Accounting Jargons - 1

• Absorption: the sharing out of the costs of a cost center amongst the products which use the cost center.
• Account: a record in a double entry system that is kept for each (or each class) of asset, liability, revenue and expense.
• Accounting equation: an expression of the equivalence, in total, of assets = liabilities + equity.
• Accounting period: that time period, typically one year, to which financial statements are related.
• Accounting policies: the specific accounting bases selected and followed by a business enterprise (e.g. straight line or reducing balance depreciation).
• Accounting rate of return: a ratio sometimes used in investment appraisal but based on profits not cash flows.
• Accounting standards: Prescribed methods of accounting by the accounting standards or financial reporting standards regulation body in your jurisdiction.
• Accruals: (that which has accrued, accumulated, grown) expenses which have been consumed or enjoyed but which have not been paid for at the accounting date.
• Accruals convention: the convention that revenues and costs are matched with one the other and dealt with in the Profit and Loss (P&L) Account of the period to which they relate irrespective of the period of receipt or payment.
• Accumulated depreciation: that part of the original cost of a fixed asset which has been regarded as a depreciation expense in successive Profit and Loss (P&L) Accounts: cost less accumulated depreciation = net book value.
• Acid test: The ratio of current assets (excluding stock) to current liabilities.
• Acquisitions: operations of a reporting entity that are acquired in a period. Separate disclosure of turnover, profits, etc must be made.
• Activity based costing: cost attribution to cost units on the basis of benefit received Irons indirect activities. The idea is that overhead costs are driven by activities (e.g. setting up a machine) not products.
• Allocation: the charging of discrete, identifiable costs to cost centers or cost units. A cost is allocated when it is unique to a particular cost center.
• Amortization: another word for depreciation: commonly used for depreciation of the capital cost of acquiring leasehold property.
• Apportionment: the division of costs among two or more cost centers in proportion to estimated benefit on some sensible basis. Apportionment is for shared costs.
• Assets: resources of value owned by a business entity.
• Assets utilization ratio: a ratio which purports to measure the intensity of use of business assets. Calculated as sales over net operating assets. Can be expressed as sales as a percentage of net operating assets.
• Asset value: a term which expresses the money amount of assets less liabilities of a company attributable to one ordinary share.
• Avoidable costs: the specific costs of an activity or sector of a business which would be avoided if that activity or sector did not exist.
• Auditing: the independent examination of, and expression of an opinion on, the financial statements of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation.
• AVCO (average cost): a method of valuing fungible assets (notably stock) at average (simple or weighted) input prices.
• Bad debts: debts known to be irrecoverable and therefore treated as losses by inclusion in the Profit and Loss (P&L) Account as an expense.
• Balance Sheet: a financial statement showing the financial position of a business entity in terms of assets, liabilities and capital at a specified date.
• Bankruptcy: a legal status imposed by a court. Usually a trustee is appointed to receive and realize the assets of the bankrupt and to distribute the proceeds to his creditors according to the law.
• Benefits in kind: things or services supplied by a company to its directors and others in addition to cash remuneration. A good example is the provision of and free use of a motor car. The value of benefits in kind are taxable.
• Bond: a formal written document that provides evidence of a loan. Bond has mainly American usage. Its UK equivalent is debenture.
• Bonus issue: a free issue of new shares to existing shareholders. No payment is made for the shares. Its main effect is to divide the substance of the company (assets less liabilities) into a larger number of shares.
• Book value: the amount at which an asset is carried on the accounting records and Balance Sheet. The usual book value for fixed assets is cost less accumulated depreciation. Alternative words include written down value, net book value and carrying value. Book value rarely if ever corresponds to saleable value.
• Breakeven chart: a chart which illustrates costs, revenues, profit and loss at various levels of activity within a relevant range.
• Breakeven point: the level of activity (e.g. level of sales) at which the business makes neither a profit nor a loss i.e. where total revenues exactly equal total costs.
• Budget: a formal quantitative expression of management’s plans or expectations. Master budgets are the forecast or planned Profit and Loss Account and Balance Sheet. Subsidiary budgets include those for sales, output, purchases, labor, cash etc.
• Capital: an imprecise term meaning the whole quantity of assets less liabilities owned by a person or a business.
• Capital allowances: deductions from profit for fixed asset purchases. In effect capital allowances is a standard system of depreciation used instead of depreciation for tax purposes only.
• Capital budgeting: the process of planning or appraising possible fixed asset acquisitions.
• Capital employed: a term describing the total net assets employed in a business. Various definitions are used, so beware when talking at cross purposes.
• Capital expenditure: expenditure on fixed assets.
• Cash: strictly coins and notes but used also to mean all forms of ready money including bank balances.
• Cash discount: a reduction in the amount payable by a debtor to induce prompt payment (equivalent to settlement discount).
• Cash flow: a vague term (compare cash flow difficulties) used for the difference between total cash in and total cash out in a period.
• Cash flow forecast: a document detailing expected or planned cash receipts and outgoings for a future period.
• Cash flow statement: a formal financial statement showing a summary of cash inflows and outflows under certain required headings.
• Committed costs: those fixed costs which cannot be eliminated or even cut back without having a major effect on the enterprise’s activities (e.g. rent).
• Common stock: the U.S equivalent of ordinary shares.
• Conservatism: (also known as prudence) the convention whereby revenue and profits are not anticipated, but provision is made for all known liabilities (expenses and losses) whether the amount of these is known with certainty or is a best estimate. Essentially - future profit, wait until it happens - future loss, count it
• Consideration: the amount to be paid for anything sold including businesses. May be cash, shares or other securities.
• Consistency: convention that there is consistency of accounting treatment of like items within each year and from year to year.
• Consolidation: the aggregation of the financial statements of the separate companies of a group as if they were a single entity.
• Contribution: a term used in marginal costing - the difference between sale price and associated variable costs.
• Controllable costs (also known as managed costs): costs, chargeable to a budget or cost centre, which can be influenced by the actions of the persons in whom control is vested.
• Conversion cost: the cost of bringing a product or service into its present location or condition. May include a share of production overheads.
• Convertible loan stock: loans where, at the option of the lender, the loan can be converted into ordinary shares at specified times and specified rates of conversion.
• Cost behavior: the change in a cost when the level of output changes.
• Cost center: a location, function, or item of equipment in respect of which costs may be ascertained and related to cost units.
• Cost convention: the accounting convention whereby Balance Sheet assets are mostly valued at input cost or by reference to input cost.
• Cost-volume-profit (CVP) analysis: the study of the relationships between variable costs, total fixed costs, levels of output and price and mix of units sold and profit, often analyzed in a financial modeling exercise.
• Credit: commonly used to refer to a benefit or gain also the practice of selling goods and expecting payment at a later date.
• Credit control: those measures and procedures adopted by a firm to ensure that its credit customers pay their accounts.
• Creditors: those persons, firms or organizations to whom the enterprise owes money.
• Creditors payment or settlement period: a ratio (usually creditors/ inputs on credit in a year x 365) which measures how long it takes the firm to pay its creditors.
• Cumulative preference shares: preference shares where the rights to dividends omitted in a given year accumulate. These dividends must be paid before a dividend can be paid on the ordinary shares.
• Current assets: cash + those assets (stock, debtors, prepayments, bank accounts) which the management intend to convert into cash or consume in the normal course of business within one year or within the operating cycle.
• Current cost accounting (CCA): a system of accounting which recognizes the fluctuating value of money by measuring current value by applying specific indices and other devices to historical costs. A valid method which is complex and difficult to understand intuitively.
• Current liabilities: debts or obligations that will be paid within one year of the accounting date. Another term used to describe the same is Creditors: amount falling due within one year.
• Current ratio: the ratio of current assets to current liabilities.
• Cut-off: the difficulties encountered by accountants in ensuring all items of income and expense are correctly ascribed to the right annual profit statement.