a collection of numbers classified according to their frequencies.
An expenditure heading required by two of the four profit and loss account formats. Distributions costs are distinguished form administrate expenses but no definitions are provided.
In England and Wales, auditors appointed by central government to carry out external audits of local authorities. Local authorities have the right to choose between district auditors and privates sector approved auditors, both of whom are responsible to the audit commission. The duties of district auditors are laid down in the Local Government Finance Act 1982 and include value for money audits as well as compliance audits.
The opposite of uniformity and of the basic concepts of Grade s Inventory of Generally Accepted Accounting Principles for Business Enterprises. Diversity leaves each accounting entity to choose the accounting policies most appropriate to it but requires disclosure of those methods and consistency in their application form year to year.
That part of the profits of a company that is distributed to shareholders. Dividends may be either interim (normally paid during the financial year) or final (and recommended by the directors for approval of the shareholders at the annual general meeting). Dividends are shown in the appropriation section of the profit and loss account (income statement). A proposal final dividend is shown in the balance though it is not a legal obligation at the date of the balance sheet. Preference share dividends may be either cumulative or non cumulative. If they are non-cumulative, shareholders are not entitled to receive later a dividend which has been passed through lack of profits. Arrears of cumulative dividends, on the other hand, must be disclosed in the notes to the accounts and paid before dividends on the ordinary shares are resumed.
Limitation of dividend payments by government regulation. Such control has been practiced a number of times in the UK. It is not necessarily against the interest of shareholders since the money not paid out may be invested in profitable projects.
The ratio between earnings PER share (EPS) and ordinary dividend per share. It is measure of the extent to which current dividends are covered by current earnings and may help in forecasting future dividends.
A model which makes an assumption about the future growth of dividends. If, for example, the dividends of a company are expected of return R, the latter rate can be shown to be to where D1 is the expected dividend at the end of the first period and Po the share price at the beginning of that period. Dividend growth models are often used in the calculation of a company s cost of capital.
A company s policy on the division of its profits between distribution to shareholders as dividends and retention for investment. It has been shown by Miller and Modigliani that the price of a company s ordinary shares in independent of its dividend policy in perfect capital market in which there are no risks, no flotation or transaction costs, no government controls and no differential taxation of income and capital gains, and information is freely and immediately available. In practice the capital market is not prefect retained profits are cheaper than new issues (Thus encouraging retention), dividends have information content (i.e. they alter or confirm investors may for tax reasons prefer capital gains to dividends. investors may also prefer sable dividends even where earnings flocculate. Since companies may also wish to avoid having to cut a dividend in a bad year, current dividends become functions not only of current earnings but also of past dividends. Existing shareholders may prefer to limit dividends in order to avoid new issues which would dilute control. In the UK, a number of governments have placed statutory limitations on the size of company dividends. The effect of inflation on dividend policy is uncertain. Directors have to choose between the conflicting needs of retraining a higher proportion of historical cost earnings in order to maintain operation capacity and paying dividends whose value to shareholders does not fall in real terms.
A procedure whereby shareholders can automatically reinvest in the same company part or all of the dividends to which they are entitled.
The transfer of a dividend from an overseas subsidiary to its holding company. There are often barriers to such transfers.
The dividends of a company payable to the ordinary shareholders (common stockholders) divided by the number of ordinary shares.
Taking over a company, selling off its easily realizable assets and paying out the proceeds in dividends to the new shareholders.
A current liability item disclosing dividends which have been declared or recommended but have not been paid at the balance sheet date.
A document authorizing payment of a dividend to the recipient and also, giving details of any tax credit.
The ratio between a company s dividend per ordinary share and the market price share. Dividend yields are usually calculated gross of tax.
The measuring of the agrees to accept bills of exchange drawn by an exporter on a foreign buyer for a stated sum, provided that the bill of exchange has attached to it specified shipping documents.
An arrangement whereby a bank agrees to accept bill of exchange drawn by an exporter on a foreign buyer for a stated sum, provided that the bill of exchange has attached to it specified shipping documents.
Information to guide the user of one or more aspects of a computer system.
The country which a person regards as his or her home. The law (e.g. for tax purposes) distinguishes between domicile of origin (where a person was born), domicile of dependency which is determined by relationship to another person, has chosen to make a permanent home) and domicile of dependency (which is determined by a relationship to another person, e.g. a parent). Domicile is not the same as residence.
Effective control with or without the legal rights that normally signify control. Major decisions are taken in accordance with the wishes of the dominant party whether expressed or perceived. Actual exercise of dominant influence implies an effect in practice and includes both the active direction of the operating and financial policies of another undertaking, and passive influence derived form the holding of a legal or effective power of veto.
The account credited to recognize on the capital and liabilities side of a balance the donation to a company of an asset.
Gifts made in exceptions of death of the donor. Unlike gifts investors they are revocable during the lifetime of the donor.
Companies that have had no significant accounting transactions. Such a company, provided that is a small or medium company and lot with-standing that it is a member of a group need not appoint auditors.
A method of presenting financial statements formerly used by railways and public utilities. It was mandatory for railway companies’ form 1868, gas companies’ form 1871 and electric lighting companies’ form 1882. It was also used voluntarily by some water, dock and mining companies. The system is no longer used, most of the companies using it having been nationalized after World War 11, and not having readopted it after privatization. Companies using the system were those where a large initial expenditure was necessary but followed only to need to finance current operations. The main characteristic of the system was the division of the conventional balance sheet into a capital account, setting out the capital raised from issuing shares and debentures and the amount spend on fixed assets, and a general balance sheet setting out the current assets and current liabilities.
A system of recording financial events which recognizes that each event has a dual aspect, one of which gives rise to a debit entry, the other to a credit entry. The rules of double entry can be explained by reference to the accounting identity, or in terms of flows into and out of accounts. If the accounting equation is written as assets = liabilities + capital then increases on the left-hand side are called debits (abbreviated to Dr.) and increase on the right-hand side are called credits (abbreviated to Cr.). Similarly, decreases on the left-hand side are credits and decreases on the right-hand side debits. The capital item can be broken down into its component parts, so that increases in expenses, taxes charges and dividends (all of which reduce capital) are debits and increases in revenues, retained profits and reserves (all of which increase capital credits. A second way of generating the rules of double entry is to define flows into an account as debits and flows out of an account as credits. The rules in expanded form are: for personal accounts, debit the receiver and credit the giver, for real accounts, debit what goes in, credit what goes out; and for nominal accounts, debit losses and expenses and credits gains. Debits and credits can also be recorded in matrix form. This approach demonstrates that is the dual aspect rather than making an entry twice which is fundamental.
A recording system making Use of double entry. There are many variations but the essentials of double-entry bookkeeping are the analysis of transactions or other events into debit entries and credit entries in one or more journals; the posting of entries form the journals into one or more Ledgers: and the taking out of a trial balance from which, after the making of appropriated adjusting entries, a profit and loss account (income statement) and a balance sheet can be drawn up.
Amount owned that an enterprise is doubtful of receiving. The debts are not written off as bad but a provision for doubtful (or bad) debts is established by a combination of examination of individual debtors account and of past experience.
Literally a sweetener and sometimes used to indicate a bribe. In the context of inheritance tax an incentive to transfer items of national interest to the state.
Risk of a loss, which an investor may weight more heavily than the possibility of a profit.
A recorded radio or television commercial distributed to local stations and having a blank central section to be filled with a local advertiser’s message.
Money or goods withdrawn by an owner of an unincorporated business. Withdrawals form companies are referred to as dividends.
An agreement which allows a variable rate loan to be changed and selling for one s own account) and as an agent (buying and selling for others.).
A plastic card which, unlike a smart card, does not incorporate a microchip enabling it to record of transactions conducted with the card.
A measure of company earnings which attempts to achieve comparability by removing the distorting effects of tax and of different financial structures.
The earnings of a company attributable to the ordinary shareholders divided by the number of ordinary shares.
The ratio between company’s earnings per share. It is more usual to express the same relationship in the form of a price-earnings ratio.
The impact of accounting reports and especially regulation of their contents on the decision-making behavior of managers, government, trade unions, investors and creditors. Economic consequences arise in that changes in accounting policies may produce changes in the costs incurred and benefits enjoyed by different interested parties. For example, the distribution of wealth among investors may change as may also the allocation of wealth between consumption and investment. It can be argued that law makers and standard setters should overtly take these consequences into account. Interested parties are in any case likely to bring pressure to bear if they feel that their interests are being threatened. An alternative point of view is that yielding to such political pressures removes the credibility of accounting reports as unbiased and neutral representations of operating results and financial position.
In the context of related party transactions, the situation that exists where an enterprise is dependent upon another person or entity by virtue of he extent of the transactions between them or because of some other agreement or relationship.
The impact of changes in foreign exchange rates on expected future cash flows.
A concept in income based on companies of the net present values of expected future cash flows at the beginning and end of accounting period.
The length of the time during which an asset s estimated net present value exceeds its estimated net realizable value.
Any payment to factor of production in excess of what is necessary to keep that factor in its present use.
An alternative and rather imprecise term for net present value in the context of asset valuation. It is sometimes represented as the ideal measure for which replacement cost or net realized value act as surrogates.
Lower unit costs of production arising from increases in the scale of production.
Economies which result from the existence of inputs by technological necessity.
In the context of value for money audit, the acquisition of resources of an appropriate quality at minimum cost.
The relationship between the interests earned or paid in a year and the principal outstanding at the beginning of the year. The effective rate compounded annually produces the same accumulated amount after any specified time as the corresponding nominal rate with more frequent compounding.
Maximization of the amount of output per unit of input. Efficiency can be viewed form a number of aspects, e.g. the minimal use of physical units to achieve a given level of production or services; optimal allocation of national resources; and optimal; use of a firm s internal resources. It can be difficult to reconcile these three approaches to efficiency, especially in the case of publicly owned enterprises. Efficiency is used in yet another sense in relation to stock markets
A graphical representation in the form of an envelope curve of the efficient portfolios available to an investor.
A variance arising as the result of the actual quantity of inputs differing for the budgeted or standard quantity. The variance is actually calculated by multiplying the quantity difference by the budgeted or standard price. Efficiency variances may be calculated for direct labour, direct materials and variable overhead. A fixed overhead efficiency variance is also sometimes calculated but it is misleading since in the short run fixed costs are not affected by efficiency of operation.
The hypothesis that the stock market is a highly efficient pricing mechanism. Efficiency in this context does not refer to the organizational and operational aspects of the market or to the efficient allocation or resources within the economy but to the capacity of the market to convert information into shares prices. There are three forms of the hypothesis: (a) weak efficiency: share prices move independently of previous movements. (b) Semi-strong efficiency: shares prices respond instantaneously and in an unbiased manner to all information publicly available. (c) Strong efficiency: share prices fully reflect all relevant information including that not publicly available. The empirical evidence is generally thought to give stung support to hypothesis (a) and (b) but not to (c). If the market is efficient in the semi strong sense it must also be efficient in the weak sense; if it is efficient in the strong sense it must also be efficient in the weak and semi-strong senses. Acceptance of hypothesis (a) means rejection of Chartism; of hypothesis (b) rejection of the fundamental Analysis of corporate financial reports and other relevant to beat the market by the use of insider dealing. Acceptance of the EHM does not mean a belief that the market can predict the future, rather that it takes account of all the uncertainties about the future, i.e. efficiency is not the same as clairvoyance. A paradox of market efficiency is that those who make the market efficient by responding rapidly and with sophistication to new information substantially eliminate the opportunity to profit personally form their analytical skills. The continuing efficiency of the market may depend on the efforts of analysts who act on the basis that the market in inefficient. The EMH has implications for both investment strategy and financial reporting. The implications for investment are that a risk averse investor who wishes to hold equities should hold a well diversified portfolio and that once the portfolio has been established the investor should buy and hold since switching securities involves unnecessary transaction costs. The implications for financial reporting by listed companies are full disclosure to the market and to sophisticated analysis more important than comprehensibility and simplicity. It can be argued that corporate financial reports of listed companies should be divided into a stewardship report for the native investor and a market report for the sophisticated investor.
A combination of securities which maximizes the expected return on the securities for a given variance or, equivalently, minimizes risk for a given expected return.
The movement of data electronically between organizations in order to facilitate transactions between them.
Data processing carried out of means of electronic devices, rather than manual or mechanical means.
Systems for the transfer of money in which processes based on paper are replaced by electronic techniques. On-line EFT systems make possible the instructions transfer of funds and calculation of account balances. Electronic funds transfer point of sale enables retail customers and others to pay for goods by instantaneous bank transfer. The spread of EFT thus has important implications for accountants and auditors.
The transfer of written messages by electronic means.
An office where traditional manual paper-based systems have been replaced by computerized systems
In the preparation of consolidated financial statements an entry made in order to eliminate an inter company transaction.
Fraudulent misappropriation of money or their goods entrusted to a person in emergency tax code.
Remuneration received in connection with holding an office.
Drawing of attention by an auditor in the audit report to an important matter even though, it has been adequately disclosed in the accounts. Emphasis of matter does not constitute an audit qualification.
A corporate financial report to employees published either separately or as a supplement to a house magazine. Employee reports are often also made available to shareholders and to other interested parties. They should not be confused with employment reports. It is argued that employee reports influence employee behavior by improvising motivation and job satisfaction and helping to avoid industrial conflict; influence employee attitudes by improving understanding of the business; satisfy the employee’s right to know about the company; and influence outsiders by demonstrating the progressiveness of the company. There is little empirical evidence about these suggested influences. Not much is known about how, if at all, the employees need for information differs form that of investors. It is sometimes suggested that in addition to the type of information provided to investors, employees need information about their own work unit and the security of their and about the labour force of the company as a whole. Employee reports in practice tend to give prominence to value added statements and funds statements rather than to profit and loss accounts and balance sheets and to present information in simplified and graphic form. Employee reports are not audited, although they may be used largely on information taken form audited accounts.
A scheme for encouraging ownership of shares by employees through the setting up of an independent trust which acquires shares for distribution to employees.
A report, included in a company s annual report, giving details of such matters as numbers of employees, their age and sex distribution, their geographical location, the costs of employing them, training schemes and costs, recognized trade unions, and health and safety measures. Employment reports may be considered as one aspect of social responsibility reporting. They should not be confused with employment reports.
In computing, the conversion for security reasons of a plain text to a coded form.
A house mortgage linked to an endowment policy. The borrower pays interest on the mortgage loan and premiums on the assurance policy, using the latter to pay off the principal of the loan when the policy matures or the borrower dies.
A life assurance policy under which the sum assured is paid on death or at the end of a specified number of years.
Words written on the back of a legal document so as to vary the terms of the document.
The granting of the right to vote to holders of a company s nonvoting shares.
Costs that have an explicit specified relationship with a selected measure of activity. The value and quality of the outputs that results are usually relatively easy to ascertain. An example of an engineered cost is the cost of direct materials. Engineered costs are controlled through the use of flexible budgets and standards. The history of control systems is a part the history of attempts, sometimes successful, to turn discretionary costs into engineered costs.
The final copy of a legal document.
The costs of improving a fixed asset. Such costs are capitalized to the extent that they increase the expected future economic benefits form the asset.
A general term for a body corporate, partnership or un incorporated associated carrying on a trade or business with or without a view to profit. Synonymous with undertaking.
A view of an enterprise or group of enterprises that stresses the importance of the enterprise itself rather than its owners, i.e. in terms of the accounting identity, assets equals claims on assets, whether by proprietors or creditors. The distinction between the entity view and the proprietary view is of great importance is such areas as inflation accounting, where it gives support to current cost accounting rather than current purchasing power accounting, and consolidated financial statements. An entity view of enterprise appeals more to managers and employees than to proprietors.
Entropy is a thermodynamic property that is a measure of the energy not available for useful work in a thermodynamic process, such as in energy conversion devices, engines, or machines.
In the context of asset valuation, values based on purchase prices in a market either at the date of acquisition or at the date of a balance sheet.
The record of a transaction or other events in a journal or a ledger.
Normally, a synonym for investments in associated companies in which credit is taken for a share of profits rather than dividends and the investment is carried not at cost but at cost plus shares of undistributed profits. Equity accounting is sometimes known as one-line consolidation. Since assets, liabilities and profits are not brought in 100 per cent, no figure for minority interest arises under this method. The use of equity accounting in consolidated financial statements procedures the same earnings per share as would full consolidation and decreases the scope for manipulation of results by slight variations in shareholdings but creative accounting is still possible on the borderline between associated companies and investments.
A synonym for ordinary shares. Equity share capital has a legal definition which includes participating preference Shares as well as ordinary shares.
Finance raised form the owners of a company as distinct form that raised form outsiders.
Undefined term used in the seventh directive. One interpretation involves the mutual recognition of other countries accounting standards relating to consolidated financial statements.
A fundamental error, a departure forms an internal control procedure or clerical error. Departures form internal control procedures should be discovered by an auditor through compliance test. Clerical errors may be errors of principle, errors of original entry, errors of commission, or compensating errors. It is necessary for an auditor to decide that level or error which he is prepared to accept.
A written agreement entered into by there parties and deposited for safekeeping with the third party as custodian until the other two parties have fulfilled the conditions laid down in the agreement.
The wealth of deceased person or a bankrupt.
In an audit context, estimating the population values of variables, or attributes form a sample.
Investment only in companies that are not engaged in activities or areas considered to be socially or politically undesirable.
A bond issued on the internationally capital market denominated in currency other than that of the country of issue.
A cheque drawn on European bank which can be cashed at any bank displaying an EC sign.
A clearing system for euro bond based in Brussels.
A currency held by a depositor outside the country of origin of that currency.
Equity shares denominated in a currency different form that of the country in which it is traded.
A body established by the EC Commission in 1990. The members of the Forum are the standard setting bodies of each EC members stated, the federation Des Esperts Compatiable Europeans (FEE), and representatives organizations of user groups. The role of the Forum is to advise on the EC s contribution to international discussions on accounting, particularly as regards Harmonization. The forum is not a standard-setting body and operates separately from the accounting directives contract committee.
An association mainly of academic accountants from Western Europe. Its annual congress is held in a different European city each year.
An academic accounting Journal published since 1992 by Routledge for the European Accounting Association.
A form of business corporation proposed in a draft regulation of the EC Commission. It would be subject not to the national laws of the member states but to European law.
A currency created in 1979 to act in a draft regulating unit of the European monetary system. Its value is based upon a basket of the currencies of the member states. Some companies in Europe have published financial statements in euro as well as in their national currency.
An EEIG business organization based upon the French grouping of the interest economics. It is of the nature of a joint venture. Profits are taxable only in the hands of members of the grouping.
A system of exchange rate stabilization operated by the members of the states European Community.
An option that can only be exercised at maturity.
In an accounting context, a transaction or other internal or external change recognized by a recording system. Which events are recorded depends upon whether Historical Cost Accounting (HCF) or some form of Inflation Accounting is used. Unmodified HCA. For example, does not regard as events a change in the net realizable value or replacement cost of a fixed asset or a change in the general price level. All events can be expressed in terms of debit entries and credit entries.
The risk that an unforeseen event will affect a company s unsecured bonds in such a way that they will lose value and become fallen angles.
Storing data relating to accounting events in a data base without routinely classifying them chronologically or in any other way. The data are accessed as required.
Description of shares whose purchase is not entitled to any forthcoming dividends, rights etc.
A cost arising from a tax which is not compensated for by a benefit, thus leading to a loss of economic welfare.
Rules made by a government to regulate the movement of currencies, domestic and foreign, into or out of a country.
A mechanism within the European Monetary System whereby participating member states commit themselves to maintaining the exchange clues of their currencies within agreed narrow limits. If market rates differ by more than a permitted percentage the relevant governments have to take corrective action. The existence of the exchange rate mechanism reduces the foreign exchange risks of companies operating within the participating members states.
Taxes levied on goods manufactured and consumed within a country, An excise duty may be imposed as unit tax or may be Ad valorem.
Description of share whose purchase is not entitled to received a forthcoming dividend.
An option in shares granted by a company to one of its executives.
An option in share or other securities granted by a company to one its executives.
A person appointed by a testator to give an effect of his or her will after death.
Account relating to the estate of a deceased person. The form of accounts is similar to that of trust account in general.
A mutually unexecuted contract, i.e. one in which two parties have agreed to make a transfer or recourses but neither has yet done so. Examples are contracts. Accounting to conventional accounting, such contracts do not give rise to assets and liabilities.
In an options market, the price at which the option holder may buy or sell the underlying security or commodity in that a proportionate share is disclosed for each item of the joint venture s assets, liabilities, revenues and expenses. It differs from proportional consolidation in that the proportionate shares are not aggregated with the corresponding items in the accounts of the parent company.
The monetary value of an action calculated as the weighted average of the possible payoffs. The weights are the estimated probabilities of each payoff.
The Product of a positive integer and all positive integers less than itself.
In economics, the cost of a factor of production (land, labour, capital, entrepreneurial skills) after adjustment, if necessary, for any taxes or subsidies.
The sale by an enterprise of its debts to a factor who not only collects the debts but may also provide administrative and bookkeeping services and credit insurance facilities. In deciding on whether to factor debts, the enterprises must weight the advantages of improved liquidity, less uncertainly and a smaller administrative load against the charges made by the factor.
In commerce, persons who act as agents, selling in their own name goods belonging to a principal. By extension, persons who buy the debts of an enterprise and then collect them on their own behalf. In mathematics, parts of a mathematical expression to be multiplied by other parts.
All costs associated with a manufacturing process other than direct materials and direct labour. They are also referred to as indirect manufacturing cost, factory burden. Manufacturing overhead and manufacturing expenses. Variable factory overhead is usually distinguished from factory overhead.
In the Context of acquisition accounting, the amount for which an asset or liability could be exchanged in an arm s length transaction as at the date relevant for the evaluation. The fair value of a non-monetary asset is usually based upon its current replacement cost. The difference between the fair value of the purchase consideration and the appropriate percentage of the sum of the fair values of the identifiable net assets is the goodwill on consolidation.
disclosing the results of farming activities, Valuation problems arise in respect of growing crops, marketable procedure, and livestock
A deviation of actually form an expected, budgeted proposed new system. Both technical and financial considerations are taken into account.
In an accounting context, information about performance furnished to the persons responsible for that performance, It is especially important when participative building is used. The comparison of planned and actual performance enables corrective adjustments to be made in objectives or performance or both.
Debit balances includes on balance sheets as assets but which do not conform to the definition of an asset.
A computer whose technology is based on very large-scale integrated circuits.
The financial statements produced at the end of an accounting period, especially the balance sheet and profit and loss account.
A dividend recommended by the directors of a company for approval by the shareholders at the annual general meeting. It is shown as an appropriation in the profit and loss account and current liability in the balance sheet. It is also referred to as a proposed dividend.
Academic Accounting Journal published since 1985 by Basil Black well, Oxford, and devoted to problems of public sector accounting.
A Body whose respond-sibilates include raising funds to support the financial accounting standards board Advisory Council, and periodically reviewing the standard-setting process
The body that advises the financial accounting standards board on establishing priorities and reviews proposed standards. It has an advisory role only.
Since 1973, the board responsible for developing accounting standards in the USA. Its processors were the committee on accounting procedure and the accounting principles board. Unlike its predecessors, membership of the FASB is small (seven), full-time, and well paid. The board is not wholly composed of practicing CPAs. Members are appointed by the trustees of the financial accounting foundation and advised by the financial accounting standards council. In developing standards the FASB follows extensive due process procedures that for major projects includes task forces, discussion memoranda invitations to comment, public hearings and exposure drafts. The FASB issues statements of financial accounting standards, which are officially recognized as authoritative by the Securities and Exchange Commission and by the American Institute of Certified Public Accountants, statements of financial accounting concepts, Interpretations, and Technical Bulletins.
That part of the master budget of an organization which deals with such matters as cash and capital expenditures, and program balance sheets and funds statements.
A term covering both, economic failure, i.e. achieving a rate of return, adjusted for risk, significantly lower than the prevailing rate of interest, and legal failure.
Financial contracts which allow investor and those exposed to a financial risk resulting, e.g. form fluctuations in interest and foreign exchange rate, to hedge or offset that risk by selling it to someone else.
An organization such as a bank or a life assurance company whose primary activity is dealing in money or financial investments and which does not produce goods or provides non-financial services.
A document representing a promise to pay , an order to pay (e.g. a Bill of exchange) or a certificate of indebtedness (e.g. a bond).
Persons and institutions that collect funds and invest them on behalf of others, e.g. unit trusts, investment trusts, pension funds.
Of the sources and uses of funds of an organization both short and long term.
That part of corporate modeling concerned with the construction and use of computer- based models to carry out the calculations necessary to produce statements based on given sets of assumptions and predictions.
That part of long range planning concerned with financial aspects of a company s objectives, and strategies for meeting those objectives. It involves forecasting future capital expenditures and working capital and their financing from operations or from new issues of shares or debentures, i.e. forecasting, for several years ahead, profit and loss accounts, balance sheets and funds statements. Such forecasting usually involves many uncertainties. These can be better appreciated, but not removed, by the use of computer-based sensitivity analysis and financial modeling
Mathematical statements of the relationships among all the operation and financial activities of an organization, account being taken or relevant outside factors. Financial planning models are usually computer-based and give the opportunity to test the effects of changes in assumptions and forecasts. They may be general purpose or specially tailored to a particular organization
Relationship among items in financial statements. They are normally expressed in either ratio form, e.g. Current assets /current liabilities = 2.0 or in percentage form (e.g. current liabilities are 50 per cent of current assets). Which form is chosen is a matter of convenience and convention. Financial ratios are used in the assessment of profitability, liquidity and capital structure and are widely should not, however, used in isolation and the limitations of conventional accounting should be borne in mind. Financial ratios are most useful in comparisons: actual ratios may be compared with budgeted ratios; series of ratios for a business may be compared over time; ratios for one business may be compared with those of others or with the average ratios for an industry.
A report to user (e.g. a shareholder) on one or more aspects of the financial position and operations of an accounting entity.
The body responsible for suppressing the activities etc. of a financial position and operations of an accounting entity.
The body responsible for supervising the activities of the accounting standards board and for appointing its members.
UK Act regulating investment business and based on the Gower Report. The aim of the Act is to provide a (hitherto lacking) coherent legal structure of the regulation of the financial services indicatory. The Act works by means of self-regulation within a statutory framework. It set up a Securities and Investments Board (SIB) to operate as an independent regulatory body responsible to the Secretary of State for Trade and Industry.
A summary of the central government accounts and forecasts published annually.
Statement giving financial information about an accounting entity. The traditional financial statements are the Balance Sheet and the profit and loss account (income statement). Many enterprises in the UK and the USA also publish a funds statement or a cash flow statement The UK Corporate Report recommended the publication of six additional statements of which only the value added statement has been adopted to nay extent.
A share price index based on 30 leading shares on the London Stock exchange, and calculated as an un-weighted Geometric Mean.
An accounting period of twelve months or (sometimes) 52 weeks. For many companies in the UK and USA the financial year coincides with the calendar year. The financial year for UK corporation tax runs form I April to 31 March of the subsequent year, whereas the income tax year runs from 6 April to 5 Aril. The explanation of this, curiosity is that the most important financial days in England and Wales were originally the quarter days, including 25 March (Lady Day). 5 April is eleven days after 25 March the eleven days being those lost when the calendar was reformed in 1752. In UK company law a financial year is any period in respect of which a profit and loss account is drawn up.
A bill of exchange acceptable to the Bank of England as security.
In the context of inventory valuation, the calculation of the cost of inventories (stocks and work in progress) on the basis that the quantities in hand represent those most recently purchased or produced. FIFO is the most popular method in the UK of calculating the historical cost of stocks and work in progress. Compared with the Last in First Out (LIFO) method, FIFO normally results, in times of raising prices, In a lower cost of goods sold figure (and therefore a higher profit figure) and in a higher asset valuation in the balance sheet.
Capital Allowance granted in the first of purchase of plant and machinery. First year allowances from 1970 onwards were as high as 100 per cent but the Finance Act 1984 introduced a new and less generous policy. In subsequent years an annual writing down allowances is granted
The action of a progressive tax system in taking an increasing portion of the national income as nominal incomes rise over time (whether form inflation or an increase in real output per head or both), Fiscal drag can be countered by indication.
The hypothesis, named after the economist Irving Fisher, that the nominal rate of interest embodies in it an inflections premium sufficient, on a one-foreign basis, to compensate lenders for the expected loss of purchasing power associated with inflation. In an international in interest rates earned on similar financial assets is equal to the expected change in the exchange rate.
A leading Australian university. Sir Alexander Fitzgerald was also editor of The Australian Accountant form 1936 to 1954, a prolific writer and chairman of many government committees. A chronology of his life a list of his writings is given in R.J. Chambers, L. Glodberg and R.L. Matthew s, The Accounting Frontier. Fitzgerald s writings reflect knowledge of and a keen interest in British and American accounting as well as Australian.
Assets that are intended for use on a continuing basis in an enterprise s activities. This definition, long accepted in practice, has received legal recognition in Britain in the Companies Act. Since the 1981 Act any asset which is not a fixed asset is deemed by law to be a current asset. In particular, investments must be classified in company balance sheets as either fixed or current. The compulsory Balance sheet Formats of the Act subdivided fixed assets into intangible assets, tangible assets and investments.
A record of an organization s fixed assets, typically containing for each asset: description, original cost, estimated scrap value, estimated useful life, depreciation method, accumulated depreciation, net book value.
A charge attached to specific asset or assets and which prevents dealing in those assets without the consent of the secured creditor who has a first claim on the proceeds of sale and can usually appoint a receiver to realize the assets in the event of default.
A security which carries a fixed rate of interest. It is normally issued at a discount and redeemable at par.
A contract which stipulates that the contractor is to receive a fixed amount on completion.
An observation booth in a television or radio studio available for use by advertisers and advertising agency personnel.
A rate of interest applied to the original sum in a contract rather than to the reducing balance, and therefore potentially misleading. For example, if the cash price of a household item is $400 and it can be purchased for 12 monthly installments of $ 35 each (1420 in all), the flat rate is 5per cent p.a. but the monthly rate of interest is approximately 3/4 per cent and the executive Annual Rate approximately 9.4 per cent.
The right of shareholders of company threatened by a takeover bid to buy additional shares in the company at half price.
A charge which is not attached to any specific asset but to all assets or to a class of assets (e.g. stock and work in progress). A flatting charge, unlike a Fixed Charge, allows a company to dispose of the assets charged in the usual course of business without obtaining special permission form the lender. If default occurs, a sequined creditor will sell the assets to realize the debt, usually by appointing an administrative receiver. The secured creditor obtains the net proceeds of sale subject to the prior claims of the preferential creditors.
A Foreign Exchange Rate which is not fixed by national authorities but varies according to supply and demand.
A security on which the rate interest is not fixed but varies according to conditions in the short term money market.
In the context of national accounting, accounts showing both financial and non-financial flow through the sectors of an economy. They measure changes in the financial structure of the economy and the financial relationships between different sector s and illustrate the dependence of financial and non financial flows. Barter transactions and depreciation are not recorded, since they do not involve financial flows. For each sector, uses of funds (debits) and sources of funds (credits) are shown.
An open market valuation With a time limit that does not provide a reasonable period in which to negotiate a sale. The issue of such a valuation in financial statements is only appropriate where the accounting entity is not a going concern.
Estimating or predicting future events or conditions. Forecasts may be long-term or short-term. The techniques used may be quantitative (often making sue of computers) or qualitative. Quantitative forecasting models may be classified into (a) causal models in which independent variables are used to forecast dependent variables, and (b) time series models, which produce forecasts by extrapolating the historical values of the variables of interest by, e.g., moving averages.
The reporting of projected data to external users of financial statements. Forecast reporting is recommended in both the UK Corporate Report (1975) and the US Troubled Report (1973), the former proposing as an additional statement a statement of future prospects, showing likely future profit, employment and investment levels. The publications of forecast have been prohibited in the UK. Detailed, quantitative forecasts are provided in prospectuses and during takeover battles. In the annual financial statements they tend to be brief and mainly qualitative; to the extent that they arc quantitative they contain Ordinal Numbers rather than Cardinal Numbers. Forecasts in prospectuses are reviewed by auditors who report whether they have been properly complied on the bases and assumptions made by the directors and whether they are presented on bases consistent with the accounting polices normally adopted on bases consistent in the annual financial statements are not audited. Forecasts reporting are becoming more popular in the USA and the AICPA now permits audits of financial forecasts, i.e. those based on the most probable financial figures of an accounting entity in one more future periods.
Legal proceedings taken by a mortgagee to bring to an end the interest of a mortgagor in a property which is usually than sold.
A bond issued in, and denominated in the currency of, a country which is not that of the borrower.
A US federal Act passed in 1977 ostensibly to combat bribery and illegal business practices. The Act requires companies under SEC jurisdiction (whether or not they do business outside the USA) to maintain proper books. Records and accounts and an adequate system of internal control.
The restatement of accounts or transactions in one currency into another currency. The translation may be of a set of financial statements, prepared in a local currency, of a foreign subsidiary or branch which is to be consolidated with the statements, prepared in the home currency, of a parent company. Alternatively, the translation may be of transactions involving a currency other than the one in which a company s own accounts are kept. Translation has become an important practical problem in recent years because of the increase in overseas operations by companies and the severe fluctuations in exchange rates especially since 1971. If exchange rates are not fixed the accountant must decide what rate or rates of exchange to use in translation and how to account for any gain or loss that may arise. The choice of rates is between historic (i.e., at the date the balance was established) and closing (also known as current, i.e. at the date the translation is being made). The three traditional translation methods used for balance sheets are (a) the closing rate method, which uses the closing rate for all assets and liabilities; (b) the current /non-current method, which uses the closing rate for current assets and current liabilities; and (c) the monetary / non monetary method, which uses the closing rate for monetary items and the historic rate for non-monetary items. Method (a) assumes that (b) only current assets and liabilities. The three methods can produce widely different translated Blanca sheets, profit figures and translation gains or losses. Translation gains and losses can be accounted for in three ways: in the income statement, as an ordinary item affecting earnings per share; in the income statement, as an extraordinary item; or in the balance sheet. A possible way to choose translation rates is to use the temporal principle, which states that the valuation methods used in the local currency balance sheet should be retained in the translated statements. Applied to conventional statements prepared on a basis of historical cost modified by precedence, the temporal principle procedure results very similar to those of the monetary /non monetary method, the main difference being that stocks (inventories) measured at net realizable value are translated at a closing rate and not at an historic rate. In 1975 the US Financial Accounting Standards Board issued FAS 8 which made the temporal method (i.e. the application of the temporal principle to conventional statements) obligatory and required exchange gains and losses to treat as ordinary items in the income statement. FAS 8 became very unpopular with US companies since it coincided with a weakening of the dollar and obliged them to record translation losses on foreign currency borrowings (even long-term borrowings) whilst no translation gain could be recorded in respect of foreign fixed assets acquired with the proceeds of the borrowings. The UK and other counties were slower to issue accounting standards in this area, the UK Accounting Standards Committee, for example, being unwilling to ban either the temporal method, given its adoption is FAS 8, or the closing rate method since this is the one used by most UK companies. As a result of the dissatisfaction with FAS 8, the need in an area of vital concern for multinational companies for harmonization between counties, and unwillingness to abandon historical cost accounting, the net investment concept was developed. Under this concept it is argued that the investment of a company is in the net worth of its foreign subsidiary rasher than a direct investment in the individual assets and liabilities. The foreign subsidiary will normally have partly financed its net assets by local currency borrowings and its day-to-day operations will not normally be dependents on the reporting currency of the investing company. The difficulty with this approach is that is appears to remove the rationale for full consolidation statements. In the absence of consolidation, foreign currency translation becomes unnecessary. The accounting standards issued by the USA, the UK and the IASC thus appear to have shaky conceptual foundations but they may perhaps be regard as successful in removing the undesirable economic consequences of FAS 8. If the operations of the foreign entity are regarded as integral as integral to those of the parent, The temporal methods is to be used, with all gains and losses on long-term monetary items is permitted. Fluctuations in exchange rates have been accompanied by high rates in inflation in many countries; hence there has been a need to combine currency translation with inflation accounting. It is not satisfactory to use the former as substitute for the latter since in the short run changes in exchange rare and internal prices take place at different rates. Two procedures are possible: translate/restate. I.e. translate, the local currency statements into the home currency and then restate them to take account of price changes; and restate translate, the reverse procedure. Which procedure is appropriate depends on the method of inflating accounting that is used: translate/restate is appropriate for current purchasing power (constant dollar) accounting: restate /translate for current cost accounting. This is because the purchasing power of the home (reporting) currency is relevant to the shareholders of the holding company whilst replacement costs in the home country are not relevant for local currency assets. FAS 52, SSAP 20 and IAS 21 all refer to the translation of non-monetary assets in hyper-inflationary economies. FAS 52 requires the use of the historical rates; SSAP 20 calls for restatement for inflation followed by use of the closing rate; IAS 21 prefers restatement / translation but permits historical rates.
Acquisition of an equity interest in a foreign enterprise with the intention of acquiring control or significant influence.
The market for transactions in foreign currencies. The market is usually conducted over telephone lines. The major participants are banks, their customers, and foreign exchanges brokers.
The risk of loss form carrying out operations, or holdings assets and liabilities, in a foreign currency. The size of the risk has increased in recent years because of the growth in international trade and financing and the increased magnitude of exchange rate fluctuations, especially since 1971. Also, foreign currency losses and gains have become more visible in published company financial statements. A company s exposure to foreign exchange risk may be measured in economic terms using discounted cash flows, or in conventional accounting terms. It is the latter which are reported in published financial statements. It is necessary for a company to decide whether to be a risk minimizes adopting a defensive strategy or profit mammilla adopting an aggressive strategy. The techniques for managing foreign exchange exposure, i.e. for avoiding risk, may be classified as internal or external. The internal techniques include the following: (a) minimizing the number of foreign currency transaction by bilateral or multilateral netting of payments and receipts outflows and of assets and liabilities; (c) leading and lagging, i.e. prepaying or delaying payment in line with forecast exchange rate movements; (d) adjusting pricing policies; (e) trying to invoice exports in relatively strong currencies and imports in relatively weak currencies (if adopting a defensive strategy ); (f) trying to ensure that exposed assets, revenues and cash flows are denominated in strong rather than wag currencies (if adopting and aggressive strategy) or seeking to minimize exposure in any foreign currency (if adopting a defensive strategy). The external techniques include: (a) hedging by the use of forward exchange contracts and short-term borrowing; (b) discounting foreign currency bills receivable; (c) factoring foreign currency receivables; (d) taking advantage of government exchange risk guarantees; (e) swaps i.e. the simultaneous buying and selling of a foreign currency for different maturates. Some of the above techniques may be prohibited or made difficult in certain circumstances by exchange control or tax regulations.
An accounting trisection involving a currency other than that in which an enterprises accounts are kept. Such transactions are normally translated using the rate of exchange at the date of the transaction.
Shares forfeited, in accordance with a company s articles of association, for nonpayment of calls. A public company may sell forfeited shares or cancel them and reduce the shares capital accordingly.
An annual report required to be filed under the US Securities Acts. Part 1 contains information about the registrant and his business. Part 11 contains financial statements and other related information.
A quartile report required to be filed under the US Securities Acts. Its most important contents are interim financial statements.
An annual filing required of non-US companies by the Securities and Exchange Commission, 20-F filings may contain more information than is reported by companies domestically.
In computing, a predetermined and mandatory order, organizations or positioning of symbols.
An agreement to exchange different currencies at a specified future date and to a specified rate. The difference between the specified rate and the spot rate ruling on the date the contract was entered into is the discount or premium on the contract.
The rate at which a currency can be bought or sold for delivery at some future date.
An agreement whereby a currency is bought and sold for delivery at some future date at an agreed rate of exchange.
A directive on company law approved by the EC in 1978 and implemented by most member states in the 1980s (in the UK by the Companies Act 1981). The directive changes the law relating to company accounting considerably in all member of options allowed (e.g. in relation to inflation accounting) and by its lack of detail in with valuation rules, formats of financial statements and disclosure requirements The amount of disclosure required is governed by three size criteria (turnover, balance sheet total and number of employees).
In computing, programming languages designed for end users rather than professional programmers.
A right granted to a person (the franchise) to carry on a certain line of business (controlled by the franchiser) in a defined geographical area.
A fee paid by franchisee to a franchiser. US standard accounting practice requires that franchise fee revenue should be recognized when all material services or conditions relating to the sale have been substantially performed or satisfied by the franchiser.
Statements or recommended practice (SORPs) prepared by a body other than the former Accounting Standards Committee (ASC) and Franked (i.e. approved) by the ASC. They relate to particular industries or sectors, Franked SORPs have been prepared by bodies as diverse as the Oil Industry Accounting Committee, the Committee of Vice-Chancellors and Principals, the British Bankers Association, the Association of British Insurers and the Chartered Institute of Public Finance and Accountancy or conflict with any existing or currently contemplated accounting standard, and issues, if appropriate, a negative assurance statement.
Deliberate acts of deception or manipulation with the intent of misappropriating assets or misrepresenting financial information.
Land and buildings held in the absolute possession of the owner for all time. Freehold land is not depreciated; it is standard accounting practice for freehold buildings to be depreciated over their estimated useful life, although in the UK this is not always done.
Colloquial expression recognizing that every benefit, even if apparently free, ahs a cost attached to it.
Those reverse of a bank or insurance company which exceeds the level prescribed by the relevant monetary or supervisory authorities.
Users of public goods I do not pay for them but cannot be easily excluded form consuming them. Once a company has published accounting information, For example, it becomes freely available to everyone. Since the users of the information do not have to pay for it, the price mechanism does not operate and they are likely to ask for more and more information. In an unregulated economy, providers of information are likely to provide only such amounts as deemed necessary to attract investment and it may therefore be under provided.
Pressure placed on the minority shareholders of a company that has been taken over in order to persuade them to sell their shares to the new owners.
A series of quantities sorted into classed with the classes arranged in order of the frequency or occurrence of the quantities within each class.
A form of organization established for the mutual assistance of its members.
A benefit given to an employee in addition to his or her salary. Examples are: private health insurance, subsidized accommodation and subsistence. Many fringe benefits are taxable in whole or in part.
The incorporation of administration expenses into the first payment of an insurance premium, unit trust price or loan installment.
In the context of bond covenants, generally accepted accounting principles frozen as at the date entering into the convenient.
A set of financial statements complying with all the provisions of the Companies Act as distinct form the Summary Financial statements, which listed companies, are permitted to send to shareholders.
A method of consolidation in which 100 per cent of each item of the assets, liabilities, revenues and experience of a subsidiary is brought into the consolidated financial statements. Adjustments are made for inter company times. If the subsidiary is not wholly owned adjustments must also be made for the minority interest. This is the normal method of consolidation used for subsidiaries.
Basing prices on the full costs or products, i.e. on product costs based on absorption costing and normal volumes, plus a mark-up. Full cost pricing is more common in practice than marginal coast pricing, possibly because whilst the latter provides a minimum price, full cost pricing provides a relatively safe starting point form which management can use its judgment as to how much, in the light of anticipated demand, can be added to full cost. It is argued against full cost pricing that it ignores demand (in that it assumes a normal level of production and sales); that it is partly based on irrelevant past costs; that it involves the allocation of fixed costs; and that a business may not be operating at normal volume,
Costs which include allocation of fixed factory overheads and sometimes also of selling and administrative overheads. They are used as a basis for pricing decisions if cost plus pricing is adopted.
Earning per share calculated on the basis of the number of shares potentially as well as actually in issue. Dilution in the future; debentures, loans or preferences shares convertible into equity; and options and warrants.
Shares on which the full nominal value has been paid and on which no further calls can be made.
In the context of foreign currency transition, the currency which a foreign subsidiary handles on a day to day basis and in which it generates net cash flows. it is usually the currency of the country in which the subsidiary operates, but may be the currency of the country in which the subsidiary operates, but may be the currency of the parent company if the parent. Gains and losses arising form the translation of financial statements in the functional currency into the reporting currency are not passed throughout the consolidated income statement.
The tendency of a person to attach a certain meaning to title or an object and his inability to perceive other passable meanings or uses.
In public sector accepting, a separate pool of monetary and other resources established to support specified actives. The fund is an accounting entity and is operated and accounted for independently of other funds. In principle, the use of the resources of the fund is restricted to the specified activities. In practices, some resources may be common to two more funds or transfers may be permitted between funds. In finance, resources administrated by a financial institute on behalf of a client. The term is also used to denote the institution managing the fund e.g. a pension fund.
One of the four concepts set out in SSAP 2, i.e. going concern accruals, consistency and prudence. They are described as the board basic assumptions which underlie the periodic financial accounts of business enterprises and as having general acceptability.
The study of corporate financial reports and other relevant information to try gain an insight into the real worth of company’s shares, in the expectation of identifying ones that the market has turn over undervalued. According to the semi-strong form the efficient market hypothesis such attempts will not on average be successful.
In the context or prior year adjustments, errors of such significance as to destroy a true and fair view and hence the validity of the financial statements and which Would have led to the withdrawal of the statements had the errors been recognized at the time.
A pension scheme where the future liabilities for benefits to members are provided for by the accumulation of assets held externally to the employing company s business.
Funds provided by the profitable operations of a usually equivalent to net profit before tax after adding back depreciation.
Statements that show the sources and applications of funds of an enterprise for a period. In their simplest form they consist of the differences between two successive balance sheets, but the items are usually rearranged and adjusted. Published funds statements take a variety of forms in an attempt to serve such overlapping and even conflicting objectives as showing the relationships between liquidity and profitability; reporting on liquidity and solvency; aiding the predication of future cash flows; highlighting financing and investing activities as distinct form operating transactions with outsiders (as distinct form internal transactions). Difficulties in satisfying these objectives have led in may counties to the suppression of funds statements by cash flow statements. The concept of funds sued is not always made explicit. The most common concepts are working capital and cash. Under the working capital concept, funds are increased by, for example, selling fixed assets for cash or on credit, and issuing share for cash or on credit, redeeming debentures, prosing or paying dividends, and providing for tax. Transactions such as the issue of bonus shares, which involve no movements of funds, are omitted. Sources of funds less uses of funds during the period which is represented by the change in working capital. Under the cash concept, funds are increased by, for example, selling fixed assets for cash, and issuing shares for cash to profits before tax must be added not only depreciation and losses and profits on the sale of fixed assets but also changes in inventories, debtors and creditors. Funds are decreased by the expenditure of cash, including dividends paid and taxes paid. Funds can also be defined as all financial resources in which case sources of funds equals application of funds. An advantage of this definition is that a significant transaction (e.g. a buildup in inventories financed by short-term loans and thus not affecting the total of working capital) is not excluded simply because it affects only working capital or cash items. SSAP 10 required statements of sources and application of funds to be published as part of the audited financial statements by all companies of funds was not made clear but appeared to be mixture of working capital and cash. SSAP 10 was suppressed by the issue in 1991 by the Accounting standards Broad of FRS 1 on cash flow statements. Audited statements of sources in financial position were required by Accounting Principles Board Opinion no.19, which in effect defined funds as working capital but also required disclosures of the financing and investing aspects of exchanges or conversions of non-current items published of a cash flow statement.
Assets that are substantially indistinguishable form one another, e.g. some stocks (inventories) and investments.
Costs based on expectations of the future. Future costs. Not past costs, are relevant in decision - making although the latter often form the basis for prediction.
A gain that results form repaying a loan in monetary units of a lower purchasing power than those at the date of borrowing.
The theory of making the best choice form among available strategies given imperfect information.
Formerly, the majority of stocks traded on the London Stock Exchange.
A chart that displays both planned and actual production performance.
A rule in partnership accounts applicable to insolvent partnerships where the ratio of capital contributions is not the same as the profit-sharing ratio. The rule is that where one partner has both a deficiency on his separate estate and final debit balance on his capital account, whilst the other partners are solvent, the debit balance on his capital account, whilst is to be apportioned to the solvent partners in proportion to their capital contributions.
The relationship, measures in terms of either capital or income, between the funds provided to a company by its ordinary shareholders and the long-term sources of funds carrying a fixed interest charge or dividend.
Ratios based on either balance sheet or income data measuring the degree of a company s gearing ratios based on balance sheets may be defined in different ways, e.g. as debt /equity or debt/ (debt+equity). Preference capital in this context is treated as debt.
The ledger containing those accounts not contained in the subsidiary ledger.
A partner in a limited partnership whose liability is not limited.
A partnership other than limited partnership, i.e. one in which all partners have unlimited liability.
A revenue reserve formed for unspecified purposes.
The nth positive roots of the product of n values The financial times industrial ordinary share index is calculated as an un-weighted geometric mean.
A series of numbers in which each number is increases by a constant ratio
Gifts made between living persons.
Garbage in, garbage out: An expression used to emphasize the fact that the reliability of outputs depends upon the reliability of inputs.
Expression denoting the integration of the world’s leanings stock markets and the continue dealing across several times zones of the shares traded thereon.
Co-ordination of the personal and group goals of subordinates and superiors with those of the organization of which they are a part. The goals of an organization may include maximization of profit or share of the market; the goal of a group, shared values and mutual commitments; and the goals of an individual, an aspiration to succeed.
An extension of linear programming in which one or more goals are formulated as constraints and the objective functions seeks to minimize the sum of the absolute deviations form these goals. Goals can be ranked in order or importance and trade-offs made between them If not all goals are attainable; the minimum additional resources required to realize all goals can be calculated.
Colloquial expression for a takeover bid for a company which its management can t refuse
The presumptions that an enterprise will continue to operate for the foreseeable future. The Act requires that a company shall be presumed to be carrying on business as a going concern.
The issue of shares to the public by a company not previously listed on a stock market.
Colloquial expression for a large sum given to a director on retirement.
Colloquial expression for financial inducements given to employees to persuade them not to leave their jobs.
Colloquial expression for a financial inducement offered to an employee on taking up a new post.
Colloquial expression for a financial inducement offered to an employee on taking up a new post.
The key which unlock golden handcuffs, in order to pay off people not thought to be worth keeping.
Colloquial expression for a provision in an employment contract guaranteeing substantial severance payments to top managers who may lose their jobs in the event of a takeover.
A share carrying a veto or a controlling interest on the occurrence of certain coefficient of determination.
The extent to which an estimated equation fits the data It may be measured by the coefficient of determination.
A document sometimes prepared when goods are received an organization and forming part of the organization s system of inventory control.
An intangible asset that is not specifically identifiable and relates to the business as a whole. Conceptually, goodwill represents the difference between the value of a business as a going concern and the sum of the values of its net assets taken individually. It may also be regarded as the value of expected superior earnings over a normal return on investment.
A reserve especially created so that goodwill on consolidation can be written off against it. It thus has a debit balance.
A clause which waives standard qualification rules for cases existing before the rules came into force.
A pictorial expression of quantitative or financial data. Graphs are often used in company reports.
Colloquial expression for accounting procedures which attempt to quantity and disclose costs and benefits related to the environment.
An audit of the environment, In particular, a check on claims of an enterprise to be environmentally friendly.
Threat by a shareholder to make a Hostile takeover bid unless bought out at a high price.
In a takeover, a counter bidder whose intentions are ambiguous and welcomed neither by the target company management nor by the original bidder.
Trading in a company shares before they are officially listed on a stock exchange.
The historical cost or revalued amount of a fixed asset before any deduction for depreciation.
The amount of a dividend before deduction of tax or the cash amount of dividend plus the tax credit.
The ratio between a company s gross dividend per of net ordinary share and its market price per share.
Gross National Product excluding the effect of net property income from abroad.
For persons, non-trading enterprises and fee earnings enterprises, income before the deduction of expenses.
Before deduction of tax.
Calculating the gross equivalent of a net amount.
The excess of sales over the cost of goods sold.
A measure of the production of the goods and service of an economy shown in National Income and Expenditures or outputs. It is stated to be gross because no deduction is made for depreciation or capital consumption GNP may be measured at market prices or, if indirect taxes and subsidies are excluded, at factor cost domestic product as distinct form national product excludes the effect of net property income form abroad.
The excess of sales over cost of sales Often termed gross margin in the case of a manufacturing company.
Gross profit for an accounting period as a percentage of turnover
An annual payment made by a leaseholder during the life of a lease.
that are subsidiaries or holding companies of other companies
A method of calculating depreciation in which the items in a group of similar assets are depreciated as unit rather than separately.
The principles of orderly book keeping which German companies are legally required to follow.
A promise by one person to make good nay failure by a second person to meet financial obligations owed to a third person For example, the directors of a private company, and holding companies may guarantee the debts of subsidiaries
Loan stock which is secured not on assets of the issuing company but on assets outside the company.
Allowable or recommended modes of product without the backing of statutorily.
Guidelines published by the Organization for Economic Co-operation and Development They include references to the provision of both financial and non financial information.
A currency whose exchange rate tends to rise against those of other currencies.
A rigid storage disk capable of storing more information and information and being accessed more quickly than a floppy disk.
A proposed version of the ECU in which it would become a separate currency, instead of a notional currency based upon a basket of currencies
The reciprocal of the arithmetic mean of the reciprocals of nonzero numbers.
A sequence of numbers whose reciprocal form an arithmetic progression.
The process of increasing the compatibility of accounting practices by setting bounds to their degree of variation. It can be distinguished form standardization which is the process which leads to uniformity of accounting records and financial statements.
A total arrived at by adding, for control purposes, items not added for any other purpose.
Research carried out by Elton Mayo and other at the Hawthorne, Illinois, plant of western Electric form 1927 to 1932. The research findings emphasize the organization as a social unit and members or organization as social beings with social needs to be satisfied.
In public sector accounting, a main division in an accounting statement.
In public escort accounting, a list of the main items of expenditure.
Simplified rules used for processing information on a rule of thumb, trial and error basis. Highlights Brief summaries of financial and operating data, especially those included in annual reports to shareholders.
A crude approximation to least squares using only representative highest and lowest points on a scatter diagram for fit a straight line.
For hire purchase and investment sales in the books of finance companies dealers and purchasers
A graphical representation of a frequency distribution showing the class intervals horizontally and the frequencies vertically.
The monetary amount for which and asset was originally purchased or produced.
A system of accounting based on historical cost but modified in practice by prudence.
The convention that assets are carried in the accounts at their historical cost.
A summary in which a company s condensed financial statements are set out over, usually, a five or ten year period.
A gain that results form holding assets rather than using them in operations. Holding gains can be classified into the overlapping categories or realizable holding gains and realized holding gains. Realizable holding gains represent the increase during an accounting period in the current value of assets held by a firm, some of which will be realized during the period and some of which will remain unrealized.
A loss that results form holding assets rather than using them in operations.
Computerized system enabling customers to have access to banking service via a terminal in their own homes.
(Homemade leverage) gearing of investors as distinct form the banking of the company in which they have invested.
The tax principle that equal people in equal circumstances should be treated in an equal way. It can be argued, for example, that a wealth tax as well as an income tax is necessary for horizontal equity to be achieved.
A method of presentation of a financial statement in which debit and credit items are displayed as in account, i.e. side by side.
The acquisition by a business organization of other organizations producing similar goods or services.
A takeover bid made without the support of the management of the company bid for.
The bringing into account of any advancement made to a child during the parent s lifetime. At the death of the test or such advances will, if brought into hotchpots, form part of the estate to be distributed.
A periodical published by a company, with editorial content devoted to company activities.
The wealth tied up in human beings, including the investment in time and money spent to allow individuals to acquire education, training and skills. Human assets are not conventionally recorded in financial statements except insofar as they are included under good will.
The ways in which decision makers make use of information under uncertainty. Improvements in HIP may be achieved by altering the information provided, by improving the ability of decision makers, and by the construction of formal models of human decision making. The major approaches used by researchers in HIP are the Bayesian; the lens model; the cognitive complexity and cognitive styles approaches; and process tracing.
Accounting for the human resources of enterprises that are excluded form conventional financial statements except in so far as they are included under good will. A distinction can be made between internal human resources and eternal human resources. The latter are ignored in most discussions of HRA.
A rate of return which must be achieved by a proposed capital project if it is to be accepted.
A financial instrument with the characteristics of both debt and equity.
An extremely high rate of increase in the general price level. For the purpose of foreign currency translation, a hyper-inflationary environment is defined as one where the inflation may render a national monetary unit unsuitable as a unit of account and lead to the substation therefore of a commodity (e.g. gold) or the monetary unit of another country.
A tax whose revenue is pledged to a particular use.
The creation of charge without giving the charge possession of the goods charged.
Those assets and liabilities of an enterprise, tangible, which are capable of being disposal of a classified separately without disposing of the business of the enterprise.
Unproductive time caused by, for example, machine breakdowns, shortages of material or inefficient scheduling. The cost of Idle time is classified as an indirect rather a direct cost.
Ledger accounts other than those which record transactions with periods.
A system of taxation of companies and shareholders which attempts to avoid the double taxation of distributed profits. Most countries within the EC have such a system but the details vary.
A cost which involves a sacrifice of resources but not an outlay of money, for example, the labour services of an owner-manager who does not received a salary. Such costs are usually not recorded in conventional accounting records.
The way in which burden of tax eventually falls, as district form the apparent burden.
A financial statement and ledger account prepared by bodies whose major objective is the than making profits.
Income in the form of goods and service rather than cash. Income in kind is more difficult to tax adequately and fairly than income in cash. Non-taxation of income in kind encourages individuals towards do-it-yourself work and trade by barter.
Reducing the amount of variation in periodic income figures by for example, the manipulation of provisions for items such as doubtful debts and depreciation. The ability of an enterprise to smooth its income can be constrained but not wholly prevented by legal rules and accounting standards.
A security that is bought primarily for the purpose of receiving a steady flow of income rather than a capital gain.
Term used for the apportionment of tax between or within accounting periods. The former is known as interpreted tax allocation the latter as intra period tax allocation.
Accounting records that are incomplete in some way and fall short of a full double entry system. A business may, for example, record only transactions affecting cash and person, With ingenuity and perseverance, profit and loss accounts and balance sheets of reasonable reliability can usually be constructed form incomplete records by analysis the cash book.
The processes by which a corporate body is brought into existence.
The evaluation of the changes in future cash flows, or revenues and expenses that are expected to occur as the results of a given decision.
A negotiated static budget that takes the previous year s budget and actual results as the starting point, the budget amounts then being changed in accordance with the experiences of the previous period and expectations for the period under consideration.
An agreement between two or more persons involving reciprocal rights and duties
The ability of an auditor to act with integrity and objectivity, both as an individual practitioner and as member of a profession To be independent, an auditor needs to fee form: (i) controls or pressures concerning audit techniques and procedures be used and the extent of their application, (ii) restrictions relating to examination in any source of information and any person surprises facts or modify the audit report. The profession to which the auditor belongs should not be, or give the impression of being, dependent in any way upon its clients.
A professional adviser on financial matters who is not employed by an institution selling financial services.
A capital investment projects the acceptance or rejection of which has no effect on any other capital project.
Of husband and wife as separate persons without combining their incomes.
The adjustment of monetary amounts by a price index in order to allow for inflation. Contracts are fixed in real rather than money terms. Indexation has been adapted to some degree in a number of Latin American countries.
A unit trust or other fund which has invested in the constituent securities of a stock exchange index.
A bond on which the amount of interest and / or principal payable is linked to a specified index number.
Any security the income and / or principal of which is linked to a specified index number.
Any number used to represent changes in values between two or years, one of which is selected as the base year.
A curve showing the combinations of two goods for which an individual is indifferent. Sets of indifference curves can be drawn, the higher indifference curves indicating higher levels of utility.
Labour that cannot be identified with a manufactured good or traced to it in an economically feasible manner.
Materials that cannot be identified with a manufactured good or traced to it an economically feasible manner.
A tax that is not assessed on and collected form those who are intended to bear it. Examples are value added tax, sales tax, payroll tax and excise duties. Unlike a direct tax, it cannot take individual circumstances into account. Although levied on producers, the burden of an indirect tax may be shift to consumers.
Average ratios, calculated form financial statements, for an industry. There can be difficulties in obtaining comparable data across companies and in defining an industry. These are reduced when an interterm comparison scheme exists.
In statistics, the use of information forms a sample to draw conclusions about the population form which the sample was taken.
A rather imprecise term denoting any system of accounting that attempts to take account of changes in the general price level specific prices or both, and to avoid the disadvantages of historical cost accounting (HCA). It includes current purchasing power accounting cost accounting (CCA) and their variants and also relative price change accounting. The varieties of inflation accounting can be classified on the basis of the unit of measurement the asset valuation method adopted net present value and the underlying capital maintenance concept. The following table can then be drawn up. It does not attempt to cover all the possibilities.
A situation in which some users of financial statements have superior information to others.
An approach to accounting that concentrates on the demand for and supply of information in a setting in which there are a set of alternative acts by decision makers, a set of possible states of nature, economic consequences, investor preferences, investor beliefs regarding the probability of states, and an objective function. The accountant is seen as operation in a world in which there are neither prefect markets nor complete markets and his role is to provide noisy communication rather than precise measurement. the reports he provided alter the beliefs of investors and the best financial reporting system is the one associated with the highest level of expected Utility accrual accounting, for example, is better than cash flow accrual accounting if it provides more information and does so in a cost-effective manner.
The process by which a person s behavior is affected by the information that he or she is required to communicate.
Person and institutions engaged in the gathering, processing analysis and interpreting of financial information on behalf of other. Examples are financial analysts, investment advisory service, credit agencies, and stockbrokers. Information intermediaries search for information that is not publicly available, use information to predict, and interpret events ex post.
The provision of more information than readers of financial statements are capable of absorbing. Empirical evidence suggests that this may happen to non-expert readers but not to sophisticated analysts.
The techniques of searching for data that have been stored in a computer.
The use of computers and other electronic devices to acquire, store. Process and distribute information.
Audited financial statements required to be prepared by public company which proposes to pay a dividend before the end of its first accounting reference period.
The board responsible for the assessment and collection of income tax, corporation tax, capital gains tax, capital transfer tax and stamp duties.
A device for feeding data into a computer. The most common such a device is keyboard.
In the context of national accounting, tables which show the flows of goods and services among the different sectors and industries of a company. In accounting terms they may be regarded as an alternative method of recording flows of income and expenditure.
Government stock ownership of which is evidenced not only by a certificate but by inscription in a register.
An asset such as goodwill that cannot be identified and sold separately without disposing of the business as a whole.
The inability of a sector to pay debts as they fall due. Insolvency is question of fact, not of law. A person can be insolvent without being bankrupt but he or she cannot be bankrupt without being insolvent.
The use of information not publicly available to acquire shares at less than their real worth. The strong form of the efficient market hypothesis, but not the semi strong and weak forms, predict that such an attempt will not be successful.
One of a series of receipts or payments made at intervals over a period of time.
A credit sale in which payments are made by installments. Unlike hire purchase title to the goods passes form the suppliers to the customer when delivery is made. In practice, the accounting treatment of installment sales and hire purchase tends to be identical.
England and Wales (ICAEW) An independent accountancy BODY granted a royal charter in 1880. Its earliest predecessor body dates back to 1870. It is the largest such body in the British Isles and the second largest in the world. Members of the Institute are entitled to be known as chartered accountants and to use the designator letters ACA or FCA. The official journals of the Institute of Accountancy.
An independent accountancy BODY granted a royal charter in 1888 and covering both the Republic of Ireland and Northern Ireland. Members of the Institute are entitled to known as chartered accountants and to use the designator letters ACA or FCA. The official journals of the Institute of Accountancy Ireland.
Non monetary fixed assets that are without physical substance. Conceptually, identifiable or non-unidentifiable. Under the company law, goodwill can only be capitalized if purchased for valuable consideration, but other intangibles can be capitalized when created by the company itself.
An accounting system in which the same data used to provide the information required for both financial accounting and cost accounting.
A computer audit test in which the auditor integrates into the operating system a test person, department or activity ignored to determine whether the computer processes the information in the way prescribed.
A computer system in which the user can communicate with the computer while a program is running.
A regional accountancy group established by the accountancy bodies of the Americas. It publishes a quarterly newsletter, Boletin Interamericano de Contabilidad, as well as committee reports and other technical items.
Profits earned by one company at the expense of another company in the same group because transfer prices are set higher than cost. In order to present fairly the results of the operations of the group as a whole, such profits need to eliminate to the extent that they remain in unsold stocks or in fixed asset balances. It’s controversial whether, in the case of less than wholly owned subsidiaries selling to their parent, companies, the elimination should be 100 per cent or proportional to the parent s holding. The former is probably the more common in practice but it follows form the parent company concept of consolidation that the elimination should be proportional.
Transactions between the member companies of a group. They are eliminated or otherwise adjusted for during the preparation of consolidation financial statements. They include inter-company sales and purchases; Inter-company in the group needs to keep a record of such transactions.
Trisections that take advantage of differences in interest rates between financial centers and between forward rates
The charge made by a lender to a borrower for the use of money over a period. The right to share of the assets or income of an enterprise.
A swap whereby two parties contract to pay different patterns of interest to each other, e.g. fixed rate vs. a variable rate.
In the significant shareholders in a public company that must be notified by the shareholder to the company. A 3 per cent interest is regarded as significant. Notification must also be given by persons acting together. A register of interest in shares must be kept as a statutory book. In certain circumstances companies have powers to investigate the ownership of their own shares and shareholders the power to require a company to carry out such and investigation.
The shared boundary or connecting link between two parts of a computer system. The term is also used loosely to refer to any such boundary or link whatever the context.
Those phases of an audit conducted during rather than after the end of an accounting period.
A dividend paid or proposed to be paid in the course of a financial year.
A company which is both a holding company and subsidiary. In certain circumstances such companies may be exempt form publishing consolidated financial statements
The process whereby a financial institution is interposed between a lender and a borrower.
An element of the internal control system set up by the management of an enterprise in order to review accounting, financial and other operations and to determine whether prescribed policies are being adhered to. An external auditor takes to the extent of the latter s independence staff resources, the tests made and the influence on management action.
That aspect of internal control which is exclusively concerned with the prevention and early detection of errors and fraud. It involves the arrangement of bookkeeping and other clerical duties in such a way as to ensure that no single task executed form beginning to end by only one person and that the work of each clerk is subject to an independent check in the course of another s duties
The whole system of controls, financial and otherwise, established by management in order to carry on the business of an enterprise in a orderly and efficient manner, ensure adherence to management policies, safeguard the assets, and secure as far as possible the completeness and accuracy of the records. Internal control is thus a very wide term and includes within it internal audit and internal check. Important elements of an internal control system include the following: (i) separation of duties and in particular segregation the functions of authorization, custody and recording; (ii) clear definition and allocation of responsibilities and lines or delegation and reporting; (iii) procedures and security measures designed to ensure that access, both direct and via documentation, to assets is limited to authorized personnel; (iv) authorized and approval officials of day-to-day transactions by an appropriate responsible person, with specification of the limits for their responsibilities; (vii) Supervision by responsible officials of day-to-day transactions and the recording thereof; (viii) review of management functions and comparison with budgets. The nature and extent of internal controls are the responsibility of management and depend on such factors as the nature, size and geographical spread of the business; the number of staff; the nature of the trisections entered into; and management style. In particular small, family owned and operated businesses may have little in the way of a formal internal control system.
A standardized form, designed by the audit firm using it, comprising a series of questions, each of which raises an enquiry on internal control.
That part of a company’s financial resources raised by the retention of profits rather than from issues of shares or debt.
A market in which the participants are members of the same organization.
The discount rate that equates the present value of the expected cash outflows of an investment with the present value of the expected inflows. Internal rates of return can be calculated by trial and error. Some projects have more than one IRR, i.e. there are multiple rates of return, but the number of distinct IRR’s cannot exceed the number of sign changes in the expected cash flows. This ambiguity can be avoided by the discounting back of negative cash flows to provisos periods at the required rate of return.
The international aspects of accounting, including such matters as accounting principles and reporting practices in different countries and their classification; patterns of accounting development; international and regional harmonization, foreign currency translation; foreign exchange risk; international comparisons of consolidation accounting and inflation accounting; accounting in developing countries; accounting in communist countries; performance evaluation of foreign subsidiaries; transfer pricing across frontiers; capital budgeting in an international context; international financial markets; disclosures by multinational companies; and international taxation.
A committee founded in 1973 with the objectives of formulating and publishing accounting standards to be observed in the presentation of financial statements, promoting their worldwide acceptance and observance, and of working generally for the improvement and harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements.
A committee of the international federation of accountants (IFAC) which issues international auditing guidelines (IAGs) and the less authoritative statements on auditing. The IAPC has a standing subcommittee on auditing in an EDP environment.
A body formed in 1977 at the international Congress Accountants held in Munich. It almost to develop a coordinated international accountancy professional with harmonized standards. Its predecessor was the International coordination committee for the accountancy profession. IFAC has a secretariat in New York. Accountancy bodies from about 80 countries are members. It works through committees on education, ethics, financial and management accounting. International Auditing practices (IAPC), the public escort, and world congresses. The education committee produces guidelines and statements of guidance; the ethics committee, statements of guidance on ethics; the IAPC, international auditing guidelines and statements on auditing; the financial and management s committee, statements on International management accounting.
The process by which securities markets throughout the world are increasingly interdependent of each other. This has been made possible by the deregulation of the leading national markets, the speed of financial innovation, dramatic advances in the electronic technology of communications, and growing links between domestic and world markets.
An association of bodies carrying out the public audit of national government and its activities.
Techniques used by companies with international cash flows to maximize returns and minis risks.
Estimation of the value of an unknown quantifies lying between two known values by marketing an assumption about the shape of the curve relating the known quantities.
The condition of a person who has died without leaving a will. Intestacy may be total or partial.
A person who dies without leaving a will. In the absence of a will, his or her state is distributed as laid down by statute.
Call option whose exercise price is below the current price of the underlying security.
A person who starts or manages a new business within an already established company or group.
In general, the value that an asset is believed to have because of its nature. In the options market, the difference between the market value of the underlying security of a traded option and the exercise price.
In the application for listing on the Stock Exchange, or for trading ion the Unlisted Securities Market, where no marketing arrangements are required. Introductions only apply to securities which are of such amount and so widely held that adequate marketability can be assumed ascertainable market value.
Accounting for inventories. The amount of inventory significantly affects enterprises both cost of good sold and the current assets total in the balance sheet. The numerous problems of inventory accounting include: (1) the choice between the problem inventory method and the perpetual inventory method; (2) the basis of inventory valuation and the meanings to be attached to cost market value; and (3) the choice among cost flow assumptions.]
Discovering and maintaining the optimum level of investment in inventories. The main problem of inventory control is balancing ordering costs against carrying costs in order to calculate the economic order quantify (EQQ) which minimizes total costs. Ordering costs include clerical costs, stationery, postage s, telephone, etc.; carrying costs include insurance, rent and internist foregone. In the absence of uncertainly, the recorder point for inventory is simply average daily usage multiplied by the lead time. Given uncertainly, a safety stock is necessary. The optimum safety stock is at the point where the carrying costs of an extra unit equal the cost of being out of stock, having regard to the probabilities.
The methods of valuing inventories (STOCKS) either under historical cost accounting (HCF) or under some form of inflation accounting.
A company in which another company has an investment. The investee company may be a subsidiary or an associated company.
A detailed examination of accounts made for a particular purpose, e.g. where fraud is suspected.
The analysis of the determinants of the valuation of financial investments. The main techniques used are fundamental analysis and technical analysis.
A financial intermediary who, among other services advises clients on mergers and acquisitions.
A division of a company with the authority makes for itself and be held responsible for most decisions related to capital expenditure.
A grant of cash by a government to an enterprise in order to encourage the enterprise to purchase fixed assets of particular kind or in a particular location.
A company which has invested in another company which under cretin conditions will be its subsidiary or associated company.
A company established by the English and Scottish clearing banks, and the Bank of England, as a means of assisting small and medium sized companies to rise loans and equity capital.
Earnings form international transactions involving services such as accounting, banking, insurance and tourism rather than goods.
A document sent by a seller to a purchaser giving details of goods or services sold, their price and the term of payment.
A baby spotlight used to highlight a specific area or figure.
A letter of credit which cannot be cancelled without the beneficiary s consent.
An issue of securities in which the public is invited to apply at or above a certain minimum price.
Costing system used by organizations whose products or services are easily identified by individual units or batches, each or which receives varying inputs of direct materials, direct labour and factory overhead.
A bank account which can be drawn individually or collectively by two or more persons.
An audit carried out by two or more auditors who jointly prepare a suit report.
The costs of two or more products of relatively significant sales value that are simultaneously produced by a process or series or processes. The products are not individually identifiable until after a stage of production known as the split off point. No one of the products may be produced without also producing the other, although the proportions in which they are produced may be variable. The allocation of joint cost serve no useful control or decision-making purpose but is usually regarded a necessary for stock valuation and income measurement. Allocations may be made using either physical measures or net realizable values. The former method may have no relationship to the revenue producing powers of the individual products. The latter method, based on the relative net realizable values of the joint products, is more popular. It has the effect of equalizing the gross margin percentage across the point products, the methods is more difficult to apply if the joint products are not saleable at the split-off point. An alternative to allocation is to value stocks of joint products at sales values at the split-off or at net realizable values. To avoid the recognition of unrealized profits, a normal profit margin can be deducted form the net realizable values.
A product of a relatively significant sales value that can only be produced simultaneously with other products. In deciding whether a joint product should be sold at the Split-off point or processed beyond that point, regard should be to differential income, i.e. sales less separable costs. The allocation of joint costs is irrelevant in this context. It is profitable to incur extra separable costs so long as the incremental revenue exceeds the incremental costs.
Originally, a bank that was a joint stock company rather than partnership, Today, a synonym for a large commercial bank.
A company with a permanent paid-up or nominal share capital of fixed amount divided into o shares, also of fixed amount, or held and transferable as stock, or divided and held partly in one way and partly in the other; and formed on the principle that is its members are the holders of those shares or that stock, and no other persons.
A holding of property by more than one person under which on the death of one of the owners his or her share of the property automatically pass to the survivor.
The joint prosecution of particular trisections for mutual profit or an association of person s jointly undertaking some commercial enterprise. Unlike a partnership a joint venture does not entail a containing relationship. Joint ventures are particularly common in mining and oil and gas exploration. In developing countries joint ventures are often established between multinational companies and governments agencies. They may be operated through companies or may be unincorporated.
Any book in which either one or both aspects of an accounting trisection or other event are recorded chronologically on a day-to-day basis, More particularly, the term is applied to the book that records those trisections which, because of their importance or rareness of occurrence, are not recorded in a specialized journal.
Academic accounting journal published since 1982 by the Elsevier Science Publishing Co., New York,
Academic accounting journal published since 1977 by New York University.
Academic accounting journal published since1963 by the University of Chicago. Its emphasis on empirical research has been very influential.
Academic journal published since 1946 by the American Financial Association. Although not strictly an accounting journal it is widely read by academic accountants.
Academic accounting journal published since 1989 by Blackwell Journals.
Academic accounting journal published since 1990 by the management Accounting Section of the American Accounting Association.
In an audit context, sampling based on the exercise of an auditor s judgment rather than on statistical techniques.
A person declared by a court judgment to be owed a certain sum of money by another person.
A person declared by a court judgment to be to be owed a certain sum of money to another person.
A high yield bond with a low rating and very low security. Often used to finance a leveraged buyout and secured on the assets of the target company.
Buying and selling securities and financial futures outside the opening hours of the official market.
The acquisition of a small part of another company’s equity as a basis for latter expansion into a new market.
Persons who devise defensive takeover strategies which make companies more difficult or less attractive to acquire.
A television program intended to appeal exclusively to children
A labour variance which arises when the actual number of hours spent in production differs form the standard or budgeted hours.
A predetermined overhead rate based on direct labour hours.
Deviations form budget or standard costs in respect of direct labour.
An option that has expired and been exercised.
In the context of inventory valuation, The calculation of the cost of inventories on that the quantities in hand repent the earliest units purchased or produced.
The processing of money acquired illegally so that it appears to have come form a legitimate source.
A cost function in which average costs decline systematically as cumulative production increases. It is applicable during the learning or start-up phases of production.
A contract between a lessor and a lessee for the hire of a specific asset. Unlike hire purchase, the lessor retains ownership of the asset, but possession passes to the lessee. In lease accounting an important distinction is made between finance leases and operation lessees.
For contracts between a lessor and a lessee for the hire of a specific asset, the lessor retaining ownership of the asset but conveying the right to the use of the asset to the lessee for an agreed period of time in return for payment of specified rentals.
The right under a lease to use land and building for a specified period.
Statistical techniques based on minimizing the sum of the squares of the vertical distances between observed data points and a regression line.
A book or rather record containing accounts. In practice a business of any size will subdivide its ledger into a general or nominal ledger and several subsidiary ledgers.
An account in a ledger recording all transactions relating to a particular person, thing or activity.
A system of bookkeeping in which files of documents are substituted for ledgers. The concepts but not the form of the ledger survives.
A gift of personality made by a will. Legacies are either general demonstrative or specific.
In conditional European countries a reserve required by law.
The maximum amount which a creditor is required by law to accept in settlement of a debt by a particular type of coin or paper money.
A letter sent by a company to whom the company has made an allocation of shares. The letter informs the allotted of the number of shares allotted, the amount payable and the procedure to be followed.
A letter form the one bank to another in which the bank authorized payments up to a cretin amount. Letters of credit are widely used in international trade, the purchaser arranging with a bank to open a letter of credit in the country of the seller.
A letter issued by a firm of accountants to a client at the time of being engaged stings out such matters as what they understand the engagement to involve, the way in which the work will be carried out, the basis on which fees are calculated, and details of other service which the firm is able to provide.
A letter sent by a company to a person who was applied for shares regretting that no shares have been allotted because the issue has been oversubscribed.
A letter by which a person entitled to an allotment of shares may renounce them in favor of another person or persons.
A letter from the directors of a company to an auditor placing on record the representations of management on significant matters directly affecting the accounts and financial statements.
The document given by the court to an administrator which authorizes him her to deal with the estate of a deceased person who has left no will.
The maintenance of funding at a contestant level, usually in real terms.
The buying of control of a company.
In general terms, a finance lease to which there are three parties; a lessee, a lessor and a lender who provides financing to the lessor. The lender has no right to the lessor s assets other than the leased assets and the lessee s payments; the lessor s investment during some period of the lease increases because of net cash outflows.
An obligation, arising form a transaction or other event that has already occurred and that involves an enterprise in a probable future transfer of cash, goods or services, or the foregoing of a future cash receipt, the amount of which and the date of settlement of which are measurable with reasonable accuracy.
A right of possession over goods or property belonging to another, with a right to retain possession until debts due to the possessor is paid.
Colloquial expression for a fund set up to help a company or a person in financial difficulty.
Accumulation of Scots for activities that occur over the entire life-cycle of a product.
The interest that a life tenants has in property and which will end of death of the life tenant or other specified person.
A group of homogeneous items of inventory priced, for last in fist out purposes, at the same value per unit.
A liability of a member of a company that is limited to an amount agreed between the member and the company.
A company the liability of whose shares holders is limited.
A partnership in which one or more, but not all, partners have limited liability.
Financial arrogated on the basis that the tender has recourse to the borrower only in certain circumstances.
A cost function which can be represented by a straight line. Accountants usually assume that cost functions are linear over a relevant range.
Synonym for straight-line depreciation.
A mathematical relationship that when graphed is a straight fine.
A formal decision model for deciding how to make the best use of a given scarce resources. A linear equations and inequalities in the following form. maximize z = x 1 a + x 2 b subject to x 3 a = x 4 b < 24 x 5 a + x 6 b < 40 a ,b > 0 Where z = contribution and a and b are units of products A and B receptively. The first line is the objective function, and the other lines represent constraints including, in the last, the constraint that negative production of A and B is not possible. The second and third lines may refer to constraints such as those on the availability of machine capacity. LP models assume that all relationships are linear, that constants and coefficients can be stated and are known, and that the production of fractional units is possible. A graphical solution is not possible in most cases and it is necessary to use the simplex method and to make use of a computer. The solution to a linear programming problem obviously depends upon the accuracy of the data used. Sensitivity analysis can be used to discover the cost of predication error whether it is worth devoting rescues to improve the accuracy of the predictions.
A manager in a department responsible for the attainment of the enterprises operational objectives.
An agreed amount of loan money made available over a period by a bank to a customer.
Current assets other than stocks and work in progress.
The process whereby the assets of a company are realized and distributed to its creditors and shareholders.
A committee formed to represent the interests of all creditors by supervising the activities of a liquidate in a compulsory liquidation or a creditors voluntary liquidation.
A payment made to creditors in a winding-up or a bankruptcy.
A person appointed to conduct the winding up of a company. His functions are to realize the company s assets in the most advantageous manner, and to distribute the proceeds, first to creditors, and then, it there is nay money left, to shareholders in order of priority.
For an individual entries, a measure of the relationship between its inflows and its cash outflows. Successful businesses must be liquid as well as profitable. In a stock exchange context, a measure of the ease with which securities as a whole can be sold and purchased without causing a movement in prices.
For an individual enter the storage of liquid asset leading price, to a danger of insolvency.
A Company Limited by Shares and listed upon a recognized stock exchange.
Any securities of a company lisped on a recognized stock exchange.
An agreement in which a company with listed shares binds itself to follow the requirements set out in the yellow book.
The conditions that must be satisfied before a security can be listed on a stock exchange. They usually include some disclosure requirements additional to those in company law and accounting standards.
The price of a good as set out in a price list. The actual price may be less because of the availability of a trade discount.
Colloquial expression for those Generally Accepted Accounting Principles which apply to small businesses, with the implication that they are not, or should not, be the same as those applying to large businesses.
Money borrowed by one person or enterprise form another, usually for fixed period of time, and in return for the payments or interest.
A company s long-term sources of funds raised form creditors rather than shareholders.
A clause in an agreement to issue a loan which restricts in some way the future borrowing activities of the issuer.
Securities issued by a company in respect of loans made by investors. Holders of loan stock are creditors not shareholders. Loan stock is usually unsecured.
A collection of linked computer stations restricted to a small local area. Each station in the network can communicate with the others and with a central computer.
The currency of the country in which an enterprise operates.
Levied by or for local rather than central government.
The deposit of money or other funds in a bank or other financial institution for credit to an account.
The power to which the base of a number must be raised in order to give that number.
The act of gaining access to a computer system.
A computer program designed to cause damage within a computer system and whose operation is triggered by a combination of events rather than the passing of time.
A detailed report or letter, addressed to management, prepared by an auditor following an audit.
A position on a stock or other market where a seller holds shares in excess of his or her sales.
Planning the direction and control of the future operation of an enterprise for periods extending beyond one year. It can be subdivided into strategic planning, which is concerned with deciding on objectives and the obtaining and use of resources to achieve them, and operation planning.
A contract entered into for the design, manufacture or construction of a single substantial! Asset or the provision of a service where the time taken substantially to complete the contract is such that the contract into different accounting periods.
In computer programming, a sequence of instructions which is repeated until a specific condition occurs.
Adding by the letter of a law or accounting standard rather than the spirit by searching for taking advantage of loose wording
Those contingent liabilities that are recognized in the balance sheet. The conditions of recognition are that information available before the issue of the financial statements indicates that it is probable that an asset has been impaired or that a liability has been incurred and the amount of the loss can be reasonable estimated.
A loss of purchasing power that arises through holding monetary assets through a rise in a price level.
Relief from tax granted in respect of losses. Such relief may be available against any income or may be restricted in some way. Tax rules may allow losses to be carried forward or back or both.
In an accounting context, the alleged practice of audit form offering low fees in order to gain more lucrative non-audit work form companies.
The rule that inventories should be valued at the lower of cost and market. Both cost and market can be variously interpreted.
In computing, a programming language which is closely related to machine code. Low-level languages are easier to use than machine code but more difficult than high level languages.
A predetermined overhead rate calculated on the basis of the number of machine hours and that is estimated to require.
A computer language written in a company format acceptable to the central processing unit without translation.
Data in a form which can be input directly into a computer.
By analogy with the term macro-economics, national accounting, i.e. that aspect s of accounting concerned with nations rather than individuals or organizations. Macro accounting has been developed by economists and statisticians rather than accountants.
In computing, a flat disk on which data can be stored by magnetic recording.
A large general Purpose computer installation.
The difference between company s total corporation tax liability and advance corporation tax paid and recoverable.
The cost of keeping a fixed asset up to its normal level of operational capability.
That part of accounting which is concerned mainly with internal reporting to the managers of an enterprise. It emphasizes the control and decision making rather than the stewardship aspects of accounting. It is relatively free of constraints imposed by legal regulation and accounting standards.
An independent review and investigation of the performance of an enterprise management with a view to recommending improvements in established policies and procedures.
A transaction by means of which a team of managers acquires a substantial holding in a company. The managers are usually, but not necessarily, those already employed by the company. Buyouts may occur where a conglomerate group wishes to dispense with the subsidiaries or divisions; where assets, are realized by a liquidator or receiver; or where private company share-holders which to realized their investment.
Concentrating on those areas that are not going according to plan i.e. on variances form budget, rather than on areas of operation which are running smoothly.
A procedure whereby a subsinate and his or her superior jointly formulate the subordinate s objectives and the plans for attaining them in a subsequent period. The plans are quantified in a budget and the subordinates performance is evaluated in relation to the budgeted goals agreed upon
The plans, policies, procedures and objectives used by an enterprise in an attempt to make sure that the objectives of the enterprise are achieved.
Systems which provide information to managers in the areas of strategic planning, operations planning and management planning.
A letter written annually by the auditor of a company to its directors suggesting possible improvements in, interalia, the company s and operational procedures.
In the context of consolidated financial statements, the more complete integration of the whole of the operations of two or more enterprises and their management as a single unit. It does not arise by virtue of one enterprise managing another on behalf of one more third parties.
An authority for a person to act on another person’s behalf in certain specific matters.
The processing of data without the use of computers or accounting machines.
An account or statement showing the cost of goods manufacturing during an accounting period. It records the costs of direct materials, direct and factory overhead.
The cost o9f goods manufactured during an accounting period.
The extra cost of an extra of production marginal cost is thus dependent upon variable not fixed costs.
Basing prices on the marginal cost of products, i.e. on product costs based on marginal costing. Marginal pricing is less common in practice than full cost pricing but has the advantage that it is based on costs that will change in the future and does not attempt to spread fixed cost over a normal volume that may not represent actual or potential sales. It is generally accepted that marginal pricing is superior for special, as distinct form routine, pricing decisions.
The rate of tax applicable to a small increase in a taxpayer’s income. It is above the average rate of tax for a progressive tax; equal to the average rate for a proportional tax; and below the average rate for a regressive tax.
Relief given to a taxpayer who would otherwise be unduly penalized by moving into a higher band of tax.
The extra revenue from an extra unit of any good or service.
Buying securities on a stock exchange partially on credit. The margin is the proportion of the full price paid by a purchaser at the date of purchase.
The extra utility contained form an extra unit of any good service.
The excess of budgeted or tactual sales over the break even sales volume. It shows the amount by which sales may decrease before losses occur.
A place in which buyers and sellers conduct transactions and agree upon exchange prices.
On a stock exchange, the speed and ease with which a share can be bought and sold.
The total value of all a listed company s shares on the stock market.
The failure of the market system to provided the optimal level of production of a good or service. Such failure is most likely with public goods of which it can be claimed accounting information is one.
On a stock exchange, a person firm committed on a continuous basis to dealing in a specified range of stocks.
A portfolio of all securities available in the securities market, weighted by their respective total respective total market values.
In a stock exchange context, the price at which a listed company s securities can be bought and sold. It is not necessarily equal to the par value or the issue price.
Lowering or raising the price of a good or service.
The practice of market makers and other investment dealers of carrying readily marketable securities in the balance sheet at their current market value and recognizing all movements in their market value in the profit and loss account for the period, whether or not the securities have been sold. ED 55 proposes that readily marketable securities held as current assets should be marked to market by all companies.
A method for forecasting the future movement of a variable based on an analysis of the present movement of the variable and using transitions probability matrices
A statistical time series of a variable in which the expected value of the variable changes randomly form period to period. The best estimate of the expected value is thus the actually realized value in the most recent period. Empirical research on the statistical properties of earnings makes use of the martingale process.
A budget which summarizes the objective of all the sub-units of an organization.
On a stock exchange, the matching by an intermediary of shares for sale by one client with shares wanted for purchase by another. The intermediary does not buy and hold the shares.
The allocation of the financial effect of transactions and other events into appropriate accounting periods so that relevant income and expenditure is matched. The matching concept is thus an essential part of accrual accounting. The allocations made are, however, sometimes arbitrary and hard to defend.
The threshold for recognition of an accounting item in a financial statement or notes thereto. The materiality of an item depends upon its degree of importance to users in terms of its relevance to evaluation or decision making. Influence a user.
A document recording materials issued to a job or process and used both as a means of recoding materials issued and of respect of direct responsibility.
Deviations from budgeted or standard cost in respect of direct materials.
A mathematical model containing one or more functions to be optimized subject to constraints. Linear programming is a form of mathematical programming in which the functions and constraints are linear.
A rectangular array of numbers arranged in rows and columns and enclosed in brackets. Within the rule -, of matrix algebra, matrices can be added, subtracted, multiplied and inverted.
Recording accounting transactions and events in matrices rather than T accounts.
An organizational structure in which one manager is given responsibility for a project or products that uses services form several functional responsibility centers.
The date or dates on which a security will be repaid by its issuers on the stated terms.
The amount of cash or other consideration payable at the end of a given period of time as specified in a contract relating to a financial obligation.
Method of calculating earning per share which assumes that a company has distributed all its earnings and is liable to pay advance corporation tax on them. Its use is not standard accounting practice but it is used by the London financial Times in its calculation of dividend cover.
A decision rule for evaluation capital investments on the basis of their expected returns and standard deviations. Project A is preferred to project B, if either the expected return of A exceeds the expected return of B and the standard deviation of A is less than the standard deviation of B or the expected return of A exceeds that of B and the standard deviation of A is less than that of B.
Ways of quantifying. Four measurement scales can be distinguished: nominal, ordinal, interval and ratio. A nominal scale simply uses a numerical as label. An ordinal scale ranks properties in accordance with a number system, permitting the use of comparisons such as greater than , equal to and less than . An interval scale has steps such that properties so measured can be added, subtracted, multiplied, divided etc., but the starting point of the scale is arbitrary. All four scales enable an equality to be determined; all but the nominal scale allow determination of rank order; only the interval and the ratio scales allow determination of the equality of intervals; only the ratio scale allows determination of equality of ratios. The temperature of water may be sued an example. Assigning the numeral 2 to hot and the numeral 0 to cold is to use a nominal scale. Adding 1 for warm produces an ordinal scale. The Fahrenheit and Celsius scales are interval scales since they have class intervals of regular size but have arbitrary starting points. The Kelvin scale is ratio scale because its starting point is set non arbitrary at absolute zero.
A measure of the central tendency of a group of numerical data obtained by selecting the value of the middle amount when the amounts are ordered by size.
Any goods which facilitate the exchange of goods and service by acting as an acceptable intermediary even though lacking any intrinsic values in it self.
Debt raised for a period of, usually, between five and fifteen years.
The subscribers to a company s memorandum of association plus every other person who agrees to become a member and whose name is entered in ties register of members. In general a subsidiary company cannot be a member of the holding company. For companies limited by shares the members are the shareholders.
Liquidation of a company that is able settles all its debts in full a period of 12 months of being placed into liquidation.
Document required being filled wit the Register of Companies when a company is incorporated. It states he name of the company s that the company is a public company is public company, the situation of the registered office, the objects of the company, that the liability of the members is limited, the authorized share capital and how it is divided, and details of the subscribers.
An accounting entry which is not part of the double entry system.
In computing, list of operation available to the user. The menu is usually displayed on a screen.
Banks which act as accepting houses, issuing houses company financial advisers, mangers of takeover, unit trust managers etc.
In general, a situation in which two or more enterprises agrees to create to be distinct enterprises. Mergers are regulated under the Fair trading Act, 1973 and may also be subject to European Community law. Proposed mergers may be referred by the government to the monopolies and Mergers Commission.
The preparation of consolidated financial statement on the assumption that one companies that one company has merged with another rather than acquired another. Merger accounting applies only when the purchase consideration is wholly or mainly in the form of shares rather than cash. If the purchase consideration is shares, the previous shareholders of the acquiree become shareholders of the acquirer, which is not the case where the purchase consideration is cash. Merger accounting differs form acquisition in that the shares are deemed to be issued at par rather than a current market value; assets are not revalued; to goodwill arises; and the pre-combination profits of the acquired company are not eliminated form the distributable profits of the group. It follows form the above that not only will the consolidated financial statements differ, depending upon whether or not merger accounting is used but so also will financial statements of the acquiring company.
A reserve established when merger relied is available. A merger reserve in effect takes the place of a share premium account. It has the advantage that, unlike the latter, it is possible to write goodwill on consolidation off against it. The effect of acquisition accounting and merger relief is similar to merger accounting.
Finance that is part way between debt and equity.
A multidivisional in contrast to a unitary.
Greek prefixed meaning small; abbreviation of microcomputer.
By analogy with the term microeconomics, those aspects of accounting concerned with individuals and organizations rather than nations.
A computer small enough for a desk top and which can be used by only one person at a time.
The average of the bid price and the offer price of a listed security. This is the price quoted in the financial press.
A medium-sized computer, smaller than a mainframe but larger than a microcomputer. Like the former it can be accessed simultaneously by a number of users form different terminals.
The minimum amount as stated in prospectus, that must be applied for before an issue of shares can take place.
That part of the net profit\ or loss, or of the net assets, of a subsidiary attributable to shares owned other than by the parent company or other group company. A minority interest only arises if 100 per cent of each of the subsidiary s assets and liabilities is taken into the consolidated balance sheet, i.e. it is not applicable if equity accounting or proportional consolidation is used. Under the parent company concept of consolidation the minority interest is not credited with a share of goodwill on consolidation.
A book in which a record is kept of the proceedings of meetings of for example, the directors act as supplements to the basic price variances, efficiency variances and volume variances.
A sales rep. employed by a marketer to make contact with prospects that currently are not purchasing its products.
A measure of the central tendency of a group of numerical data obtained by selecting the value that occurs most frequently.
A simplified representation of reality e.g. is a model of the financial state of a business. Models can be classified as iconic analogue or symbolic. Modem a modulator/ demodulator, i.e. a device for allowing a signal form a computer to be transmitted over a telephone line.
In current cost accounting systems the asset which would be bought now if one were not already held. It may differ from the existing asset in respect of initial capital cost, operating costs, life or output.
That asset which have a fixed monetary exchange in the price level although it may be affected by indexation. Examples are cash at bank and in hand and debtors. Investments with fluctuating market values are usually regarded as non-monetary assets.
In an audit context, a sampling plan in which the monetary unit is the sample item and is them subjected to random sample or systematic random sampling. The auditor performs his test not on the individual monetary unit but on the account balance which includes the monetary unit selected. MUS are most suitable for substantive tests where the distribution of the population being tested is significantly skewed and the amount of misstatement is expected to be very low. It is designed to control beta risk alpha risk.
An adjustment made in some current cost account accounting systems in order to take account of the effect of changing prices on monetary working capital, It is argued that increased prices tic up in money terms not only more stock but also more trade debtors and creditors. As with the Cost of sales Adjustment (COSA), the MWCA can be calculated in practice in a number of ways.
The conversion of assets into money.
A good that is accepted as a unit of account, a means of payments and a store of value.
The value of the net assets of an enterprise in nominal monetary units, as in historical cost accounting.
The market for short-term finance operated by the central bank, the commercial banks and financial institutions.
A form of simulation, in which random numbers are used to generate a set of values that has the same distributional characteristics as the process being simulated.
A divergence between the private marginal cost of an action and its marginal social cost results in a less than optimal allocation of resources. In accounting a moral hazard problem arises because of information asymmetry. An agent may have access to superior information which he uses to maximize his own self-interest at the expenses of his principal.
A procedure whereby major creditors individually agree not to press for payment of debts owing, on the grounds that their interests will be better served by continued trading.
A change over real property given by borrowers to a lender to secure the repayments of a loan.
The desire for a selected goal together with a drive towards that goal. Motivation may be extrinsic or intrinsic. The former depends upon a clear connection between performance and rewards.
An average calculated form a group comprising a fixed number of terms within a series, each group, except the first, being equal to the immediately preceding group less the fist terms that group plus the immediately following term.
The side-by-side presentation of financial data drawn up on several different measurement bases with equal importance attached to each. It is argued that in the context of general purpose financial statements this would better meet the needs of the various user groups, since each measurement base has both advantages and disadvantages. Arguments against multi column reporting are that the publication of several different but equally true and fair profits; figures would diminish public credibility in company financial reporting and also lead information overload. Multi-column reporting has not been adapted in any legislation or accounting standard, although SFAS 33 required items of both general price level and current cost financial information to be published by certain enterprises. These, however, were published in supplementary statement.
A bond denominated in basket or currencies.
A technique of foreign exchange risk managements in which debits and credits are netted out so as to reduce the need to deal in foreign currency.
A company or rather business enterprise that produces and trades in goods and services in more than one country. The existence of such companies has, inter-alia, created problems of foreign currency transaction and foreign exchange risk management.
Regression analysis with two or more independent variables.
A computing system with a number of separate central processing unit.
The execution by a computer of several tasks simultaneously.
Investor who lacks a good knowledge and under standing of the accounting practices and theories relevant to published financial statements and does not have ready access to person who has such knowledge and understanding.
An option in a security which the buyer or seller of the options does not hold.
In a general journal, a brief explanation of an entry, also giving, where appropriate, the authority for the entry.
Recording the transactions, both current and capital of a national economy, as distinct form those of entities in sectors of the economy such as public authorities and business enterprises. In principle the whole of the national accounts could be derived by consolidating and reclassifying transactions all ready recorded by other entities. In practice this is not possible and some data must be collected form non-accounting sources.
A statement recording the assets and financial obligations of an economy and its sectors at a point of time. In a national balance sheet, unlike a national wealth statement, sector balance sheets are combined rather than consolidated and inter-sector financial claims are eliminated. In principle, a national balance sheet should be drawn up in current rather than historical terms.
The liabilities of a national government both to its own citizen and to lenders overuse.
Accounts that show how the goods and service of a national economy are produced. Distributed and either consumed or added to wealth during an accounting period. National income and expenditure accounts do not include financial flows. These are recorded in flow of funds accounts. Nationalization The bringing of private enterprise under state control, usually by the compulsory of shares.
The compulsory payments (part earnings-related, part fixed) made by both employees and the self employed to the central government. There are four classes of contribution. The benefits received (e.g. a state pension) depend in contributory benefits). The benefits are however, paid out of general tax revenues not a separately maintained fund so that national insurance contributions can be regarded as a form of taxation, especially as the Inland Revenue is responsible for collecting Class 1 contributions. It has therefore been suggested by some commentators that national insurance contributions should be merged with Income Tax
A fund, maintained by the Treasury at the Bank of England, form which loans are made to the nationalized industries, other public corporations, certain other agencies and local authorities.
Securities issued by the UK government aimed at personal savers.
A statement recording the fixed which coincides with a business operating cycle and at the end of which stocks (inventories) are likely to be at their lowest.
Current assets such as call money which can be converted into Maine at very short notice.
Consolidations differences with a credit balance. If fair values are used in its calculation it will represent negative good will on consolidation.
Good will on consolidation which arises when the price paid for a company is less the fair values of the net tangible assets acquired.
A scheme under which, if taxable income exceeds a certain amount, tax is payable, whereas if it falls short of that amount a cash sum is received by the taxpayer as a supplement. Such a scheme is intended to combine tax and social security into a single coordinated system.
Interest paid by a depositor on funds lodged with a bank.
A clause in a loan agreement in which the borrower agrees not to create a security in favor of a subsequent lender without the approval of the first lender, or without extending the benefits of the security equally to the first lender.
A rate of interest resulting form the deduction form a nominal rate of interest of rate of inflation higher than that nominal rate.
A reserve with a debit balance created by writing off goodwill against a so-called goodwill reserve.
Failure to exercise due care.
Documents, such as bills of exchange, with the characteristics that the property in them passes by delivery, the holder is due to course is not prejudiced by any defects of title on the part of the transferors or any previous holder, and the holder can sue upon them in his own name.
A static budget arrived at after negotiation. Such budgets are normal for discretionary costs.
The assets of an entity less its liability. In company net assets is equal in monetary amount to shareholders equity.
A measure of the value of share obtained by dividing the sum of the net asset by the number of shares. The net asset value of a share is frequently below the market price since balance sheets often exclude valuable intangibles and report tangible fixed assets at less than their current value.
Method of calculating earnings per share which takes account of all the components, both constant and variable, in a company s tax charge. It has the advantage that all the relevant facts are taken into account, but unlike the nil basis and the maximum it is not independence, of the than level of dividend distribution.
The monetary amount of a fixed asset, less accumulated depreciation thereon, as stated in the balance sheet and books of account.
The movement in the price of a listed security between the end of one day s trading and the next.
Current assets less current liabilities.
The amount of cash paid out by a company as dividend.
Interest paid or received after deduction of tax.
Gross margin after deduction of expenses.
The excess of monetary assets over monetary liabilities
The discounted value of the future incremental cash receipts expected form the use of an asset less the discounted value of the incremental cash outlays. The NPV of the cash flows is At ( 1 + i ) t Where At is the cash flow (in or out) for period t, n is the number of periods and i is the required rate of return. NPV is one of the discounted cash flow methods of capital investment appraisal. It also, in an inflations accounting context, represents the value To the business of an asset where it is greater than net realizable value and less than current replacement cost.
The excess of revenues over expenses. It may be calculated before or after extraordinary times and before or after tax depending upon the context.
Purchases less purchases returns.
The amount of money for which and asset can be exchanged in market, i.e. selling price less selling costs. A distinction can be made between realization in the ordinary course of business and a forced sale on, e.g. liquidation. The use of NRV as an asset valuation base is advocated by exponents of continuous contemporary accounting. It is one possible measure of the value to the business of an asset. NRV provides a measure of the enterprise is foregoing by not selling an asset. It can be argued, however, that it is not a relevant measure for a going concern as it ignores value in exchange and that it contravenes the realization conversation. NRV is less objective than historical cost but usually more objective than replacement cost. Netting minimizing the number of foreign exchange transactions by the bilateral or multilateral setting off of payments and receipts in order to decrease foreign exchange risk.
Disclosing figures, e.g. in a cash flow statement, that are the result of setting off one payment or receipt etc. against another.
Turnover after deduction of sales returns, trade discounts, allowances, rebated, value added tax and other taxes directly linked to sales.
A general term for the analysis of projects by drawing networks showing the sequence of activities and their activity items and costs.
The value of the assets of an entity less the value of its liabilities. Because of the use of Historical cost accounting and the understatement of intangible assets, reported net worth is seldom an accurate measure of a company s market value.
A redemption yield adjusted to take account of taxation
In an accounting context, the absence in reported information of bias intended to attain a predetermined result or to induce a particular mode of behavior. Neutrality is included among the quantitative Contemporary Accounting information set out in the FASB s Statement of Financial Accounting Concepts no. 2 It is argued by some writers that neutrality can only be assured by the adoption of an explicit conceptual framework.
The attribution of fair values to the assets of both companies when employing merger accounting. The method is very seldom used in practice, new issue. The issue of securities by a company on a stock exchange for the first time; also the raising of additional financial by a company by an issue of new securities.
In the contest of Inventory valuation, the calculation of the cost of inventories (stock) on the basis of their current replacement cost.
A major Stock Exchange Index of the Tokyo Stock Exchange. It is based on a un weighted arithmetic mean of 225 stocks.
A method of calculating earning per share in the UK which takes account only of the constant components in a company s tax charge. Like the maximum basis, but not the Net basis, it has the advantage that it is independent of the level of dividend distribution.
Shares on which no payment has yet been made, but which are being traded on ascot market. Such shares usually arise from a right issue.
An undelivered piece of mail
Companies which do not have a contractual right to recover calls form a shareholder who does not pay one. Instead, the shares are forfeited automatically and offered for sale. No liability companies are especially suitable for encouraging investment is risky mining enterprise. They are found in Australia but not in the UK or the USA.
Those accounts in a ledger that deal with revenues and expenses.
Strictly, a ledger connoting only nominal accounts, but used in the UK as a synonym for general ledger which usually contains real accounts also.
A rate of interest related to face value.
A shareholder who holds shares on behalf of another person or firm who is the beneficial holder. The use of nominee shareholders may make it difficult to discover the real owner of a company s shares.
Fees paid to auditors, or their associates, for services other than the audit.
Transaction which do not involve outlays or receipts of cash.
A pension scheme the members of which make no contribution towards their future pensions.
In the context of Consolidated Financial Statements, accounting periods not ending on the same date.
A liability that is not a current liability.
Directors of a company who take no part in day-to-day operations.
Mathematical programming in which the objective function or the constraints, or both, are not linear functions.
Securities which are either not listed on a stock exchange or, if they are listed, are difficult to buy and sell.
A document the property in which cannot pass by mere delivery.
Expense and revenues outside organization s usual operations.
Statistical procedures that do not require knowledge of the frequency distribution form which the data have been drawn. Non-parametric statistics are particularly useful when the data relate to rankings.
Preference shares which do not carry a right to a share in profits beyond a fixed dividend. Most preference shares are nonparticipating.
An organization set up for purposes other than making and distributing profit to its members. Such organizations prepare Income and expenditure Accounts rather than profit and loss accounts, report Surpluses or deficits rather than profits or losses and have an accumulated fund rasher than capital and reserves.
Goodwill created by an organization rather than purchased on the acquisition of a business.
A loan the repayment of which comes only forms the project being financed.
A bank account held by a person defined as nonresident for tax or exchange control purposes.
Financial Statements prepared for a purpose other than as part of company s statutory accounts. The directors of a company that publishes non-statutory accounts must state that they are not the statutory accounts.
That part of the risk of a security which cannot be eliminated by combining it in a diversified portfolio. It is also known as specific or non-market risk. Non-systematic risk is measured as a percentage return per annum. The higher the presenting the greater the risk.
A highly specialized fixed asset which cannot be sold to another business. Such an asset has a Net present Value (NPV) in excess of its Net Realizable Value (NRV).
Shares whose holders have no right to vote at meetings of shareholders.
A game in which sum of the rewards to the players does not total to zero. A well-known example of a non-zero sum game is the prisoner s dilemma which shows that rational behavior by each player may lead to an apparently irrational outcome. Each prisoner is interrogated separately and knows that if no one confesses, all will go free. If one prison confesses, and the others do not, he will go free and the other will receive severe sentences. If all confess, all will be sentenced, but less severely. A rational prisoner may well confess and intend to let the other suffer the consequences. If, however, all prisoners act in this way, all will be sentenced and no one will go free.
A commonly occurring statistic distribution which is symmetrical about its mean. The distribution when graphed is shaped like a bell.
A classification on the London stock Exchange in which all shares are arranged in a series of twelve bands based on market size. Every quoted UK equity a NMS which is reviewed quarterly.
Shrinkage, spoilage and waste that arise under efficient operations and are uncontrollable in the short run; regarded as part of product cost.
In the context of related party Transactions undertaken by a reporting enterprise in the ordinary course of business on normal commercial terms, exceeding those transactions which have a significant impact on the financial statements.
The level of utilization of capacity that will satisfy average consumer demand over a period of time, allowing for seasonal, cyclical and trend factors.
Theories which prescribe the accounting procedures which should be adopted or the regulations which should be implemented.
An account held by one bank with a second bank in another country.
A person appointed by the state to draw up and certify documents as guarantee of their authenticity.
In the context of financial instruments, a promise to pay, as distinct form an order pay or a certificate of indebtedness.
A not issued by an organization and thus constituting one of its liabilities.
A note held by an organization as an asset.
Term for nonperforming marketing organization.
A document issued by an inspector of taxes to a taxpayer, setting out the amount of income on which tax is to be charged and the amount so charged.
A document issued by an inspector of taxes to a taxpayer stating the latter s tax code and the basis of its calculation.
An arrangement under which a contract between two persons is rescinded and replaced by a similar contract between one of those persons and third party.
An accounting concept which stresses the need to establish rules for recording financial transactions which as far as possible do depend upon the personal judgment of the measure. Emphasis can be placed either upon the inherent quality of the financial information based upon the availability of evidence, or upon established a degree of consensus among measurers.
A computer program in machine code. A source programme in a high level language is converted to an object program by a compiler.
The clauses in the memorandum of association of a company which sets out the object for which the company has been founded. It is ultra virus for a company to carry out any activities not authorized by its objects clause. In practice, objects clause is very widely drawn.
A commitment it pays a debt or complies with the terms of a contract.
The decline in value of a fixed asset through external causes such as technological change or changes in demand.
A pension scheme operated by a company.
A block of share which is smaller than the normal amount traded.
An offer to the public, either by an issuing house or by a stockbroker, of securities already in issue or for which the issuing house or the broker has agreed to subscribe.
The period during which an offer for shares in a takeover bid. Must remain open for acceptance.
On a stock exchange, the price at which a market marker will sell stock; the price at which units in a unit trust are available for purchase.
The rate at which a central bank will discount bills for financial institutions.
The closing range or prices quotes in the Stock Exchange Daily official list.
In England and Wales, and officer of the department of Trade and Industry having the status of an officer of the court There is no or in Scotland.
Companies set up by financial institutions and which are physically located in one country but whose transactions concern other countries. Offshore companies are often set up in order to benefit form tax and exchange control advantages.
An investment scheme in which the company running the scheme is based outside the tax jurisdiction of the country of the investors.
Accounting for the acquisition, ex-portion, development and production phases of the exploitation of oil and gas deposits and for proved oil and gas reserves. Over the whole life of an oil field all the expense arising are eventually written off against revenue, but no general agreement has been reached as to the way in which this should be done. Three possibilities are the writing off of a; expenditures as they are incurred, full-costing method and the successful efforts method. The first of these methods relies entirely upon prudence and ignores accruals completely; it has not been adapted to any great extent. The full-costing method involves the capitalization of all pre-production costs, including those on areas which are subsequently abandoned. The rationale of this method is that it is necessary to undertake both successful and unsuccessful expenditures in order to found a commercial deposit. Under the successful efforts method all expenditures is capitalized until an areas is either abandoned or commercial deposit is found If an area is abandoned the expenditures that have been carried forward are written off as losses; if an area is not abandoned they are carried forward further top be matched with the related revenue when productions commences. Which expenditures are regarded as successful and which unsuccessful depends crucially on the cost center employed for accounting purposes. The larger the cost centre the closer the successful efforts method approaches the full-costing method. In the USA, the SEc requires cost centers to be established on a country basis. Production costs are treated as a product cost method. Stocks are however, usually larger under full costing, because the latter method capitalizes acquisition and exploration costs. Income under full costing tends to be significantly higher in the early years than under the successful efforts method. The former method tends to supported by the smaller oil companies As a wasting asset, capitalized oil and gas expenditures are subject to depletion, usually by the units of production method. A different method is reserve recognition accounting. The rationale of this method is that the most significant event affecting the economic value of an oil and gas company is the discovery the costs associated with each of the phases have either been incurred or cane estimated and the marketability of he resources at prices at or above current levels is reasonably assured. The criteria for revenue recognition are thus deemed to be satisfied at the time of the discovery.
An error in a double entry bookkeeping system in which a trisection or other event is incorrectly omitted. Errors of omission are not revealed by taking out a trial balance.
In the context of liquidation or bankruptcy, unprofitable contracts and property that is unassailable, not easily saleable or might give to a continuing liability. Such property can be disclaimed by a liquidate or trustee in bankruptcy.
Interactive interrogation of databases for a remote terminal.
A cheque which is not a crossed cheque and can therefore be cashed across a counter.
Investment companies whose capital is not fixed.
The debit or credit balance of an account at the beginning of an accounting period.
The Journal entries necessary to open a set of books. The record assets, liabilities and owner s equity.
The stock of a business as recorded in a balance sheet at the beginning of an accounting period.
The buying or selling of securities by central bank in order to influence interest rates.
The price that a property is estimated to fetch in an unrestricted market of willing buyers and sellers who are unconnected with each other.
A market system in which dealers shout their bids and offers.
An unbalanced position in a foreign currency.
That part of the master budget of an organization that deals with operations. Practice varies, but it may be subdivided into sales, production, selling expenses and administrative expenses.
The amount of goods and services that a business is able to supply with its existing resources within a specified accounting period.
Expenses and revenues arising form organization s usual operations. They include expectations items but one extraordinary item.
The gearing which results form an enterprise s asset structure as distinct form its capital structure. A high operating leverage suggests the desirability of a relatively low financial leverage.
The excess of operating revenues over operating expenses by the computer of other computer programs.
That branch of internal audit concerned with non-financial as well as financial performance and with evaluating efficiency and effectiveness. The scope of an n operational audit includes the minimization of waste; ensuring and improving the quality of information available to management; and the review of decisions models and techniques.
The applications of scientific methods to problems of managerial decision-making.
A hybrid of process costing and job costing. Used in the manufacturing of goods that is produced in batches. Direct martial are charged to each batch whereas direct labour and factory overhead are charged to each operation through which the batches pass.
That part of long range planning concerned with the detailed plans required to meet an enterprise s objectives as specified in its strategic planning.
A reference either to an audit option or the opinions of the accounting principles board which, the extent that they have not been superseded, form part of generally accepted accounting principles in the USA.
Colloquial expression for the search by a company to find an audit for a particular purpose. Opportunity costs cannot be routinely recorded in an accounting system.
The use of procedures or models to produce the best possible result.
A contract giving the right to buy or sell securities or commodities within or at the end of a given item period at an agreed price. A contract to buy is call option; a contract to sell is a put option; the two be combined. Convertible securities and warrants are forms of option.
Consideration in form of rights to acquire or convert into some security of the acquirer. The value of the consideration depends on the anticipated worth of the security and the likelihood of exercise of the rights.
A resolution by the members of a company which can be carried by a simple majority.
Those shares on the holders of which are normally conferred the residue of rights which have not been conferred on other classes of shares. Ordinary shareholders have both higher expected returns and higher expected risks than other shareholders. On a winding up the ordinary shares rank behind all creditors and normally behind all other classes of shares.
A diagram of the formal managerial structure of organization.
A taming difference that arises when the accounting treatment of a transaction or other event is different from that for taxation purposes.
The goals assumed to be adopted by an Organizational goals are often as if they were independent of the members of an organization, but strictly they are the goals of the organization s dominant members. The goals may be imperfectly defined and continually changing.
The difference between the total resources available to an organization and the total resources necessary for efficient and effective performance. Managers can create it by underestimated revenues and overestimating costs. It can be argued permits a limited amount of organization slack is desirable because it permits a blending of personal and organizational goals.
The way in which lines of responsibility within an enterprise are arranged,
A product that is consumed and replaced at a moderate rate e.g. clothing.
A method of scheduling commercials in a variety of programs or time periods to reach the greatest number members of the audience.
An isolated line of type left at the bottom of the page
Those costs that entail outlays immediately or in the near future in relation are outside shareholders.
A call option whose exercise price is above the current price of the underling security.
A shareholder who is otherwise unconnected with a company, Most minority shareholders are outside shareholders.
The capital stock of a corporation in the hand of the public. It is equal to the issued capital stock less treasury stock.
A credit balance resulting from the use of predetermined overhead rates. More overhead is charged to production than is actually incurred.
Processing more capital than is necessary for the scale of operations being undertaken.
An account receivable for which payment has been received at the end of the agreed credit period.
Express other than the cost of direct material and direct labour. Overhead may be classified into factory overhead, distribution overhead and administrative overhead.
The allocation of overhead to products or cost centers.
Deviations form budgeted or standard costs in respect of overheads. Overhead variances are more complicated than those for direct materials and direct labour; a distinction has to be made between fixed material fixed and variable overhead and the letter at least has to be assumed to very directly with some measure of activity.
A company incorporated elsewhere than in great Britain which has established a place of business in Great Britain.
Application for more than the number of shares offered in it prospectus. The application are usually scaled down prorate before allotment.
A situation in which a business spends its sales and may appear to be highly profitable but does not have the resources available to finance the expansions and runs out of cash, most of its assets being tied up in debtors and stock which cannot be converted rapidly enough into cash to pay its liabilities.
That part of the finance of an enterprise provided by its owners.
It refers to the efforts to design, develop and test new products, the efforts to improve existing products and to forecast likely trends in consumer preferences in terms of the physical attributes of the products. Its study includes the study of the following dimensions: a. Raw materials used in various proportions in the final mix; b. Attributes of the product: c. Saleable points of the product: d. Product appraisal: e. Product classification: f. Product design: g. Product development and new product development; h. Product packing and packaging: i. Product planning positioning and repositioning: j. Product branding or trade marks. Product analysis is more concerned with the perception of the consumers about the product, than with the product as a bundle of physical and chemical attributes. Product research includes the study of planned obsolescence of products. Products grow older and exit, and make room for new products Positioning of a product in a customer’s mind if the end product of the process of filtering information about. i. The product attributes ii. The packing iii. The pricing iv. The image of the product created by advertising and this may be different from the product’s functional and physical attributes. The main components of product research are product analysis and product development. A product is analyzed for what it has (merits) what it is (features), and what it does (functional utility and benefits drawn). The aim is product improvement in terms of its design, features, merits, uses, packing, etc.
The issued share capital to extent that it has been called up from the shareholders and cash or other consideration that has been received from them.
Money in the form of banknotes.
A rather vague term referring to profits that cannot be or have not been realized in cash or that result form using historical cost accounting rather than some form of inflation accounting.
The official fixed rate of exchange of a currency.
A quantity which remains constant in a given context.
A body having a quasigovernment standing, and with, usually, a majority ownership interest by the government.
An undertaking that has one or more subsidiary undertakings. A parent undertaking of a group, must if it is a company, prepare consolidated financial statements in addition to its own statements.
In welfare economics, the condition that no alternative allocations of goods and services could make nay person better off without making any other person worse off.
Putting shares into the name of a nominees or other person in order to hide their real ownership.
The condition of deceased has estate where the deceased has left a will dealing with only the estate.
An interest in the shares of an n undertaking which is held on a long-term basis for the purposes of securing a contribution to the investors by the exercise of control or influence arising form or related to that interest.
Preference shares that carry the right to an additional dividend whenever ordinary shareholders are paid a dividend exceeding a specified amount
Allowing person who will be responsible for performance under a budget to participate in the decision by which the budget is established. Participative budgeting is thought to provide a sense of responsibility and to have the effect of persuading employees to adopt organizational goals as their own. On the other hand, it may encourage managers to build organizational slack into their budgets and to set themselves unduly low aspiration level.
Shares on which all calls have not yet been made and paid.
A partnership agreement set out in a deed.
The face value or nominal value of share or a debenture. It is not necessarily equal to issue or to the current market price. Dividend and interest percentages are calculated with reference to par value.
An account book given to customer by a bank Arthur financial institution in which all transactions between them are recorded.
In computing, a set of characters which an authorized user must, for security reasons, input in the order to gain access.
A document issued by a company prior to the full prospectus, setting out the circumstances of the company and the aims of the proposed new issue.
The mechanism, used or with-holding tax form wages and salaries. unlike similar systems used elsewhere it is operated on a cumulative basis, i.e. a taxpayer s pay and allowance are accumulated throughout the tax year so that the amount with held in any one period is dependent on the income received throughout the year up to and including the current period. It is thus possible for rebates of tax to be made during the fiscal year, as well as after its end. Tax is withheld extremely accurately but the administrative and compliance costs of the system are high. The system depends on the marginal rate of tax being constant over a long range of incomes.
A method of capital investment appraisal which measures the expected length of time over which the undercounted cash receipts of a capital projects equal the undercounted outlays. The shorter the payback period the better the project is assumed to be. The method ignores cash flows after the payback period and the time value of money but is a very popular method in practice, especially in connection with other methods.
A person or organization who is due to paid, e.g. the person or organization to whom a cheque is made payable.
A book of slips and counterfoils used when paying cash and cheque into a bank account.
A payment made as a deposit before final payment for goods and services; part-payment of a liability.
Accounting for wages and salaries. The objectives of payroll account are: to calculate accurately each employee s earnings and to pay them promptly; to make such deductions or withholdings, e.g. for income tax, social security and pensions, as are required and to pay over the sums deducted to the appropriate authorities; and to allocate labour costs to functions, departments and products. Payroll accounting affects every employee in an organization and may be the one part of the accounting system which is carefully monitored by all of them. The volume of repetitive transactions is such that payroll is often the first part of the accounting systems to be computerized.
A tax based on the amount of an organization s payroll. In the UK, employers national insurance contributions is a tax of this kind
A theory of capital structure that argues that there is no optimal combination of debt and equity, but that directors will be to make investments out of retained profits as far as possible and to maintain the level of dividends.
The dishonest appropriation of money or goods by a person to whom they have been entrusted.
The review by one firm of auditors of the procedures of another audit firm for organizing and supervising and execution of audit work.
The chosen level of an exchange, interest or other rate.
Low priced (and often high risk) shares.
Money or other assets invested to provide pension payments and managed by, e.g., an insurance company.
A scheme for providing regular income to a person usually after retirement.
In an accounting and financial context, a market in which there are no transactions costs, no firm or individual has any special advantage or opportunity to earn abnormal returns on investments, and prices are not affected by the actions of individual or firm.
A guarantee by a company that a contract will be complete or goods delivered to a specific standard. Such bonds may be regarded As giving rise to contingent liabilities.
The assessment by a superior of a subordinate and an importance part of any management control system. To evaluated performance it is necessary to decide which measures are to be used to represent organizational goals, how these measures are to be defined and quantified, what standards are to be used, and what form feedback is to take.
A report comparing actual with budgeted performance.
Costs that cannot be identified with goods acquired or produced for sale. They are non-inventorial costs, i.e. they are written off as expenses during the period in which they are incurred without having been previously classified as part of the cost of producing the goods manufactured.
A method under which the amount of inventory (stock) on hand and hence the cost of goods sold is determined by means of physical counts at periodic intervals.
Benefits (perquisites) given to employees outside their normal remuneration. Similar benefits may also be given to shareholders:
Difference, not reversible in future periods, between profits as computed for taxation purposes and profits as stated in financial statements.
A diminution in the amount recoverable from the future use and subsequent disposal of a fixed asset which is not expected to reserve in the foreseeable future.
A method of accounting for inventories (stocks) which involves the continual recording of additions to and issues or sales of materials on a daily basis.
The continued existence of a corporation until it is wound up. Unlike a partnership, a corporation s existence is not affects by changes in its membership caused by death or other reasons.
An annuity which lasts for ever. The present value of perpetuity is equal to the annual receipt or payment divided by the rate of interest.
Those accounts in a ledger which record transactions with persons, e.g. debtors and creditors.
The amount that a person is allowed to earn before becoming liable to income tax, as a results of the Rocker Wise Amendment it rises automatically in the with inflation unless Parliament decides otherwise.
The community charge paid by most adults in Britain.
In computing, a number that must be entered in order to gain access to a remote terminal.
A ledger containing personal accounts. The most common examples are the debtor ledger and the creditor ledger.
A loan to a private person for domestic purposes made by a bank or other financial institution. No security is usually demeaned and rates of interest charged are consequently high.
A general term covering executor and administrator. A person who interferes with the property of a deceased person by acting as personal charged is consequently high.
Movable property such as cash and shares, in contradistinction to reality or immovable property.
A tax on profits arising from the extraction of oil and gas in British territory (both land and sea). The tax is changeable on each field separately, and the liability apportioned among the participating companies.
Cash balances held in the form of notes and coins rather than bank deposits and used in payment of minor expenditures.
A book recording of the petty cash transactions. It is usually kept by the system in which a fixed sum or float is allocated as sufficient to meet cash expenditure for an n agreed period of time.
The period of time over which a fixed asset is capable of providing services. It is often longer than the economic life of the asset.
The sale of or the obtaining of subscriptions for securities by either an issuing house or stockbroker through the stock market and to or by its own clients. Placing are only allowed by the stock exchange where there is not likely to be a significant public demand for the securities. The advantage of placing is their relative cheapness.
A system of governmental budgeting which involves the identification of goals and objectives in each major area of governmental activity; analysis of a given programme in terms of its objectives; measurement of total programming cost for several years ahead; the formulation of objectives and programme extending beyond the single year of the annual budget; analysis of alternatives to find the most effective means of reaching basic programme objectives; and establishment of the above analytical procedures as a systematic part of budget review.
Those depreciable tangible fixed assets, other than land and buildings, required by a business to carry on its operations. Capital allowance can be claimed on expenditure thereon.
A record of an organizations items of plant and equipment, for example, dates and costs of purchase, amounts provided for depreciation, dates of disposal, and amount received on disposal.
An article given by a borrower to a lender as security for a debt. The article remains in the possession of the lender until the debt is repaid.
Profit retained for reinvestment instead of being distributed to owners.
In computing, a terminal located where goods are sold, e.g. at a supermarket checkout.
Any takeover bid or defence strategies designed to make a bid unattractive or impractical.
Costs arising out of the political consequences of disclosing one set of accounting numbers rather than another.
The settlement of accounting questions and the determination of accounting standards by political pressures rather than by reference to implicit or conceptual framework.
A method of voting whereby each member of a company can vote for or against a resolution according to the number of shares that he or she owns.
A tax whose size bears no relationship to any tax base except the existence of the taxpayer.
A collection of all possible observations of a variable.
In computing, the point on device at which a connection may be made to some other device.
A pension which can move with a person when he or she changes jobs.
A financial context, a collection of different securities or other assets held be an individual or an institution which can be evaluated in terms of their combination risks and returns. The risk of a portfolio depends not only on the risk ness of each security but also on the relationship among the securities.
Investment in a foreign asset or enterprises without the intention of exercising management control or significant influence.
A risk that depends not only on the risk ness of the individual securities or other asset of a portfolio but also to the relationship among those securities. The contribution of a security to the risk of a portfolio is usually defined as the covariance of returns on the security and returns on the portfolio. Market risk is a special case in which the portfolio consists of the whole market.
A theory of investment designed to help investors choose an optimum portfolio. The theory is based on the relationships between risk and returns of securities in a portfolio.
A branch of accounting research which concerns itself not with searching for improved form of accounting, but with explanation why accounting is what it is, why accounting, what they do and what effect this has on the economy. A major concern of positive accounting theory is the costs and benefits involved in the choice of accounting procedures.
Events, both favorable and unfavorable, which occur between the date of balance sheet and the date on which the financial statements are approved by the board of directors.
A trial balance taken out after all adjusting entries have been made including transfers to the profit and loss account.
An audit of a capital project after its completion comparing budget estimates with actual results enquiring into the reasons for any variances.
A cheque which cannot be cashed until a specified date in the future
The probability of an event revised in the light of additional information
The transferring of an amount and its description form a journal to a ledger.
Costs that may be shifted into the future with little or no effect on the effect on the efficiency of current operations.
An axiom or assumption constituting the basis of at theory. The truth of a postulate is taken for granted or accepted as self-evident.
A legal document which authorizes one person an organization to perform specific or general acts on behalf of another.
The retained profits as at the date of acquisition of a company acquired by another company. Pre-acquisition profits are eliminated during the process of consolidation if acquisition accounting is used but not if merger accounting is adopted.
The degree of certainty that the error rate in a sample applies to the population. Precision is determined by the choice of confident level and the statistical nature of the sample and may be expressed as a sample estimate plus or minus some deviation. It is related to the concept of materiality in accounting. An auditor may, for example, wish to achieve a 95 per cent confidence level that a reported account balance is not materially different (say, + 5,000) from the audited amount. The range of values in this is a measure of precision.
A trial balance prepared before year-end adjustments and transfers to profits and loss account have been made.
An overhead rate estimated in advance in order that jobs and processes may be charged with a shares of factory overhead without having to wait for details of overhead actually incurred. It can be calculated as total budgeted overhead divided by total budgeted volume but it be preferable to calculated different overhead rates for different departments rather than a single plant-wide rate. If variable costing is used, only a variable overhead rate is used; if variable costing it may be preferable to calculated separate rates for variable and fixed overheads. Annualized rates are usually preferred to those set on a basis of weekly or monthly activity...
Failure to forecast accurately a critical parameter. The cost of prediction error is a key concept insensitivity analysis.]
The ability of an accounting number to provide information that is useful in predicating future accounting numbers. For example, studies have been made to see whether historical cost, current purchasing power or current cost income is the best predictor or itself or of future cash flows.
The entitlement of an existing share-holder to have allocation to him or her proportionate part of new issue of shares, The pre-emotion right is intended to project the shareholder against a dilution of his her present holding in the company.
A takeover bid for the purpose of deterring another bidder.
In insolvency, any trisection whose desired effect is to put a creditor in a better position than would otherwise have been the case.
An announcement of the annual results of a company made by the directories before the full audited accounts is published. A preliminary announcement is obligatory for companies listed on the London Stock Exchange.
The expenses of forming a company, such as legal costs, registration fees, stamp duty and printing charges. UK company law forbids their capitalization.
The amount be which the issue price of a share exceeds the per share value.
Expenses which have been paid for but the benefits or which have not been received at the balance sheet date. In accordance with the accruals convention the charge to profit and loss account is decreases accordingly and a current asset established.
The recording of net present values in accounts a routine and systematic basis. This is generally regarded as impossible to achieve in practice.
The multiple of last reported earnings per share that the stock market is willing to pay per ordinary share. It is the reciprocal of the earnings yield multiplied by 100. The higher the P/E ratio, the more the market thinks of the company and the cheaper the cost of equity capital to the company.
An index number measuring changes in price levels prices time. A retail price index measuring changes in retail prices; a whole price index changes in wholesale prices.
A variance arising as the result of actual unit prices differing form budgeted or standard unit prices. The variance is usually calculated by multiply the price difference by the actual quantity of units.
The account in which an external transaction is first recorded.
A measure of earnings per share calculated by dividing earnings available to common stockholders by the weighted number of common shares outstanding during the period plus shares from the assumed conversion or exercise of common stock equivalents.
Where a company or a group publishes more than one set of financial statements, that set which complies with statutory requirements and carries an audit report.
The sum of direct materials and direct labour.
The original record of a transactions or other event made in a Journal.
A sum on which interest is paid. Also a person who has given express or implied authority to an agent to act on his or her behalf.
In an accounting context, a general term including assumptions, axioms concepts, conventions and postulates.
An error in a double entry bookkeeping system in which an item has been posted to a wrong class of account, e.g. a debit in an expenses account instead of in an asset account. Errors of principle are not revealed by the taking out of a trial balance.
Claims on a company s assets and profits that rank ahead of those of the ordinary shareholders.
A method of calculating gearing by computing the percentage of earrings that is required to service each category of loan and share capital. The method ignores the existence of distributable profits retained form preview years.
Items in accounts that related to any preceding financial year. Only a few prior year items constitute prior year adjustment
A ledger containing confidential accounts. It can be linked to the general ledger through a control account.
The process of selling a publicly owned (nationalized) enterprise to the private sector. Also the conversions of a listed company into an unlisted one by the purchase of its shares.
A measure of the likely hood of an event taking place. Probabilities may be measured logically, by relative frequency, or subjectively.
IN an audit context, a method of drawing a sample in which the probability of each sample unit being selected is not random but proportional to its size. PPS sampling may be regarded as an alternative to stratified smiling.
The official proof of a will by the court.
A costing system used by organizations whose products or services are mass produced in continuous fashion through a series of processes, each of which receives varying inputs of direct materials, direct labour and factory overhead, which are charged to each process rather than to individual jobs or batches.
Costs identified with goods acquired or produced for sale. In relation to a manufactured product, product costs comprise direct materials, direct labors and factory overheads. They are also known as inventorial costs. Product costs become expenses rather than assets when they form part of costs of goods sold on the sale of the manufactured.
A distinction real or illusory, made by producers of competing products in order to persuade consumers that the products are not identical.
A depreciation method based on units of production. The annual depreciation is proportionate to the total units planned to be produced by the fixed asset.
An occupational group possessing certain attributes or functions. The trail approach to professionalism concentrates on the specification of key attributes; the functionalist approach on the functions of profession within a social system and on relationships between a professional person and the client. there is no clear-cut distinction between profession and non-profession or agreement on the list of attributes, but those usually mentioned include: a basis of systematic theory; authority recognized by the clientele of the professional groups; sanction and approval of this authority by the community and by the state; a code of ethics; and a professional culture sustained by formal professional associations.
The rules of conduct of a profession. Accountancy bodies may be imposed such rules on their members or may issue guidelines. The ethical rules of accountants in public practice are mainly concerned with the preservation of independence.
Insurance taken out by professional firms as a protection against losses arising form negligence and fraud.
A general term for the excess of revenues over expenses. Profit may be calculated in various ways depending upon whether historical cost accounting or some form of inflation accounting is adopted.
An enterprise s capacity to make profits as measured is financial ratios relating profits to sales or to investment.
A variant of the net present value method of capital investment appraisal. The index is derived by dividing the presents at the commencement of the project. It is appropriate for independent projects, where it gives the same indication as the net present value and internal rate of return methods, but not for mutually exclusive projects, where it fails to distinguish between projects of different sizes.
A financial statement of an enterprise s revenues, expense and profit. The format of the profit and loss accounts of companies is regulated by law and includes a profit appropriation section.
An account or statement prepared by partnerships and companies that disclose how the net profit or loss for the year has been or is intended to be dealt with. The entries in partnership s profit and loss appropriation account depend upon the partnership agreement. They will always include the net partners in their profit-sharing ratios.
A segment of a business which is held responsible for both revenues and costs.
A ratio comparing some measure of profit with sales.
The assumption that the objective of a firm (company) is to maximize profits. It is rejected in modern finance theory in favor or wealth maximization, in which it is assumed that the objective of the firm is to maximize its value to the shareholders.
A plan under which employee remuneration is partly based on the level of profit of an enterprise.
The ratio in which partners share profits and losses. The Partnership Act entities all partners to share equally, unless otherwise agreed.
On a stock exchange, the selling of shares in order to turn an unrealized profit.
Financial statements prepared for future periods on the basis of assumptions contained in budgets. Also financial statements occasionally published in annual reports in order to give a different view form the statutory statements. Proforma statements of this kind may, for example, show the effect of a post balance sheet acquisition or treating off balance sheet financing as a balance sheet.
A document sent by a seller to a potential buyer to show what the invoice would be. A pro forma invoice is not a demand for payment.
In computing a set of instructions which a computer carries out in sequence.
In public sector and non-business accounting an identifiable segment of activities whose output (goal) is in the form of services rather than goods. The costs of a programme can be measured without much difficulty, but, in the absence of market prices, the benefits may be hard to quantify.
In computing, a language used to give instruction to a computer. There is a distinction between low-level languages and high level languages.
A form of network analysis suited to projects where are uncertain. Probability estimates are used for activity times and costs. Unlike the critical path method (CPM) which is deterministic, PERT is a stochastic model form which can be derived statements about the probability of completing a project within a certain time.
Buying and selling on a stock exchange using a computer based program. Sales and purchases are made automatically which can increase market volatility.
Installments of the total payment on a contract, made at specified stages of completion.
A tax that takes an increasing proportion of taxpayer’s income as his or her income rises. Marginal rate of such tax will always be above the average rate.
Money made by the Bills of exchange Act as an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at to tie order of a specified person or to bearer.
A method of consolidation in which a proportion, instead of 100 per cent, of each item of assets, liabilities revenues and expense is brought into the consolidation financial statements.
A tax that takes a constant proportion of a taxpayer s income (or other tax base) as his income rises. For such a tax the marginal rate of tax is equal to the average rate.
A view of an enterprise which stress the importance of the proprietors (owners) of an enterprise rather than the enterprises itself.
In the context of pensions, a method of actuarial valuation of liabilities related to (a) the benefits for current and deferred pensioners and their dependents, allowing, where appropriate, for future pensions increases; and (b) the benefits which active members will receive in respect of both past and future service, allowing for future increase in earnings up to three assumed exit dates, and where appropriate for pensions increases thereafter.
Recording the steps involved in making a decision and analyzing them in order for example, to which decision rules are used and/ or to develop a predictive computer model.
A letter sent to shareholders by a company informing them of a provisional allotment of shares under a rights issue.
In insolvency, a person appointed by the court to protect the assets of a company after a winding petition has been presented but before a liquidator is appointed.
An amount written off a fixed asset and accumulated over the life of the asset. A charge (debit is made periodically against income; the credit is balance is accumulated and educated form the cost or other gross amount of the asset.
Either provision for liabilities and charges or valuation adjustment i.e. amounts written off fixed assets or current assets in both cases a charge (debit) is made to profit and loss account. The credit some of a provision for liabilities and charges is shown in the 230 provisions for liabilities and charges balance sheet as part of the capital and liabilities, however, whereas that for a valuation adjustment is deducted form the asset concerned.
Amounts retained as reasonably necessary for the purpose of providing for nay licitly or loss which is either likely to be incurred, but uncertain as to amount or as to the date on which it will arise.
A person authorized to attend and vote company meetings on behalf of a shareholder or stockholder, signed by the latter, which grants that authority.
A contest to obtain proxies form shareholders, usually in an attempt to change the management of company.
On of the accounting principles includes in the EC fourth directive and the British Companies Act 1985. the Act requires that he amount of any item shall be determined on a prudent basis, and in particular (a) only profits realized at the balance sheet date shall be included in the profit and loss account and (b) all liabilities and losses which have arisen or are likely to arise in respect of the financial year or previous financial year shall be taken into account , including those that only become apparent between the date of the balance sheet and the date on which it is signed on behalf of the board of directors.
A body by the National audit Act of 1983; all of its members are Members of the House of Commons. It examines the annual budget of the National Audit Office (NAO) and presents it for parliamentary approval. The Commission also appointees the external auditor of the NAO.
A company whose memorandum of association states that it is a public company, whose name ends with the word public limited company and which has a minimum (currently ?50, (W) authorized and allotted share capital at least one quarter paid up.
Capital provided as permanent financial to nationalized industries and on which dividend is expected to be paid to the Exchequer, The annual dividend is normally related to the industry s profitability in that year, although on average dividends are expected to be not less than the interest which would be payable on government loans. Not all nationalized industries have public dividend capital.
Expenditure by central of local government.
A group of senior official from all major central government departments responsible for making an annual survey of public expenditure plans as the basis of ministerial decisions on their total and composition.
The provision of money for government expenditure by taxation and borrowing.
A professional Accountancy Journal published since 1896 by the Chartered Institution of Public Finance and Accountancy.
A good with the characteristics that (a) individuals cannot be excluded form consuming it, even if they do not pay for it; (b) consumption by one individual does not prevent anyone else form consuming it. The market left to itself will tend to under produce such goods, which may therefore need to be paid for by the government out of taxation. Public issue An issue of shares or other securities by public company.
A journal published since 1981 by the Chartered Institute of Public Finance and Accountancy.
A sale by a company of bonds or shares to the public.
Accounting for central government, local government and government owned enterprise and agencies.
The difference between government expenditure and the amount raised by taxation.
A government department which any person can appoint to be his or her executor or trustee.
Enterprise which supply the public with essential services such as electricity, gas, transport and water. Whether nationalized or privatized they are usually subject to special accounting rules.
In accounting, a means of recording data by punching a pattern of holes on to a card.
A device which reads punched cards so that the data on them can be input to a computer.
Something of value given in order to induce a person to enter into a contract.
Goodwill acquired on the purchase of an enterprise as distinct form goodwill built internally by the successful activities of the enterprise.
An order issued by a business to a supplier requisition the delivery of goods.
An account recording the acquisition by enterprises of goods for resale. A purchases account is not necessary if a perpetual inventory is maintained.
An invoice received form the supplier of the goods purchased.
A book or other record containing a chronological list of credit purchases. Each entry in the journal is credited to an account in the creditor’s ledger. Totals are posted periodically to the debit of purchases account in the general ledger and the credit of creditors ledger control account.
A tax levied at the point of sale and based on the retails price of a good or service.
The ability to buy goods and services. Changes in purchasing power over time are measured by price indices.
A holding gain or loss arising from holding net monetary assets through a period of change in the general price level. In the simplest case, the loss or gain may be calculated as below. Let M = net monetary assets, N = an historical cost measure of the non-monetary assets, R = owner s equity and p = [(p1 - p2)/ p0], the proportionate changes in the general price level during an accounting period in which there are no transactions. Then the balance sheet at the beginning of the accounting period can be expressed as M+ N ( 1+ p ) = R ( 1+ p ) which can be rearranged as M+ N ( 1+ p ) = R ( 1+ p ) - Mp Where Mp is the purchasing power loss or gain. Where there are transactions during the period it is usual to use average price changes as a simplification. The concept of a purchasing power or gain is unfortunately more complicated than the above suggests. Net monetary assets may be divided into monetary assets and liabilities, with a loss in holdings money arising on the former and a gain on borrowing arising on the latter. Liabilities can be further divided into current liabilities regard as a component of monetary working capital and long-term debt. Highly Gerard companies are likely to show very larger gains on borrowing. The entity view, as distinct form the proprietary view, suggests that such gains are gains of the owner’s equity at the expense of the long-term debt holders, not the distributable gains of the company itself.
In its absolute form, the ratio two countries price levels.
The theorem that, between two countries in the exchange rate is proportional to change in the relative price levels. The empirical evidence supports the theorem in the long run but not in short run. It is thus of limited use to accountants and financial managers. Some accounting theorists have argued that purchasing power parties and not exchange rates should be used for transaction purposes.
Incorporating into the accounts of a subsidiary those adjustments which have been made in its financial statements for consolidation purposes.
A contract giving the right either to buy or sell securities and commodities with or at the end of a given time period at an agreed price.
A contract giving the right to sell securities or commodities within or at the end of a given time period at an agreed price.
A chart which measures profit on the vertical axis and volume in physical or monetary units on the horizontal.
A payment by a company to its members of a dividend, or other distribution of assets, which is subject to advance corporation tax.
Those characteristics that accounting information should have in order to be of maximum usefulness to readers of accounting reports.
The process of making sure in e.g. information technology, that products and services fit the purpose they are intended to serve.
Policies and procedures used to determine and maintain a desired quality of good services. Quality control has traditionally been applied to manufacturing operations but may also be applied to the services (especially audit) provided by public accountants.
Any of the values that divide a frequency distribution into a specified number of proportions.
A reduction in price offered by a seller to a purchase who buys more than a certain quantity
In a set of figures, the values above and below which 25 per cent of the values are to be found. The former is the upper quartile, the latter the lower quartile.
Companies which are legally not subsidiaries another company but are in fact effectively controlled directly or indirectly by that company and are a source of benefits or risks for the reporting company or its subsidiaries can be used as vehicle for off balance sheet financing.
Bribes and other payments made to foreign governments or persons in order to obtain contracts. Such payments are forbidden to US companies by the foreign corrupt practices act.
The mathematical analysis of problems in which item s requiring or providing service is occasionally idle and it is necessary to discover a solution which minimize costs. Solutions can be arrived at analytically or by simulation.
Current assets less stocks (inventories), i.e. mainly bank balances, debtors and readily realizable investments. They are also referred to as liquid assets.
The relationship between quick assets and current liabilities. Also known as the acid test, or liquid ratio, it is widely regarded as the most useful single test of liquidity. It differs fro the current ratio in the seclusion of stocks (inventories), which may not be readily realizable and which be valued in different ways by different companies.
A reduction in inheritance tax chargeable on death where the tax arise form a chargeable transfer made within a defined period before death.
The minimum number of persons whose attendance is required in order to validate a meeting.
On a stock exchange, a price quoted by a market maker at which he or she will trade. Quotations are usually two-way, i.e. both the bid rice and the offer price are quoted. More generally, a quotation is a statement of the price at which a specified job will be undertaken.
Computer storage in which the access time for an item of data is independent of the location of the data previously accessed.
In an audit context, a method of drawing a sample in which each item in the population, e.g. the purchase invoices for May, has an equal chance of being selected. Random sampling is commonly implemented through the use of random number tables and may be with replacement or (as is usual in auditing applications) without replacement.
The hypothesis that share prices move independently of previous movements. This is equivalent to the weak form of the efficient market hypothesis.
A measure of dispersion calculated by obtaining the difference between the largest and smallest items in a group of numerical data.
A measure of the degree of relationship between variable listed in order or rank.
A value placed on all properties subject to rates. The value is based on a national rent that the property could be expected to yield after deducting the cost of repairs.
The rate (price) at which one good (e.g. a foreign currency) can be converted into another.
The relationship between profit and investment.
Basing prices on a planned rate of return on capital employed. It is a variant of full cost pricing and is probably most suitable when prices need to be established on a basis acceptable to a powerful customer (e.g., a government agency).
A local tax levied on business property. Rates are calculated by multiplying a property s ratable value by rate poundage vary considerably as between authorities and types of property. Domestic rates are generally regarded as a regressive tax which does not take account of ability to pay.
Previously the main source of local government finance in the UK. It was divided into a domestic relief grant (used to reduce domestic rate bills) and block grant. The main objective of the RSG was to subsidize local services by redistributing central taxation to compensate local authorities for difference in spending needs and differences in their ability to raise local revenue form their taxable resources. It has been replaced by the revenue support grant (RSG).
A grade given to a company s bonds or loan stocks by a credit rating agency.
Materials used in manufacture and not yet processed.
Investments for which an active market exists, which is both and accessible, and for which a market value (or some other indicator form which a value may be calculated) is quoted openly. Readily marketable investments may be either current assets or fixed assets, but ED 55 in the UK proposes that only the former should be valued by marketing to market.
In computing, storage which can be read or copied but not changed.
Those accounts in ledger which record transactions involving non monetary assets, e.g., plant machinery.
Conversion of a non-monetary asset into cash or an account receivable.
An account used on the dissolution of a partnership. The book value of assets to be sold is transferred to the debit or realization account and the proceeds of sale are placed to its credit. Any balance is divided among the partners.
The convention that increase or decrease in the market values of assets and liabilities are not recognized as gains or losses until the assets are sold or the liabilities paid. The lower of cost or market rule of stock (inventory) valuation may be regards an exception to the convention based on prudence.
All profits, both capital and income that have been earned by a company. They are not necessarily equal to a company s reported profit, and in particular do not take account of the effects on profits of revaluation of assets. The Accounting Standards Board has proposed that companies disclosed in a note directly below the profit and loss account the amount of their realized profits.
The value of the net assets of an enterprise in units of general purchasing power, as in current purchasing power accounting power accounting and relative price change accounting.
A rate of interest after adjustment to allow for inflation.
In computing, a system in which data are processed and the results are output almost immediately.
Immovable property such as land, in contra distinction to personality received or a signed acknowledgement therefore.
An account or statement setting our for an accounting period and enterprise s cash receipts and cash payments.
Alternative term for cash basis of accounting
Amounts owing to an enterprise whether current or non-current (long-term).
The quotient obtained by dividing any non-zero number into 1.
Acceptance of a transaction or other event as one to be included in the accounting records and financial statements.
Recommendations issued by the Institute of Chartered Accountants in England a Wales form 1942 to 1969. They were not monetary but had persuasive force. Twenty in recommendations were issued before they were superseded form the 1970s onwards by Statements of Standard Accounting Practice (SSAPs).
A regular (usually monthly) payment to an employee. The distinction between salaries and wages is rather arbitrary but salaries as usually paid to non manual employees with the amount paid not directly related to hours worked or output produced.
A transaction in which an owner sells an asset and immediately reacquired the right to use the asset by entering into a lease with the purchaser. The lease may be either a finance lease or an operating lease.
An agreement that allows the buyer of goods to return them to the seller if they have not been sold within a specified period of time.
Amounts derived form the sale of good and services (either for cash or on credit), falling within a business s ordinary activities. It is reported in financial statements net of trade discount value added tax and other taxes based on sales. In consolidated financial statements, inter company sales are excluded.
An account recording revenue arising form cash and credit transactions relating to the sale of goods and the rendering of services to customers and clients.
A forecast of future sales based on consolidation of such factors as past sales volumes, general economic and industry conditions, relationship of the organization s sales to macro economic indicators, relative product profitability, market research studies, prices policies advertising, quality of the sales force, competition, seasonal variations and productive capacity. The sales forecast is the usual starting point of the budgeting process.
A book or other record containing a chorological list of credit sales. Each entry in the journal is debited to an account in the debtor’s ledger. Totals are posted periodically to the debit of debtors ledger control account and the credit of sales account,
A tax levied at the point of sale and based on the retail price of a good or service. Unlike value added tax sales taxes have a cascade effect. I.e. the amount of tax borne by the ultimate taxpayer is greater than the rate of tax multiplied by the cost of the inputs.
The variances that arise form a deviation of actual sales volume form budgeted or standard sales volume.
A UK committee on inflation accounting which reported in 1975. Through the work of the Inflation Accounting Steering Group and the Accounting Standard Committee, the report was eventually translated into SSAP 16, but only after many problems bad been surmounted.
Achieving a satisfactory level of, say wealth or profits instead of maximizing Satisfying is often regarded as a more realistic description of managerial behavior than maximizing but it is less suitable as normative goal.
A bank that accepts interest-bearing deposits for small amounts. Savings banks may be in the private sector or the public sector.
A graphical representation of data in which the observed of one variable are plotted against those of another an aid to determine whether any mathematical relationship exists between them.
An approach to management associated with the name of frederick W. Taylor and other and concerned largely with procedures for the efficient organization and conduct of routine work.
The accounting functions of accumulating data and reporting to all levels of management. It may be contrasted with attention directing and problem solving.
Residue from a manufacturing process which can be either be sold or reused. It has a small but measurable value.
In computing, movement of a screen so that new data appears at one edge at the same time old data disappears forms another.
The official signature of a company, usually in the form of an impression formed on paper by a press. Although it is no longer necessary for every UK company to have a seal, certain documents can be only being executed under seal.
A categorization of stock on the London Stock Exchange into alpha, beta gamma stock, based on the number of market markers and the liquidity of the stock. The categorization was abandoned in January 1991.
A market for securities not listed on the main (fist tier) market.
Undisclosed understatement of net worth resulting form e.g., the excessive writing down of assets, overstatement of provisions and liabilities, and the writing off of additions to fixed assets as expenses.
A US federal government regulatory agency established under the Securities exchange Act 1934. The SEC has the duty of ensuring full and fair disclosure of all material facts concerning securities offered for public investment. It is also concerned with initiating litigation against fraud and providing for also registration of securities. The Sec administers the Securities Act 1933; the Securities Foreign Companies subject to SEC jurisdiction must file a number of forms, notably FORM 10-K annually and FORM to-o quarterly. The former includes consolidation and unconsolidated balance sheets, income statements and cash flow statements and much other detailed information.
An independent body set up under the financial services Act to regulate the UK financial markets.
The linear relationship between the expected return of security and its systematic risk, the expected return comparing a risk-free return plus a risk premium.
The reporting is that the highly aggregated data contained in the consolidation financial statements of diversified groups leads to loss of information unless the data are disaggregated into segments. the disclosure of segmental differences in profitability, risk and growth prospects may enable investors to make a better allocation of resources any may also be of use to employees and trade unions in wages bargaining; to consumers in helping to restrain price discrimination and the reduction of competition; and to governments in formulation industrial policy. It is also sometimes claimed that segmental reports facilitate comparability between companies or groups that have segments in the same industry or between such segments and single industry companies. The arguments against segmental reporting are that it given an undue advantage to competitors; that it is inequitable between groups (e.g. the operations of segment in a small group may be deemed significant and require reporting while operations of similar size in a larger group may be deemed insignificant an not require reporting ); that the costs of data preparation and audit may be too high (this is unlikely where the data are already collected for internal use); and that there may be undesirable regulatory or tax consequences. In the UK segment reporting is required by company law, the stock exchange and accounting standard (SSAP 25). US reporting are regulated by SEC requirements and SFAS 14. The provisions of SSAP 25 which are additional to those or legislation are mandatory only for public companies, for banking and insurance companies, and for private companies (and other entities) which exceed the criteria, multiplied in each case by ten, for defending a medium sized company under the Companies Act Identifying a business segment is seeks only to provide guidance. It recommended that directors should take into account: the nature of the products or services; the nature of the production processes; the markets in which the products or services are sold; the distribution channels for the products; the manner in which the entity s activities are organized; and any separate legislative framework relating to part of the business. Use of either of the last two would mean that the information would be readily available. SSAP 25 adopts these criteria for both business and geographical segments. The argument for segmentation on a geographical basis is that risks and returns may differ significantly form country to country. SSAP 25 recommends that directors should take into account: explains or restrictive economic climates; stable or unstable political regimes; exchange control regulation; exchange rate fluctuations. Geographical proximity may not always be a suitable criterion. The reporting of segment data is likely to involve arbitrary cost allocations. SSAP 25 requires, for both business and geographical segments, the disclosure of turnover, profit or loss (before tax, minority interest and extraordinary items) and net assets. Some UK companies provide this information in matrix form but this is not a SSAP 25 requirements. SSAP 25 contains fewer requirements than SFAS 14 which also requires disclosure of segmental depreciation, capital expenditure and sales to customer representing 10 per cent or more of total revenue. Empirical research provides strong support for the incremental information content of segmental sales but not for other segmental disclosures.
The profit made by a government from issuing cons, i.e. the difference between their face value and the cost of manufacture and distribution.
A system under which the taxpayer rather than the tax authority is primarily responsible for calculating tax liability and ensuring that payment is made. It is not used in the UK for income tax (although it is an essential par of the income tax systems of countries as the USA and Australia) but there are elements of self assessment in the administration in the UK of value added tax and capital transfer tax. When sued for income tax purposes it requires all taxpayers to complete a return annually (unlike most British taxpayers at present). It is common for too much tax to be with held during the tax year, thus providing an incentive for taxpayers to complete their returns promptly and accurately in order to speed up their rebates. Self-assessment tends to reduce administrative costs but may increase compliance costs. It would be unnecessary and the long basic rate band of the present British income tax systems and could lead to greater understanding by the taxpayer of how the system works.
Ledgers that contain an equal amount of debits and credits. This should always be true of the general ledger and is also true of those subsidiary ledgers that contain general ledger control accounts.
A loan in which the money is used to finance a project the proceeds form which will be used to repay the principal and interest over the period of the loan.
Varying the data in a calculation so as to ascertain which variables have material effect on the results. For example, several cash budgets may be constructed to determine whether or not the results are materially changed by differences in, say, and sales forecasts or in the assumed collection period for debtors. Sensitivity analysis is also used in capital investment appraisal.
An asset of an enterprise that can be separately identified and sold without of the business as a whole. It is generally agreed that goodwill is not a separable asset but other intangible assets may be so regarded, with brands as the borderline case.
Costs incurred beyond the split off point of joint products. They are not part of the joint production process and can be identified with individual products.
A legal process by virtue of which an officer of the court empowered to hold goods or property belonging to a person or body pending the settlement of a dispute or payment of a debt. In Scotland, sequestration is a procedure involving the realization of assets under the supervisions of the court and is instituted by a petition made to the court wither by the debtors or by one or more creditors.
A body whose function is to investigate and prosecute serious and complex cases of commercial fraud in England, Wales and Northern Ireland. It was established as results of the 1986 report of the Roskill Committee which led to the Criminal Justic Act 1987. The SFO employs lawyers, accountants and police as an integrated team.
A contract of employment between a company and senior employee.
A department in manufacturing company which provides services (E.g. repairs and maintenance) to production departments. In calculating predetermined overhead absorption rates service departments cost are allocated across the production departments.
A person not formally appointed a director but in accordance with whose directions or instructions the directors of a company is accustomed to act.
The opportunity cost of a scarce resource, i.e. a shadow price is a measure of the contribution foregone by failing to have one more unit of scare capacity in a particular situation. Resources in excess supply have a shadow price of zero. Shadow prices usually form part of the information provided by optimal solutions to leas programming problems .They valid only over certain ranges.
An expression of a proprietary relationship in a company. Shareholders a re propitiate owners of a company but the company’s net assets belong to them but to the company as a separate and independent legal entity. The most common types of shares are ordinary shares and preference shares.
The difference between the par value of a share and its issue price, where the latter is the lower amount. Such an issue, is however, prohibited by company law.
Empirical research into the use made of company annual reports by shareholders. A listing and analysis of shareholder survey carried out in the UK, USA, Australia and New Zealand is given in R. D. hines, The usefulness of Annual Reports: The Anomaly between the Efficient Markets Hypothesis and shareholder Surveys Accounting and business reaches, Autumn 1982. In general, the surveys shoe that annual reports are regarded as important sources of information although the financial statements they contain are not well understood, especially private as distinct from institutional shareholders because it is in narrative form and often deals with future prospects,
A book or other record showing in debit and credit form changes in the shareholding of each member (shareholder) of a company listed by shares, it is usually combined with the register of members.
An account to which is credited the premium on shares issued at a premium. A share premium is treated almost but not quite as if it were share capital. It may only be used for the issue of bonus shares; in writing off preliminary expense; in writing off under rating commission; or in providing a premium payable on the redemption of debentures. It may not be used to write off goodwill on consolidation but an application can be made to the court for the share premium to be re designated as special reserve which may be so used.
Colloquial expression for provisions in a company’s memorandum and articles of association (US: charter and bylaws) designed pot deter a takeover bidder.
A company with few or no assets and thus available for purchase at a low price. The buyer uses the company for his own business which may be substantially different form the one originally carried on.
Securities which are approaching maturity. The market value of such securities will be close to their redemption value.
Participation in, or the ability to participate in, the financial or operating policy decisions of another enterprise.
The deduction form the maturity value (S) of an obligation that is sold or settle for an amount P before its maturity date. The amount of the simple discount is S - P, where S = P(1 + ni ) and P S(1 - nd ), n being the number of periods , i the simple interest rate and d the simple discount rate (d = MIS).
Interest calculated on the original sum (principal) invested and not also interest reinvested. It can be calculated form the formula I = Pni where I is the amount of simple interest, P is the principal, n is the number of periods, and i is the simple rate of interest per period. Simple interest is normally used when the interval of time involved is short.
General techniques for solving linear programming problems by an iterative process. The method tests feasible solutions to see whether they can be improved and continues until an optimum solution is found. For all but very simple problem a computer is necessary in order to use this method.
Financial statements with a reduced information content prepared so that those unskilled in accounting may more readily understand the statements. Surveys of lay shareholders show that much of what is published in full company annual reports is neither read nor understanding because of a lack of knowledge of both accounting terminology and accounting conventions of income and wealth measurement. It has been suggested, although empirical research hacking is lacking that simplified statements could best the form of a narrative explanatory statement followed by summaries of the balance Sheet and profit and loss account. Tow problems that arise in the preparation of simplified statements are how to ensure that companies are not misleadingly selective in the choice of information presented and how to prevent additional information being given that is not in the full report. The response of UK legislature to these problems has been the introduction of summary financial statements. It has been suggested, however, that the main effect of these will be to save listed companies money rather than increase the understanding of their shareholders.
Situation in which the roles of stockbrokers (acting as agents for investors) and jobbers (buying and selling securities on their own account) are kept strictly separate.
A fund established to accumulate the amount of money required to pay of debt at a set date in the future.
A measure of the lack of symmetry of statistical distributions. Distributions skewed to the right are positively skewed; distributions skewed to the left are negatively skewed.
A partner who is not active in the management of a partnership. Such partners do not have limited liability unless they are limited partners in a limited partnership
Groups of companies which are exempt form filing group accounts with Register of Companies. Public companies and banking, insurance and other financial sector companies, or a group containing such a company, are not entitled to the exemption. The size criteria relate to an aggregation of the companies in the group and are as a set out below. Gross means an aggregation with adjustments for inter-group transactions. Net means an aggregation after such adjustments. A group qualifies as small or medium if, for the financial year in questions and the immediately preceding financial year, it is within the limits of least two of the criteria are permissible.
A reduced rate of corporation tax designed for small companies but, to avoid problems of definition, applied to companies with small taxation incomes. There is a tapering, relief between the lower and the full rate. The great majority of UK companies qualify for the small company’s rate.
An examination of the extent to which the operations of an organization, public or private, have contributed to social goals Social audits can be see means of giving some control to groups such as employees, consumers and the local community. They are concerned more With effectiveness than with efficiency. Such audits are difficult to perform, compared with statutory audits, for a number of reasons: the persons being reported to be likely to have multiple objectives-, there is no generally accepted measure of social performance, and the necessarily audit techniques are not well developed.
Reporting the costs and benefits relating to socially responsible actins by business enterprises. This may be done in a number of ways, e.g. publication in the annual report of a list of socially responsible actions (a popular method in the USA); publication of a list together with disclosure of the cost to the enterprise of each activity; publication of list together with disclosure of the extent to which the objectives of the actions have been achieved; publication of list together with the costs and benefits of each activity. The costs disclosed will be those of the enterprise and are not difficult to measure, although allocations may be necessary. The benefits disclosed will be social benefits and their definitions and quantification may be extremely difficult. These are no consensus as to what constitute socially responsible actions but they probably include at least the following: control of pollution, energy conservation, health and safety, community involvement of disadvantaged persons, product safety, community involvement, and donations to educational institutions and charities. Some at least of these actions are likely to benefit the enterprise itself, if only in terms of good publicity or the avoidance of legislation. Definitions of corporate responsibility are not static item or form country to country.
Amounts payable under the Social security Act by employees, employers and the self-employed. There are four classes of contributions. the expressed purpose of the contributions to pay for social security benefits but, sine benefits received are some extent independent of contributions paid , the contributions can also be regarded as a tax.
The name given (in Latin) to the proposed European Company, as distinct form companies form are under the national laws of the EC member states.
The accounts and financial statements of an incorporation enterprise owned by a single person. The proprietorship current account, the former contains a capital account and usually a current the former are cording the owners fixed stake in enterprise and the latter his fluctuating stake (net profit less drawings). The profits of a sole trader taxed as part of his or her personal income and this reason income tax is not recorded in the enterprise s accounts. In practice the distinctions between the owner and the business may both be clearly made and, in particular, the expenses in the profits and loss account are likely to be influenced buy taxation considerations.
In the UK account prepared under the Solicitors Account Rules. The main requirement of the Rules is the separation of the firm s money form that held on behalf of clients.
An investor with a good knowledge and understanding of the accounting practices and theories relevant to published financial statements or with access to the advice of a person with such knowledge and understanding.
A regional accountancy association formed in 1984 comparing interalia professional accountancy bodies form Bangladesh, India. Nepal, Pakistan and Sri Lanka.
Banking and insurance companies which are exempt form some of the accounting requirements of the Companies Act 1985 as amended being allowed to prepare accounts in accordance with Scheldule9 instead of schedule 4. They are however, subject to the reporting requirements of banking Act 1987 and the Insurance Companies Act 1982 and the regulations made hereunder.
Salaries officials who hear appeals made buy taxpayers against tax assessments. The appeals heard by Special Commissioners are generally more complex than those heard by the general commissioners.
Transactions which as defined in ED 42, combine or divide up the benefits and obligations flowing form them in such a way that they fall to be accounted for differently or in different periods depending on whether the elements of the transactions are taken step by step or whether the transactions are viewed as whole. The common features of such transactions are: (i) severance of legal title to an item from the principal benefits and risks associated therewith; (ii) Linkage of transactions in such way that the commercial effect cannot be understood without reference to the series of transactions as a whole; (iii) inclusion whose terms, make it reasonable probable that the option will be exercised or the condition fulfilled.
The name sometimes given to the non -distributable reserve created after application to the court to re designate the share premium account. Special reserves are often used as means of writing off goodwill in the company s own accounts or goodwill on consolidation.
The prices, observable in a market, of specific goods and services (commodities). A change in a specific price can be divided into two components: that part which is due to change in the general price level; and that part which is due to change in the price of specific commodities relative to other commodities. The latter can be regarded as the real increase in the price of the specific commodity.
The splitting of depreciation between an amount based on the historic cost of fixed asset and the extra amount required for a charge based on a current cost. The charging of the former to profit and loss account and the latter to reserves, whilst maintaining the fixed asset at current cost in the balance sheet, is no longer permitted SSAP 12.
Goods that are not up to standard and are sold for disposal value. The objectives of accounting for spoilage are to measure its magnitude and to draw it to the attention of managements distinguishing between normal spoilage and abnormal spoilage
The stabilization of financial statements drawn in nominal monetary units by the substitution as the unit of account of gold (as in the German hyperinflation of the 1920s) or a measure of general purchasing power.
Individual interest associated with an accounting entity and in some degree, dependent upon its financial performance. Stakeholders may include shareholders and other properties, employees, suppliers, customers, lenders, managers and even central and local government and local communities. All stakeholders are likely to be users of accounting reports but not all users are necessarily stakeholders
A system of costing using standard costs. The major purpose of standard costing system is in-proved control over operations but it also be used to save record-keeping costs.
Predetermined measures of what costs should be under specified conditions. Ideal standard costs are the absolute minimum costs possible under the best conceivable operating conditions. Currently attainable standard costs are the costs that should be attained under very efficient operating conditions. Allowance being made for normal spoilage, ordinary machine breakdowns and lost time. They are more widely used than ideals standards because they can be used simultaneously for product costing, budgeting and motivation.
The process which leads to uniformity of accounting records and financial statements. The distinction between standardization not always clearly made but standardization may be regarded as making them same whereas harmonization is concerned with matching them compatible by stating bounds to their degree of variation. In practice the term harmonization is used in an international context, although, in confusion of terminology, inter-national harmonization may be sought by the issue of international accounting standards.
Setting the rules to be followed in the preparation of corporate financial statements. There is no generally agreed model of standard-setting process.
The amount which the central government calculates should be spent by each authority on its service each year. The SSA is used as a basis for deciding how much money to give to the authority in grant aid. There have been great discrepancies between SSAs and local authority budgets.
In England and Wales, a grant by central government to local authorities. It is calculated on the basis that (subject to the effect of a safety net) a standard level of service can broadly be provided anywhere for the same community charge or other local authority tax.
An instruction by a customer to a bank or building society to pay a specified amount of money on a specified date or dates to a specified payee.
The carrying amount of the share capital, I .e. either the par value or, in the case of no par values shares, the amount determined by resolution of the board of directors.
A statement that must be filed worth the Register of Companies by a company making a share issue which is not required to issue a prospectus.
A statement as to the affairs of a company required in windings up and in receiverships. In effect, it is a break-up balance sheet with assets valued at estimated realizable amounts and full particulars of all creditors and their securities if any. The form of the statements is prescribed.
A statements showing all movements on shareholders equity which occurred during a financial year. The statement would thus disclose a company s comprehensive. Income.
Statements on external audit issued by the American Institute of Certified Public Accountants.
A state of narrator in which all prices are constant through time and are expected to remain so, and in which each asset has a single price.
An audit required by statute of the financial statements of limited companies and other organizations. It has developed as an expert and objective examination of management-prepared statements by an independent and impartial third party who expresses an opinion on the statements so as to enhance their creditability in the eyes of investors and other interested parties. There was no general legal requirement for a statutory audit in the UK until 1900. Under the companies Act 1985 an audit required of all companies, both public and private, and whether large, medium-sized or small, except that the shareholders of a Dormant company choose blot to appoint an auditor. The number of companies subject to statutory audit in the UK is much larger than in The USA, other member states of the Ec or other members of the Commonwealth. Company auditors must be registered auditors. There are not statutory requirements for the audit partnerships and sole traders. Connection with the commencement of business of a public company and with a private company applying for exemption form the requirements to use limited as part of its name.
In insolvency, a formal demand issued by a creditor requiring a debt to pay a debt with in three weeks. Failure to pay is evidence of insolvency and one of the grounds for winding up petition.
A sum of money that must be given to a surviving spouse form the intestate when domiciled in England or Wales.
A cost which is constant over various small ranges of output, but which increases in step fashion from one range to the next. If the steps are sufficiently small. Linear approximations may be sued. If the steps are wide enough, one step may represent the relevant range, so that the cost may be assumed to be fixed.
Bonds the interest rate on which rises over the life of the bond in predetermined way. Some companies account for the interest on a cash basis, but it is arguable that under the accruals concepts interest should be charged annually at the effective rate over the life of the bond.
That part of the increase in the monetary value of stock-in trade (inventories) which is due to changes in prices rather than changes in physical quantities. It is eliminated on a aggregate basis in National Income and Expenditure Account and by individual companies that publish current cost (CCA) information.
A tax relief that aimed to alleviate the taxation of unrealized gains on stocks (inventories) during periods of rising prices. Introduced in 1973 and established in 1984, the rules relating to the relief (including carry forwards of unused relief and claw-backs) changed frequently. The forwards Act 1981 introduced a system whereby an all stocks index, published by the government, applied to a company s opening stock. The relief may be regarded as having been, along with generous capital Allowances, a way indirectly, and rather crudely, taxing current cost income rather than historical cost income.
A general term comprising goods or other assets purchased for resale; consumable stores; raw materials and components purchased for incorporation into products for sale; products and service in intermediate stages of completion; and finished goods. The balance sheet formats in UK company law suggest an analysis of stocks into raw materials and consumables; work in progress; finished goods and goods for resale; and payments on account.
The ratio of cost of sales or sales to stock-in trade (inventory) i.e. sales/stocks or (cost of sales/stocks. It measures number of times a business s stock turns over during a year. it is likely to differ substantially form one industry to another. Since stocks are usually valued at an entry price, cost of sales is preferable as the numberator but it may not be available to an external analyst.
An account recording in total materials purchased and issued to production and the balance which should be on hand at nay givne moment. On the issue of direct materials, the work in progress control account is debited; on the issue of indirect materials, the factory overhead absorbed account is debited.
The collection and analysis of financial information on a firm s product markets including competitors cost and structures and the monitoring of the firm s and its competitors strategies in those markets.
The part of longer range planning that concerns deciding upon the objectives of an enterprise (e.g. the kinds of business to be in , the goods and services to be sold , the markets to be served the share of a market to be aimed at, required rates of sales and profit growth, desired size of the company) and the enterprise s environment, and analysis of the enterprise s strengths and weaknesses, an appraisal of the company both internally externally, formulation of strategy, and development plan relating to acquisition, mergers, diversification and divestment.
In an audit context, a method of sampling in which the population is divided into strata, each being subject to a separate test. It is appropriate to a n audit where parts of the total population are subject to different degrees of risk or the population is significantly skewed (e.g. a small number of high value debtors balance and large number of low value debtors balances).
The division of shares of one nominal value into a larger number of shares of a small nominal value, e.g. the division of a $1 share into four 15p shares.
A clause that allows creditors to accelerate the scheduled maturities of an obligation under circumstances that are not objectively determinable.
A ledger in which a special class of account (e.g. debtors) is kept so as not to overburden the general ledger and to allow separate usage. What is recorded in detail in the subsidiary ledger so recorded in a control account (e.g. a debtor’s ledger control account) in the general ledger; the balance on the control account should agree with the total of the schedule of balance form the subsidiary ledger. If it is desired to make the subsidiary ledger self-balancing, this can be achieved by the use info the subsidiary ledger of a general ledger control account which is mirror images of the subsidiary ledger control account in the general ledger.
An undertaking that is controlled by a parent undertaking. Its financial statements must normally be included in the consolidation financial accounting of the group unless (a) the subsidiary is lawfully excluded form (full) consolidation. A subsidiary may be excluded on the grounds of immateriality. A subsidiary may be excluded on the grounds of immaterially or disproportionate expense or undue delay. It must be excluded where (a) serve long term restrictions substantially hinder the exercise of the rights of the parent is held exclusively with a view to subsequent resale or (c) its activates are so different that inclusion in the consolidation would be incompatible with giving a true and fair view.
An accounting concept whereby transactions or other events are accounted for and presented in accordance with their economics reality rather than their legal form.
Auditing teats the purpose of which is to obtain evidence as to the completeness, accuracy and validity of information in accounting records or in financial statements.
A French report on company law amendment. Its most notable recommendation concerned the publication of social balance sheet
Financial statements permitted to be issued to the shareholders of listed companies and which summarize the information contained in a company s annual account and director s report.
Costs incurred in the past and unaffected by any future action and thus irrelevant to decision making. The English economist Jevons expressed this irrelevance as follows: In commerce bygones are for ever bygones; and we are always starting clear at each monment judging the values of things with a view to future utility.
In a two-tier system of corporate governance, the body whose function is to supervise, on behalf of the shareholders and the employees, the activates of the board of management.
Statements presented as additional to primary financial statements and explicitly or implicitly of less importance.
A statement presented to the House of Commons of the estimated expenditure of a central government department during a financial year asking for the necessary funds to be voted.
An excess of revenue over expenditure. The term is usually employed by non commercial organizations. In the USA, surplus refers either to retained earnings or to all stockholders equity in excess of the par or stated value of the capital stock.
The amount receivable on a life assurance policy that is cancelled before the end of its term.
In general, an exchange of one type of funds for another type of funds. In particular, the purchase or sale of a currency in the spot market made concurrently with a sale or purchase in the forward market.
The non diversifiable component of the risk of a security. i.e. that par of the risl of its returns which cannot be eliminated by including it in a diversified portfolio. It is also known as market risk. Systematic risk is quantified as the beta of a security.
In an audit context, a method of drawing a sample in which the first item is chosen at random and then every item thereafter is chosen, where k is the number of times in the population divided by the required sample size, until the full sample has been drawn.
Multidimensional graphics in the form of faces. They are used for displaying relationships between variables such as financial ratios. The faces are constructed by assigning each variable of interest to feature of face.
The acquisition by one company of sufficient shares in another company to give the purchaser control of that other company.
An offer by one company to be acquired all, or a controlling holding of the voting shares of another company.
An accounting device used by the Englished Exchequer until the early 19th century. The tally was a stick of wood in which transactions were represented by notches, the tally being split in order to give both parties evidence of the transaction. Most English tallies were deliberately destroyed in 1843 in a conflagration which also burnt down the Hoses of Parliament. Some of the tallies that survived may be seen in the Museum of the Public Record Office in London.
A slip attached to a sheet of coupon s of a bearer security. The slip is sent to the issuer when a fresh Supply of coupons is required.
Estimating product costs by first of all establishing a competitive market price and then working out an appropriate cost based on cost reductions made possible by the improvement of technologies and processes.
Earned income Plus investment income less expenses and allowances, for a company, income as adjusted for items not allowed for tax purposes, for revenues not taxed and for deductions not in the company s accounts.
Deduction form total income making part of that income tax-free regardless of the taxpayer s pattern of expenditure or source of income. The part remaining is the taxable income. Allowances granted vary over item but in the UK are or have been given in respect of marriage, chillers, age blindness, dependent relatives, housekeepers, son s or daughter s services, etc.
An index of the rate of the inflation. It is similar to the retail price index but also takes account of changes in tax liabilities.
Respectively, manipulation within the law to reduce liability for tax and manipulation outside the law to reduce liability. The main causes of avoidance and evasion are high taxes, imprecise laws, insufficient penalties and lack of equity in the tax system.
The base on which a tax is lived, e.g. a stock of wealth, a flow of income, an expenditure.
The amount of tax suffered by a person or an organization. The actual burden of a tax may differ form its appeared burden.
An assurance obtained from the relevant fiscal authorities that a proposed trisection will not attract tax.
A mean of summarizing the amount of allowances and deductions due to a taxpayer, so as to determine his taxable income. The whole body of tax law, especially in countries where the law is codified rather than existing in statutes and decided cases.
Compulsory levies made by public authorities for which nothing is received directly in return.
A savings account the interest of which is not taxable if the capital is not withdrawn in less than fives years.
A finical advantage conferred by the reduction of a tax liability rather than by direct cash subsidy.
Harmonization of tax bases and tax systems between counties. The aim such harmonization is to ensure that the conditions of competition and the returns to capital and effort should not be significantly affected by differences in effective tax burdens. Given the importance of tax revenues to government tax harmonization is more difficult to achieve than the harmonization of corporate finance reporting. Within the EC, tax harmonization has concentrated on tax systems rather than tax bases. As a result, most member states have adopted an imputation system.
Period during which a company setting up in a particular area or country is exempt form taxes. Tax holidays are offered as incentives to attract investment.
The amount of loss of an accounting for period as determined by tax law. It is not necessarily equal net loss in the entity s profit and loss account.
The statement to the fiscal authorities of taxpayer s sources and totals of income and expenses during a given period.
A decrease, because a payment is tax deductible, in the income that has to be earned in order to make the payment.
The way in which taxable income is taxed. Most common are the classical system, the imputation sys-tem and the split rate system.
Tables used in operating the say you earn system of collecting income tax. The tables are issued annually by the Inland Revenue to all employers who need to know their employees tax code and cumulative pay to date.
A liability to met debt as they fall due even though total assets exceed total liabilities.
The misappropriation of cash remittances received form customers by using amounts form later remittance to fill the gap left by the earlier misappropriation. It can be avoided by not allowing a cashier both to handle remittances received and to make entries in the account of induces customers.
The perforce of banking operations over a telecommunications network. Temporary differences between the tax basis of assets or liabilities and their reported amount in the financial statements that will results in tax able or deductible amount s in future years when the reported mounts of the assets or liabilities are recovered or settled.
A diminution in the amount recoverable form the future use and subsequent disposal of a fixed asset which is expected to reverse in the foreseeable future.
A holding of property by more than one person under which on the death of one of the owners his or her share of the property passes accordingly to the terms of his or her will or the rules of intestacy and does not pass automatically to the survivor.
A method of issuing securities in which investors bid at prices above a minimum price. The method is designed, inter alias, to discourage stags.
A public offer to buy some or all of the existing stock of a company within a specified period. The price offered is usually well above the current market price.
The length of time between the acceptance date and the due date for payment of a bill of exchange.
A deposit in a bank or other financial institution for specified period.
A loss made by a business in its last year of trading and affecting the business liabilities to tax for preceding years.]
The amount to which initial principal P invested at the beginning of period 1 at a compound interest rate of I per period will accumulated to after n periods, i.e. ( I + I )n . This value can become very large indeed. For example, it has been pointed out that if the Red Indian who sold Manhattan for in 1626 had invested it at 6 per cent pea compounded semiannually it would have accumulated to $ 9,500 million by 1959.
The relationship between the yields on fixed interest securities and their maturity dates,
A person who, before his or her death, as made and late a valid will.
In an audit checking a sample of a population rather than the whole population.
In an audit context, a set of simulated transactions that the auditor can put through a computer system in order to see whether they are processed accurately.
Financial more by loan capital equity capital.
A market in which there is little trading and prices fluctuate greatly in relation to volumes traded.
The lowest level of admission to the London stock exchange aimed at young companies. The requirements for enter were less stringent than for companies on the official list or the unloosed securities market.
The amount of useful work perfumed by a system during a given period of time.
A system of accounting constructed in such a way that the original objects of expenditure recorded in the primary accounts can be identified in the secondary accounts and financial statements.
A computer program designed to cause damage within a computer system at a specified time.
A document recording the time spent by an employee on particular jobs or processes, used both as a means of charging direct labour to jobs and fishing responsibility for performance.
A deposit that can be withdrawn by the depositor only after due notice has been given.
A series of observation of the values of a variable at different points in time.
A document recording for an employee how his or her different point in time. has been spent, including time spent on in dual jobs.
The number of times that a company s interest charges are covered by its earnings before interest and tax.
An expression of the fact that, if the rate of interest is positive, money in hand now is worth than money to be received at a date in future. To calculate the time value of money it is necessary to use compound interest techniques.
Differences, capable of being reversed in future periods, between profits as computed for taxation purposed and profits as stated in financial statements. They result for the inclusion of times of income and expenditure in taxation computations in period’s different form those in which they are included in financial statements. They may be contrasted with permanent differences. The vagaries of tax legislation may sometimes make it difficult to distinguish a timing difference form a permanent difference or may change one into the other. Timing differences arise in principle under the following four circumstances: tax deduction now, expense later; revenue now, taxable income later; taxable income now, revenue later; and expense now, tax deduction later.
A contractual guarantee of financial compensation to employees of a company it is taken over.
An advertisement recording the details of an issue of securities and giving the names of the banks and other financial institutions which have participated in the issue. It is so called form its tombstone like appearance. It is not an invitation to subscribe for the securities to which it relates.
A contract in which a life assurance policy is arranged for a group of persons all of whom pay premiums whilst the remain alive. The last survivor receives all the policy proceeds.
A pension scheme for the senior executive of a company.
In public sector accounting, the deduction form any funding allocation, as a first charge, of needed by the function body for its own operations of all remaining funds to lower tiers by criteria it may determine.
On a stock exchange, the difference between the best bid price among all market makers quoting in a security, i.e. the largest available spread.
Short-term sources of funds resulting form credit granted by the suppliers of goods or services purchased.
Creditors arising out of trading transactions. The US term is trade accounts receivable.
A discount off the list price of a good. Trade discounts are not usually recorded in the accounts.
An option which has a value of its won and can thus be bought and sold on the traded options market,
Shares held by one company in another. Since the companies Act 1981 this term has been replaced by fixed asset investment.
A distinctive identification, protected by law, of a manufactured product or service.
An account showing enterprise s sales cost of sales and gross profit. In published accounts and financial statements it is often treated as a subsection of the profit and loss account.
The physical market place where trader gathers to buy and sell securities or commodities. The number of such trading floors has diminished in recent years with advances in electronic technology.
Using fixed interest sources of capital to boost the rate or return on the equity. The expression is American rather than British.
A somewhat imprecise term formally used to indicates profit on ordinary activities.
French for slice. Used in English to described, for example, payments by installment or that of a loan which is due for repayment.
In an accounting context, an event giving rises to change affecting the operations or financial status of an accounting entity. Transaction may be external or internal. All transactions can be expressed in term of debit entries and credit entries; as Such transactions can in certain circumstance s be challenged by an administrator, liquidator as transactions.
In insolvency, a trisection in which the considerations received is significantly less than that given. Such transactions can in certain circumstances be challenged by an administrator, liquidator or trustee in bankruptcy.
An agent appointed by a company to be responsible for the registration of transfers of the company shares.
Charge made by a company for registering a change in the ownership of its shares.
In the context of national accounting, a payment which does not form part of any exchange of goods or services.
Prices charged for goods or services transferred by one profit centre of an enterprise or group of enterprises to another profit centre. Setting transfer prices poses many problems, especially when the price has to Coors national boundaries. It is generally agreed that an ideal transfer price should not only lead to reported divisional profits that are reasonable measure of the performance of the division but also motivate divisional managers to make decisions that are optimal, both form their point of view and form that of the enterprises as a whole prices should also ideally not be destructive of divisional autonomy, i.e., they should be set with the minimum amount off central intervention and inter-divisional disagreement. In practice, most transfer prices are not able to live up to all these ideals. Transfer prices can be market-based or cost-based. Market-based prices are used where possible since this gives no advantages to either the buying or selling profit centre, compared with trading with the outside world. It may be possible to estimate or construct a fair market price even when one does not exist. Cost-based prices may be based on actual or standard costs and on marginal cost or full cost. Standard costs are to be preferred to actual since they avoid the passing on of inefficiencies, In terms of the conventional economic analysis of marginal costs and revenues marginal costs are to preferred to full costs, but they are unlikely to motivate divisional managers and are seldom used in practice. Full costs, on the other hand, mean that the supplying division s fixed costs become the buying division s variable costs, which may lead to decisions in the interest of the division which are not in the interest of the enterprise as a whole. Especially for costabased transfer prices, prices may be fixed by negotiation, with some form of central arbitration mechanism. Dual pricing is sometimes used, i.e. the buying division is debited with, say, variable cost but the selling division is credited with an estimate of what the market price would be if one existed, this may motivate the mangers of both divisions but is not always optimal for the organization as whole Transfer prices in multinational firms are heavily influenced by political, taxation and currency con-side rations. Notional governments are concerned that transfer prices are not used as a means of avoiding taxation or exchange control regulations. The sensitivity of transactional transfer prices means that little is known about practice. On the other hand many multinational are keen to argue that prices are set at arm s length This may not, however, be optimal for motivation.
Foreign exchange risk arising form the translation into another currency of assets and liabilities in a company s balance sheet.
A gain or loss arising form the translation of balances or financial statements drawn up in one currency into another currency.
Methods used to translate financial statements from one currency to another.
The provision to an enterprise of one or more of following function: provision of short and long term funds: management of cash and working capital; relationship with banks and other financial institutions; foreign currency risk management.
Stock or shares issued by a company but later required with the intentions of reissue. Such shares are not entitled to dividends or votes. They may be accounted for by either the per-value method or the cost method.
A series of related points linked to form a treelike structure.
A general tendency for a series of numbers to move either up or down.
Using movements in past figures to predict future figures, e.g. by the technique of moving averages.
A statement listing the debit and credit ledger balances produced by a double entry recording system at a particular date. The total of the debit and credit columns should agree but may not do so if errors have been made. Lack of agreements is more common when accounts are kepts manually. Some sorts of errors, however, are not revealed by a trial balance and are perhaps more likely under no manuals systems. They include errors of principle, where an item has been posted to the wrong class of account; errors of original entry; errors of omission; errors of commission and compensation errors.
In general, a legal device for placing persons are to demonstrate that the trust funds, including the income there of, have been applied in accordance with the provisions of the trust instrument and to convey to the trustees, beneficiaries and other interested parties information about the transactions and the current state of affairs of the trust. Income capital transactions are segregated, often by the use of separate columns in the accounting records. The periodical accounts usually consist of a balance sheet of the whole of the trust restate, a capital account. And income account, and such supplementary schedules and subsidiary accounts as are appropriate.
A person who administers and realizes the assets of a Bankrupt distributing the proceeds of the benefit of the bankrupt s creditors.
Investments authorized by law as suitable for the investment of trust funds. Three are three ranges of such investments: narrower, wider and special.
The difference between the prices a market maker will buy a security and the price at which he or she will sell it.
A mounts derived form the sale of goods and services tailing within a business s ordinary activities turn is net of trade discounts, value added tax and other taxes based on turnover. Turnover must be disclosed in the profit and loss account formats and analyzed according to the rules relating to segmental reporting
A financial ratio disclosing the number of items that an item of current assets has been replaced by other times of the class within a given period of time.
A system of corporate Governance of large companies in which there is both supervisory board and board of management.
Investment funds, usually offshore based, whit a main funds that can invest in a wide range of sub funds, among which investors can choose.
A trial balance taken out before adjusting entries has been made.
Shares which have been issued by a company but have not been allotted.
Those profits that have been with-drawn form a business by its proprietors or appropriated for any other purpose.
Selling off the subsidiary companies of a conglomerate group.
The difference between a company s issued share capital and it’s called up share capitals.
A situation in which nothing is known about the likely probabilities of future events.
A company or other undertaking which is in law a subsidiary but is excluded form consolidation, usually because of legal provisions which allow, or prescribe, that it should be so excluded.
Costs that cannot be influenced by a given manager within a given time period. In the very long run there are few costs that cannot be controlled by someone.
A currency that cannot be freely exchanged for other currencies.
A debit balance resulting form the use of predetermined overhead rates.
Possessing less capital than is necessary for the scale of operations undertaken. Undercapitalization often arises when business expand too quickly, making profits but being unable to turn them into cash sufficiently fast to pay debts.
The security forming the basis upon which an options contract is made.
Application for less than the full number of shares offered in a prospectus.
A general term for a body corporate, partnership or unincorporated association carrying on a trade or business without a view to profit.
A situation in which a business has more resources available to it than it is profitably making use of.
The acceptance, in return for an underwriting commission, of the risk that a share issue will be under-subscribed. The underwriter agrees to take up any shares that are not applied for by the public.
A commission paid by a company to any person or person which guarantees, for the sake of commission, to take up any shares or debentures offered by the company to the public for which the latter do not subscribe.
A bankrupt who has not been released form the restraints on his actions imposed by the bankruptcy court.
The sum of the share premium account; the capital redemption reserve; the amount by which the company s accumulated, unrealized profits, so far as not previously capitalized, exceed its accumulated unrealized losses, so far as not previously written off in a reduction of capital; and any other reserve that a company is prohibited form distributing.
Those profits which have not been withdrawn form a business undertaking by its proprietors.
An historical cost whose utility has not yet expired and which is therefore carried forward in the balance sheet.
A deviation of actual form an expected, budgeted or standard figure in the directions of decreased profit.
The use by enterprise in the same industry of the same costing system, often designed for the purpose by a committee set up by the enterprises or their trade association.
Income which is not franked investment income and which is therefore taxable in the hands of the recipient.
Debt which is not covered by a sinking fund set up to ensure its repayment.
A situation in which accounting conventions and financial statements are the same for all accounting entities. Uniformity can be more or less rigid depending on the degree to which different accounting treatments are allowed for what are, or are claimed to be, different circumstances.
An association of persons that is not a corporation.
The difference between the nominal amount of the Authorized Shares Capital and the Issued Shares Capital.
A tax based on a proportion of a business enterprise s worldwide income rather than its income derived in the territory of the fiscal authority. Unitary taxes may be seen part as an attempt to prevent multinational companies form determining, by means of transfer prices etc., which territories their profits will be taxed in.
In the context of Inventory valuation, the cost of purchasing or manufacturing identifiable units of inventory.
The monetary unit in which Accounting records are kept and in which financial statements are drawn up. International organizations tend to use either the monetary unit of the country of their head office or dominant currency such as US dollars. There are examples of companies with legal residence in one country publishing financial statements in the monetary unit of the country where most of their operations are carried on.
A depreciation method based on usage s rather than time, e.g., a truck depreciated on a per mile basis. This method of depreciation assumes that depreciation is variable rather than a fixed cost.
A tax based on the weight or size of the tax base. An example would be tax of? 1 per bottle of whisky.
An undertaking formed to invest in securities under the terms of the trust deed.
A company not having any unit on the liability of its shareholders. An unlimited company is exempt form filling its accounts with the Registrar of Companies.
A liability of a person to pay all the debts of any business enterprise carried on, not only out of the assets of the business but also, if necessary, out of personal assets. Unlimited liability is incurred by sole traders, pertness and by shareholders in unlimited companies.
A company none of whose securities are listed on a recognized stock exchange.
Any securities not listed on a recognized stock exchange.
Cheque which have been drawn but have not yet been presented to a bank by the payee. Un-presented cheques are one of the adjusted items in a Bank Reconciliation Statements.
A profit or loss which recovered out of revenues and should therefore be written off.
A creditor who does not hold a charge on any of these of the debtor.
Loan stock against which no security is available in the event of nonpayment of principle or interest.
A computer system designed to be used by person without extensive training and which attempts to assist users to gain maximum benefit form the system.
The perceived needs of the presumed users of published financial statements.
The changing of an excessive rate to interest for lending. What is regarded as excessive is legally defined in many jurisdictions.
The satisfaction gained by possession of a good or receipt of a service.
A function stating on what an individual s utility is dependent. The shape of the utility function depends upon the decision maker s attitude to risk.
An adjustment, usually to an asset account, in order to allow for, or provide for. A fall in value as a result of, for example, depreciation on the possible nonpayment of a debt.
Sales less bought in goods and services. Gross value added can be distinguished form net value added.
A financial statement disclosing for a period how much value has been added by the operation of an enterprise and how that value has been distributed among employees, government, providers of capital and for reinvestment in the business. Gross value added is equal to sales less bought-in goods and services; net value added is equal to gross value added less depreciation.
An examination of the way in which resources are allocated and utilized. such an audit is concerned with the interrelated concepts of economy; efficiency; and effectiveness VFM audits are more common in the public than in the private sector, since the profit criterion is lacking in the former.
The valuation of an asset in use distinct forms its net realizable value.
A method of asset valuation based on the concept that the measure of the value of a depends on the loss suffered form being deprived of it.
A term in an expression or equation that can take different numerical values. Variable can be classified as discrete or continuous and as dependent or independent.
A cost which, unlike a fixed cost, varies, or is assumed to vary, with some measure of capacity. Accountants usually assume that variable costs are constant over a relevant range of production.
A method of costing in which fixed factory overheads is treated as a period cost and not as a product cost, i.e. it is written off in the period incurred and not carried forward as part of the cost of stocks to the extent that goods manufactured during the period remain unsold.
The total variable costs divided by the total sales.
In an audit context, sampling plans based on quantitative characteristics rather than qualitative characteristics.
A quantification of the extend to which share prices fluctuate.
Government stock on which the interest varies with short term interest rates.
A deviation of actual results form expected budgeted or standard results. Variances are usually labeled favorable or unfavorable but should be regarded as attention directors rather than as answers.
A group of companies which has agreed with the Customs and Excise to treated as one entity for purposes of value added tax.
A matrix comprising only one row or one column.
The offering of shares to vendors in change for their shares in a company being acquired, with the understanding that if a vendor prefers cash the shares will be placed with the acquired own shareholders or with third parties and the processed transferred to the vendors.
In mathematics, a diagram in which sets are sensed by areas.
Capital provided for new and undeveloped companies especially those with average expected risk and returns.
An audit procedures the aim of which is to ascertain by the use of appropriate audit evidence that assets and liabilities are properly recorded in a balance sheet so far as existence, ownership and valuations are concerned.
A tax principle supporting the different tax treatment of people in different circumstances.
A method of presentation of financial statement in which debit and credit items are displayed vertically rather than horizontally.
The control and ownership by one organization of more than one stage of product.
The use of savings on one subhead of public expenditure to meet overspending on another.
A screen on which the output of computer is displayed and which can also be used in connection with keyboard or light to input data.
On a stock exchange, a measure of the extent to which the price of a security moves over a period of time. The greater the movement the greater the volatility.
Variances that arise form deviations form expected, budgeted or standard sales or production volume. A production volume variance arises under absorption costing if the normal level of activity assumed in the calculation of the predetermined fixed factory overhead rate differs form the actual level of activity. Production volume variances do not arise under variable costing or in relation to variance overhead. A sales volume variance re-presents the difference between an amount in a fixable budget and the corresponding amount in a static budget, unit prices being held constant.
In insolvency, a procedure whereby a scheme, usually involving delayed or reduce payments of debits is put forward by creditor and shareholders. The scheme is under the control of a supervisor.
Disclosure by a business of information in financial year until passing of the Appropriation Act, which authorized the issue of the amount required for the full year.
The right conferred on shareholders to vote at meetings in persons or by proxy. Usually only ordinary shares carry such a right although An ordinary shares are normally nonvoting.
A document providing evidence of a transaction.
An audit procedure the aim which is to ensure that the underlying records accurately reflect the nature of the transactions entered into. It involves the examination of documentary evidence to establish the monetary amounts at which transactions are recorded and that the transactions are properly authorized.
A profit and loss not a for a period of time but for a particular voyage of a ship. In the shipping industry, an account is opened for each voyage, debited with all expenditure, other than depreciation, ascribed to the voyage, and credited with fright and passage moneys earned.
An auditing procedure in which the processing of typical transactions is followed through all the stages in a client s accounting system. The main purpose of the test is to enable the auditor to become familiar with the system.
The accumulation of shareholdings by investors acting in concert and sometimes in the name of nominees with the intention of mounting a takeover bid. Each shareholding is kept just below the level that is required by law to be disclosed.
An irredeemable government security originally issued to finance wartime expenditure.
A certificate giving the holder the right to purchase a security at a predetermined price at a future date or dates.
A promises of remedial action by seller or manufacture I defects are found, during a stated period, in a goods or services provided. A warranty gives rise to a liability but, since both dates and amounts may be uncertain, reliable measurements is difficult.
Material lost in a manufacturing process through evaporation shrinkage or being left as a residue.
A nonrenewable resource such as a copper mine. Extraction or removal results in the physical consumption of the natural resources. A wasting asset may be contrasted with renewable resources such as a forest where replacement occur through growth. Wasting assets are sa