Accounting Jargons - 4

• Par value: the nominal sum imprinted on a share certificate and which spears on the Balance Sheet (BS) of a company as share capital. It has no significance as a value.
• Payback: the number of years which will elapse before the total incoming cash receipts of a proposed project are forecast to exceed the initial outlays.
• Periodicity: the convention that financial statements are produced at regular intervals usually at least annually.
• Preference shares: shares in which holders are entitled to a fixed rate of dividend (if one is declared) in priority to the ordinary shareholders in a winding up situation.
• Planning variance: a variance arising because the budgeted cost is now seen as out of date. Examples are wage or price rises.
• Prepayments: expenditure already made on goods or services but where the benefit will be felt after the Balance Sheet (BS) date. Examples are rent or rates or insurances paid in advance.
• Price earnings ratio: an investor ratio calculated as - share / earnings per share.
• Prime cost: the direct costs of production.
• Private company: any company that is not a public company.
• Profitability index: in investment appraisal, the net present value of cash inflows / the initial out lays.
• Profit and Loss (P&L) Account: a financial statement which measures and reports the profit earned over a period of time.
• Pro Rata: in proportion to.
• Prospectus: an official document being in advertisement offering shares for sale to the public.
• Provision: a charge in the Profit and Loss (P&L) Account of a business for an expense which arose in the past but which will only give rise to a payment in the future. To be a provision the amount payable must be uncertain as to amount or as to payability or both. An example is possible damages awardable by a court in a future action over a past incident (e.g. a libel).
• Prudence (or conservatism): 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 now.
• Quick ratio: also known as acid test ratio, current assets (except stock) / current liabilities.
• Quoted company: also known as a listed company, a company whose shares are traded on the stock exchange.
• Realizable value: the amount that an asset can be sold for.
• Realization: to sell an asset and hence turn it into cash.
• Realization convention: the concept that a profit is accounted (or when a good is sold and not when the cash is received.
• Receiver: an insolvency practitioner who is appointed by a debenture holder with a fixed or floating charge when a company defaults.
• Redemption: repayment of shares, debentures or loans.
• Redemption yield: the yield given by an investment expressed as a percentage and taking into account both income and capital gain or loss.
• Reducing balance: a method of depreciation whereby the asset is expensed to the Profit and Loss (P&L) Account over its useful life by applying a fixed percentage to the written down value.
• Relevant costs: costs that will only be incurred if a proposed course of action is actually taken. The only ones relevant to an actual decision.
• Relevant range: the range of activity which is likely. Within it variable costs are expected to be linearly variable with output and fixed costs are expected to be unchanged.
• Reporting: the process whereby a company or other institution seeks to inform shareholders and other interested parties of the results and position of the entity by means of financial statements.
• Reserves: a technical term indicating that a company has total assets which exceed in amount the sum of liabilities and share capital. This excess arises from retained profits or from revaluations of assets.
• Resource accounting and budgeting: the use of normal accruals accounting and Balance Sheets in federal / government departments and agencies.
• Retained profits: also known as retentions, the excess of profits over dividends.
• Return on capital employed: a profitability ratio being income expressed as a percentage of the capital which produced the income.
• Return on sales: the ratio of profit to sales expressed as a percentage.
• Returns: the income flowing from the ownership of assets. May include capital gains.
• Revenue: amounts charged to customers for goods or services rendered.
• Revenue expenditure: expenditure that benefits only the current period and which will therefore be charged in the Profit and Loss (P&L) Account.
• Rights issue: an invitation to existing shareholders to subscribe cash for new shares in the company in proportion to their holdings.
• Salvage value: also known as residual value, the amount estimated to be recoverable from the sale of a fixed asset at the end of its useful life.
• Secured liabilities: liabilities secured by a fixed or floating charge or by other operation of law such as hire purchase commitments.
• Securities: financial assets such as shares, debentures and loan stocks.
• Segmental reporting: the practice of breaking down turnover, profits and capital employed into sections to show the separate contributions of each to the overall picture. Segments can be distinct products, geographical areas, or classes of customers, etc.