accelerated depreciation

7/28/2019 Accelerated Depreciation

1/12

GLOSSARY OF ACCOUNTING TERMS

(This is a glossary based on US accounting. For one basedon IFRS, see the end of the Alexander/Nobes textbook.)

Accelerated Depreciation Methods, e.g. declining method, that recordgreater DEPRECIATION than STRAIGHT-LINE DEPRECIATION in the earlyyears and less depreciation than straight-line in the later years of an ASSET'Sholding period. (See STRAIGHT-LINE DEPRECIATION.)

Account - Formal record that represents, in words, money or other unit ofmeasurement, certain resources, claims to such resources, transactions or otherevents that result in changes to those resources and claims.

Account Payable - Amount owed to a CREDITOR for delivered goods orcompleted services.

Account Receivable - Claim against a DEBTOR for an uncollected amount,generally from a completed transaction of sales or services rendered.

Accrual Basis - Method of ACCOUNTING that recognizes REVENUE whenearned, rather than when collected. Expenses are recognized when incurredrather than when paid.

Accumulated Depreciation - Total DEPRECIATION pertaining to an ASSETor group of assets from the time the assets were placed in services until the dateof the FINANCIAL STATEMENT or tax return.

Adverse Opinion - Expression of an opinion in an AUDITORS' REPORT whichstates that FINANCIAL STATEMENTS do not fairly present the financial position,results of operations and cash flows in conformity with GENERALLY ACCEPTEDACCOUNTING PRINCIPLES (GAAP). The auditor will issue an adverse opinionwhen there is an existence of a material weakness on the effectiveness of internalcontrol over financial reporting.

American Depository Receipts (ADRs) - Receipts for shares of foreign

company stock maintained by an intermediary indicating ownership.

Amortization - Gradual and periodic reduction of any amount, such as theperiodic writedown of a BOND premium, the cost of an intangible ASSET orperiodic payment Of MORTGAGES or other DEBT.

Annual Report - Report to the stockholders of a company which includes thecompany's annual, audited BALANCE SHEET and related statements of earnings,


2/12

stockholders' or owners' equity and cash flows, as well as other financial andbusiness information.

Annuity- Series of payments, usually payable at specified time intervals.

Asset - An economic resource that is controlled by the entity and expected to beof benefit in the future.

Audit Sampling - Application of an AUDIT procedure to less than 100% of theitems within an account BALANCE or class of transactions for the purpose ofevaluating some characteristic of the balance or class.

Bad Debt - All or portion of an ACCOUNT, loan, or note receivable consideredto be uncollectible.

Balance Sheet - Basic FINANCIAL STATEMENT, usually accompanied byappropriate DISCLOSURES that describe the basis of ACCOUNTING used in itspreparation and presentation of a specified date the entity's ASSETS,LIABILITIES and the EQUITY of its owners. Also known as a Statement ofFinancial position.

Book Value - Amount that an ASSET or LIABILITY shows on the BALANCESHEET of a company. Also known as CARRYING VALUE.

Budget - Financial plan that serves as an estimate of future cost, REVENUES orboth.

Cafeteria Plan - A benefit plan maintained by an employer for the benefit of theemployees under which each participant has the opportunity to select the benefitsthey desire. Certain minimum choices and nondiscriminatory rules apply.

Call Loan - Loan repayable on demand. Also known as DEMAND LOAN.

Capital Gain - Portion of the total GAIN recognized on the sale or exchange of anon-inventory asset which is not taxed as ORDINARY INCOME. Capital gainshave historically been taxed at a lower rate than ordinary income.

Capitalized Interest - INTEREST cost incurred during the time necessary tobring an ASSET to the condition and location for its intended use and included as

part of the HISTORICAL COST of acquiring the asset.

Cash Basis - Method of bookkeeping by which REVENUES andEXPENDITURES are recorded when they are received and paid.

Cash Equivalents - Short-term (generally less than three months), highlyliquid INVESTMENTS that are convertible to known amounts of cash


3/12

Cash Flows - Net of cash receipts and cash disbursements relating to aparticular activity during a specified accounting period.

Collateral - ASSET provided to a CREDITOR as security for a loan.

Combined Financial Statement - FINANCIAL STATEMENT comprising theaccounts of two or more entities.

Common Stock Stock or shares having no preferences generally in terms ofdividends, voting rights or distributions. Called ordinary shares in the UK. (SeePREFERRED STOCK.)

Comparative Financial Statement - FINANCIAL STATEMENT presentationin which the current amounts and the corresponding amounts for previousperiods or dates also are shown.

Compliance Audit - Review of financial records to determine whether theentity is complying with specific procedures or rules.

Consistency- Accounting postulate which stipulates that, except as otherwisenoted in the FINANCIAL STATEMENT, the same accounting policies andprocedures have been followed from period to period by an organization in thepreparation and presentation of its financial statements.

Consolidated Financial Statements - Combined FINANCIAL STATEMENTSof a parent company and one or more of its subsidiaries as one economic unit.

Contingent Liability An unrecognized liability or a potential LIABILITYarising from a past transaction or a subsequent event.

Convertible Stock Stock/shares that may be exchanged for otherSECURITIES of the issuer.

Cook the books: Falsify a set of accounts. See alsocreative accounting

Corporation - Form of doing business pursuant to a charter granted by a stateor federal government. Corporations typically are characterized by the issuance offreely transferable CAPITAL STOCK, perpetual life, centralized management, andlimitation of owners' LIABILITY to the amount they invest in the business.

Cost Accounting - Procedures used for rationally classifying, recording, andallocating current or predicted costs that relate to a certain product or productionprocess.

Cost-benefit: Calculating not only the financial costs of a project, but also thecost of the effects it will have from a social point of view.
http://www.accountz.com/glossary.html#ca#cahttp://www.accountz.com/glossary.html#ca#cahttp://www.accountz.com/glossary.html#ca#cahttp://www.accountz.com/glossary.html#ca#ca


4/12

Creditors The amount owed to those who have supplied goods or services oncredit. In US called Accounts Payable.

Creative accounting:A questionable! means of making a companies figuresappear more (or less) appealing to shareholders etc.

Current Asset - ASSET that one can reasonably expect to convert into cash, sell,or consume in operations within a single operating cycle, or within a year if morethan one cycle is completed each year.

Current Liability- Obligation whose LIQUIDATION is expected to be settledwithin 12 months.

Debtors - Amount owed by those who have received goods or services on credit.Called Accounts Receivable in the US.

Default - Failure to meet any financial obligation. Default triggers aCREDITOR'S rights and remedies identified in the agreement and under the law.

Defeasance - Annulment of a contract or deed; a clause within a contract ordeed that provides for annulment.

Deferred Income - Income received but not earned until all events haveoccurred.

Depreciation - Expense allowance for wear and tear made by allocating the costof an ASSET over its estimated useful life. (See ACCELERATED DEPRECIATIONand STRAIGHT-LINE DEPRECIATION.)

Disbursement - Payment by cash or cheque.

Disclosure - Process of divulging accounting information so that the content ofFINANCIAL STATEMENTS is understood.

Discontinued Operations - Portion of a business that is planned to be or isdiscontinued.

Discounted Cash Flow- Present value of future cash estimated to begenerated.

Dividends - Payments of earnings to owners of a CORPORATION in cash, otherASSETS of the corporation, or the corporation's CAPITAL STOCK.

Double-Entry Bookkeeping - Method of recording financial transactions inwhich each transaction is entered in two or more accounts and involves two-way,self-balancing posting. Total DEBITS must equal total CREDITS.


5/12

Earnings Per Share (EPS) - Measure of performance calculated by dividingthe net earnings of a company by the average number of shares outstandingduring a period.

EBIT: Earnings before interest and tax (profit before any interest or taxes have

been deducted).

EBITA: Earnings before interest, tax and amortization (profit before any interest,taxes oramortizationhave been deducted).

EBITDA: Earnings before interest, tax, depreciation and amortization (profitbefore any interest, taxes,depreciationoramortizationhave been deducted).

Effective Tax Rate - Total income taxes expressed as a percentage of NETINCOME before taxes.

Equity- Residual INTEREST in the ASSETS of an entity that remains afterdeducting its LIABILITIES. Also, the amount of a business' total assets less totalliabilities. Also, the third section of a BALANCE SHEET, the other two beingassets and liabilities.

External Reporting - Reporting to stockholders and the public, as opposed tointernal reporting for management's benefit.

Extinguishment of Debt - To get rid of the liability by payment; to bring to anend.

Face Value - Amount due at maturity from a BOND or note.

Factoring - Selling a RECEIVABLE at a discounted value to a third party forcash.

FASB - See FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Fair Market Value - Price at which property would change hands between abuyer and a seller without any compulsion to buy or sell, and both havingreasonable knowledge of the relevant facts.

Favourable Variance - Excess of actual REVENUE over projected revenue, or

actual costs over projected costs.

FIFO - See FIRST IN, FIRST OUT.

Financial Statements - Presentation of financial data including BALANCESHEETS, INCOME STATEMENTS and STATEMENTS OF CASH FLOW, or anysupporting statement that is intended to communicate an entity's financialposition at a point in time and its results of operations for a period then ended.
http://www.accountz.com/glossary.html#amort#amorthttp://www.accountz.com/glossary.html#amort#amorthttp://www.accountz.com/glossary.html#amort#amorthttp://www.accountz.com/glossary.html#depr#deprhttp://www.accountz.com/glossary.html#depr#deprhttp://www.accountz.com/glossary.html#depr#deprhttp://www.accountz.com/glossary.html#amort#amorthttp://www.accountz.com/glossary.html#amort#amorthttp://www.accountz.com/glossary.html#amort#amorthttp://www.accountz.com/glossary.html#amort#amorthttp://www.accountz.com/glossary.html#depr#deprhttp://www.accountz.com/glossary.html#amort#amort


6/12


7/12

Income Statement - Summary of the effect of REVENUES and expenses over aperiod of time. In UK called Profit & Loss Account.

Initial Public Offering (IPO) - When a private company goes public for thefirst time.

Intangible Asset - Asset having no physical existence such as trademarks andpatents. (See TANGIBLE ASSET.)

Interim Financial Statements - FINANCIAL STATEMENTS that report theoperations of an entity for less than one year.

Internal Audit - AUDIT performed within an entity by its staff rather than anindependent certified public accountant.

Internal Control - Process designed to provide reasonable assurance regardingachievement of various management objectives such as the reliability of financialreports.

Inventory- Tangible property held for sale, or materials used in a productionprocess to make a product. Confusingly also called Stock in the UK not to beconfused with stock as in stocks and shares.

Investment - EXPENDITURE used to purchase goods or services for longerterm use. Also used to mean purchase of stocks and shares.

Junk Bonds - DEBT SECURITIES issued by companies with higher thannormal credit risk. Considered "non-investment grade" bonds, theseSECURITIES ordinarily yield a higher rate of interest to compensate for theadditional risk.

Last in, First out (LIFO) - ACCOUNTING method of valuing inventory underwhich the costs of the last goods acquired are the first costs charged to expense.Commonly known as LIFO.

Lease - Conveyance of land, buildings, equipment or other ASSETS from oneperson (LESSOR) to another (LESSEE) for a specific period of time for monetaryor other consideration, usually in the form of rent.

Lessee - Person or entity that has the right to use property under the terms of aLEASE.

Lessor - Owner of property, the temporary use of which is transferred to another(LESSEE) under the terms of a LEASE.


8/12

Letter of Credit - Conditional bank commitment issued on behalf of a customerto pay a third party in accordance with certain terms and conditions. The twoprimary types are commercial letters of credit and standby letters of credit.

Liability A present obligation, arising from a past event, to transfer resources

in the future.

LIFO - See LAST IN, FIRST OUT.

Liquid Assets - Cash, cash equivalents, and marketable SECURITIES.

Liquidation - Winding up an activity by distributing its ASSETS to theappropriate parties and settling its DEBTS.

Long-Term Debt - DEBT with a maturity of more than one year from thecurrent date.

Lower of Cost or Market - Valuing ASSETS for financial reporting purposes.Ordinarily, "cost" is the purchase price of the asset and "market" refers to itscurrent replacement cost. GENERALLY ACCEPTED ACCOUNTINGPRINCIPLES (GAAP) requires that certain assets (e.g., INVENTORIES) becarried at the lower of cost or market.

Management Accounting - Reporting designed to assist management indecision-making, planning, and control. Also known as Managerial Accounting.

Margin - Excess of selling price over the unit cost.

Mark-to-Market - Method of valuing ASSETS that results in adjustment of anasset's carrying amount to its market value.

Marketable Securities - Stocks and other negotiable instruments which can beeasily bought and sold on either listed exchanges or over-the-counter markets.

Materiality- Magnitude of an omission or misstatements of ACCOUNTINGinformation that, in the light of surrounding circumstances, makes it probablethat the judgment of a reasonable person relying on the information wouldchange or be influenced.

Net Sales - Sales at gross invoice amounts less any adjustments for returns,allowances, or discounts taken.

Net Worth - Similar to EQUITY, the excess of ASSETS over LIABILITIES.


9/12

Operating Cycle - Period of time between the acquisition of goods and servicesinvolved in the manufacturing process and the final cash realization resultingfrom sales and subsequent collections.

Option - Right to buy or sell something at a specified price during a specified

time period.

Paid in Capital - Portion of the stockholders' EQUITY which was paid in by thestockholders, as opposed to CAPITAL arising from profitable operations.

Parent Company- Company that has a controlling interest in the COMMONSTOCK of another.

PE ratio:An equation which gives you a very rough estimate as to how muchconfidence there is in a company's shares (the higher it is the more confidence).The equation is: current share price multiplied byearnings and divided bythe number of shares . 'Earnings' means the last published net profit of thecompany.

Perpetual Inventory- System that requires a continuous record of all receiptsand withdrawals of each item of INVENTORY.

Present Value - CURRENT VALUE of a given future cash flow stream,discounted at a given rate.

Proxy- Document authorizing someone other than the shareholder to exercisethe right to vote the stock owned by the shareholder.

Public Offering - Offering shares to the public.

Qualified Opinion - AUDIT opinion that states, except for the effect of a matterto which a qualification relates, the FINANCIAL STATEMENTS are fairlypresented in accordance with GENERALLY ACCEPTED ACCOUNTINGPRINCIPLES (GAAP). The AUDITOR is required to qualify when there is a scopelimitation.

Ratio Analysis - Comparison of actual or projected data for a particularcompany to other data for that company or industry in order to analyze trends orrelationships.

Related Party Transaction - Business or other transaction between personswho do not have an arm's-length relationship (e.g. a relationship withindependent, competing interests). The most common is between familymembers or controlled entities.

Research and Development (R&D) - Research is a planned activity aimed atdiscovery of new knowledge with the hope of developing new or improved


10/12

products and services. Development is the translation of research findings into aplan or design of new or improved products and services.

Retained Earnings - Accumulated undistributed earnings/profits of acompany retained for future needs or for future distribution to its owners.

Return on Investment (ROI) - Ratio measure of the profits achieved by afirm through its basic operations. An indicator of managements generaleffectiveness and efficiency. The simplest version is the ratio of NET INCOME toTOTAL ASSETS.

Revenue Recognition - Method of determining whether or not income hasmet the conditions of being earned and realized or is realizable.

Revenues - Sales of products, merchandise, and services; and earnings fromINTEREST, DIVIDEND, rents.

ROI - See RETURN ON INVESTMENT.

Sale-Leaseback Transaction - Sale of property by a seller who simultaneouslyleases the property back from the purchaser.

Share premium: The extra paid above the face value of a share. Example: if acompany issues its shares at $10 each, and later on you buy 1 share on the openmarket at $12, you will be paying a share premium of $2

Start-up Costs - (1) Costs, excluding acquisition costs, incurred to bring a newunit into production. (2) Costs incurred to begin a business.

Statement of Cash Flows - A statement of cash flows is one of the basicfinancial statements that is required as part of a complete set of financialstatements prepared in conformity with generally accepted accounting principles.It categorizes net cash provided or used during a period as operating, investingand financing activities, and reconciles beginning and ending cash and cashequivalents.

Statement of Financial Condition - Basic FINANCIAL STATEMENT, usuallyaccompanied by appropriate DISCLOSURES that describe the basis ofACCOUNTING used in its preparation and presentation as of a specified date, the

entity's ASSETS, LIABILITIES and the EQUITY of its owners. Also known asBALANCE SHEET.

Stock Split - Increase in the number of shares of a company's COMMONSTOCK outstanding that result from the issuance of additional sharesproportionally to existing stockholders without additional capital investment.The PAR VALUE of each share is reduced proportionally.


11/12

Straight-Line Depreciation - ACCOUNTING method that reflects an equalamount of wear and tear during each period of an ASSET'S useful life. Forinstance, the annual STRAIGHT-LINE DEPRECIATION of a $2,500 assetexpected to last five years is $500.Also called equal installments depreciation.(See ACCELERATED DEPRECIATION.)

Subsequent Event - Material event that occurs after the end of the accountingperiod and before the publication of an entity's FINANCIAL STATEMENTS. Suchevents are disclosed in the notes to the financial statements. (SeeMATERIALITY.)

Tangible Asset - ASSETS having a physical existence, such as cash, land,buildings, machinery, or claims on property, investments or goods in process.(See INTANGIBLE ASSETS.)

Variance - Deviation or difference between an estimated value and the actualvalue.

Venture Capital - Investment company whose primary objective is capitalgrowth. New ASSETS invested largely in companies that are developing newideas, products, or processes.

Working Capital - Excess of CURRENT ASSETS over CURRENT LIABILITIES.

Work in Progress - INVENTORY account consisting of partially completedgoods awaiting completion and transfer to finished inventory.

Table 6.1: The different types of ratiosType Reflects ExamplesProfitability Performance of the company

and its managersReturn on capitalemployed, and grossprofit %.

Efficiency Efficiency with which certainresources have been used inthe company

Average debtors,creditors and stockdays. Sales peremployee.

Liquidity Reflects the ability of a firmto meet its short termobligations

Current ratio.Acid ratio.

Gearing Main issue is the degree towhich the business isfinanced by borrowing asagainst finance provided bythe owners of the firm

% of business fundedby long term loans.Interest cover ratio.


12/12

Investment Reflects the desirability ofrewards to investors as theyassess the returns on theirinvestments

Earnings per share.Price/Earnings ratio.Dividend yield.Dividend cover.

You could calculate a gross margin as:

Gross profit margin = gross profitsales

Return on capital employed (ROCE)

This ratio is calculated as:

ROCE = EBIT

accelerated depreciation

Documents