Bookkeeping Terms P-Z
Bookkeeping terms A-H Paid in Capital - Portion of the stockholders' EQUITY which was paid in by the stockholders, as opposed to CAPITAL arising from profitable operations. Parent Company - Company that has a controlling interest in the COMMON STOCK of another. Partnership - Relationship between two or more persons based on a written, oral, or implied agreement whereby they agree to carry on a trade or business for profit and share the resulting profits. Unlike a CORPORATION'S shareholders, the partnership's general partners are liable for the DEBTS of the partnership. (See GENERAL PARTNERSHIP, LIMITED LIABILITY PARTNERSHIP, LIMITED PARTNERSHIP.) Par Value - Amount per share set in the ARTICLES OF INCORPORATION of a CORPORATION to be entered in the CAPITAL STOCKS account where it is left permanently and signifies a cushion of EQUITY capital for the protection of CREDITORS. Passive Activity Loss - LOSS generated from activities involved in the conduct of a trade or business in which the taxpayer does not materially participate. Passive Income - Includes income derived from such sources as dividends, interest, royalties, rents, amounts received from personal service contracts, and income received as a beneficiary of an estate or trust. Patronage Dividends - These dividends are amounts paid by a cooperative to its members and customers based on the quantity or value of business conducted with or for the members during the tax year. PCAOB - Public Corporation Accounting Oversight Board, a private-sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002 , to oversee the AUDITORs of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports. Peer Review - Process by which an accounting firm's practice is evaluated for compliance with professional standards. The objective is achieved through the performance of an independent review by one's peers. Penalty - The various government codes contain numerous provisions which impose penalties on a taxpayer (any type of taxpayer) for failure to perform a specific act or omitting vital information on a return. Pension - Retirement plan offered by an employer for the benefit of an employee, usually at retirement, through a TRUSTEE who controls the plan ASSETS. (See EMPLOYEE BENEFIT PLAN.) Perpetual Inventory - System that requires a continuous record of all receipts and withdrawals of each item of INVENTORY. Personal Financial Planning - Process for arriving at a comprehensive plan to solve an individual's personal, business, and financial problems and concerns. Personal Financial Specialist (PFS) - CERTIFIED PUBLIC ACCOUNTANT who specializes in PERSONAL FINANCIAL PLANNING and completes a series of requirements that include education, experience, ethics and an exam. Personal Financial Statements - FINANCIAL STATEMENTS prepared for an individual or family to show financial status. Personal Property - Movable property that is not affixed to the land (REAL PROPERTY). Personal property includes tangible items such as cash, cars and computers, as well as intangible items, such as royalties, patents and copyrights. Phantom Income - Income reported on a TAX BASIS for which no cash or financial benefit is realized. Pledged Asset - ASSET placed in a TRUST and used as COLLATERAL for a DEBT. Pooling of Interest - Used to account for the acquisition of another company when the acquiring company exchanges its voting COMMON STOCK for the voting common stock of the acquired company when certain criteria are met. Post-Retirement Benefits - PENSIONS, health care, life insurance and other benefits that are provided by an employer to retirees, their dependents, or survivors. Preferred Stock - Type of CAPITAL STOCK that carries certain preferences over COMMON STOCK, such as a prior claim on DIVIDENDS and ASSETS. Premium - (1) Excess amount paid for a BOND over its face amount. (2) In insurance, the cost of specified coverage for a designated period of time. Prepaid Expense - Cost incurred to acquire economically useful goods or services that are expected to be consumed in the revenue-earning process within the operating cycle. Present Value - CURRENT VALUE of a given future cash flow stream, discounted at a given rate. Preventive Controls - These have the objective of preventing errors or fraud from occurring in the first place that could result in a misstatement of the financial statements. Prime Rate - Rate of interest charged by major U.S. banks on loans made to their preferred customers. Principal - Face amount of a SECURITY, exclusive of any PREMIUM or INTEREST. The basis for INTEREST computations. Private Placement - Sales of SECURITIES not involving a PUBLIC OFFERING and exempt from registration pursuant to certain EXEMPTIONS. Privilege - A right or immunity granted as a peculiar benefit advantage. Privity - An interest in a transaction, contract or legal action to which one is not a party, arising out of a relationship to one of the parties. Profit Sharing Plan - DEFINED CONTRIBUTION PLAN characterized by the setting aside of a portion of an entity's profits in participant's accounts. (See EMPLOYEE BENEFIT PLAN.) Pro Forma - Presentation of financial information that gives effect to an assumed event (e.g., MERGER). Projection - Prospective FINANCIAL STATEMENTS that include one or more hypothetical assumptions. Promissory Note - Evidence of a DEBT with specific amount due and interest rate. The note may specify a maturity date or it may be payable on demand. The promissory note may or may not accompany other instruments such as a MORTGAGE providing security for the payment thereof. (See DEMAND LOAN.) Proprietorship - Business owned by an individual without the limited liability protection of a CORPORATION or a LIMITED LIABILITY COMPANY (LLC). Also known as sole proprietorship. Pro Rata - Distribution of an expense, fund, or DIVIDEND proportionate with ownership. Prospective Financial Information (forecast and projection) - Forecast : Prospective financial statements that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations, and changes in financial position. A financial forecast is based on the responsible party's assumptions reflecting conditions it expects to exist and the course of action it expects to take. Projection : Prospective financial statements that present, to the best of the responsible party's knowledge and belief, given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and changes in financial position. Prospectus - Major part of the registration statement filed with the SECURITIES AND EXCHANGE COMMISSION (SEC) for PUBLIC OFFERINGS. A prospectus generally describes SECURITIES or partnership interests to be issued and sold. Proxy - Document authorizing someone other than the shareholder to exercise the right to vote the stock owned by the shareholder. Public Offering - Offering shares to the public. Generally done through SEC filings. Public Oversight Board (POB) - The POB is an independent oversight board, composed of public members, which monitors and evaluates peer reviews conducted by the SEC Practice Section (SECPS) of the AICPA's Division for CPA Firms as well as other activities of the SECPS. Purchase Method of Accounting - ACCOUNTING for a MERGER by adding the acquired company's ASSETS at the price paid for them to the acquiring company's assets. Push-Down Accounting - Method of ACCOUNTING in which the values that arise from an acquisition are transferred or "pushed down" to the accounts of an acquired company. Puts - A put is an option to sell a certain number of shares of stock at a stated price within a certain period. The gain or loss on a put is short or long term depending on the holding period of the stock involved. (Also see CALLS) Qualified Opinion - AUDIT opinion that states, except for the effect of a matter to which a qualification relates, the FINANCIAL STATEMENTS are fairly presented in accordance with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). The AUDITOR is required to qualify when there is a scope limitation. Quasi-Reorganization - Type of reorganization in which, with shareholder approval, the management revalues ASSETS and eliminates the DEFICIT (increased by asset devaluations if any) by charging it to other EQUITY accounts without the creation of a new corporate entity or without court intervention. R&D - See RESEARCH AND DEVELOPMENT. Ratio Analysis - Comparison of actual or projected data for a particular company to other data for that company or industry in order to analyze trends or relationships. Real Estate Investment Trust (REIT) - Investor-owned TRUST which invests in real estate and, instead of paying income tax on its income, reports to each of its owners his or her pro rata share of its income for inclusion on their income tax returns. This unique trust arrangement is specifically provided for in the INTERNAL REVENUE CODE. Real Estate Mortgage Investment Conduit (REMIC) - An entity that holds a fixed pool of mortgages and issues multiple classes of interest s in itself to investors. A qualified REMIC is generally taxed like a partnership, unless it takes contributions after its start up day or engages in a prohibited transaction. Real Property - Land and improvements, including buildings and PERSONAL PROPERTY, that is permanently attached to the land or customarily transferred with the land. Reasonable Assurance - Management's assessment of the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance. It includes the understanding that there is a remote likelihood that material misstatements will not be prevented or detected on a timely basis. It is a high level of assurance. Recapitalization - An internal reorganization of a corporation including a rearrangement of the capital structure by changing the kind of stock or the number of shares outstanding or issuing stock instead of bonds. It is distinguished from most other types of reorganization because it involves only one corporation and is usually accomplished by the surrender by shareholders of their securities for other stock or securities of a different type. Receivables - Amounts of money due from customers or other DEBTORS. Reconciliation - Comparison of two numbers to demonstrate the basis for the difference between them. Redemption Value - Price to be paid by an ENTITY to retire its BONDS or PREFERRED STOCK. Red Herring - "Pre-release" PROSPECTUS offering. An announcement of a future issuance of SECURITIES, given restricted circulation during the waiting period of 20 days or other specified period between the filing of a registration statement with the SEC and the effective date of the statement. A red herring is not an offer to sell or the solicitation of an offer to buy. Refinancing Agreement - Arrangement to provide funding to replace existing financing, the most common being a refinance of a home MORTGAGE. Regulated Investment Company (RIC) - Commonly called a MUTUAL FUND, this is a domestic corporation that acts as an investment agent for its shareholders by typically investing in government and corporate securities and distributing the DIVIDENDS and INTEREST income earned from such investments. In order to be considered a RIC a CORPORATION must make an irrevocable election tax election in order to be treated as one. Reinsurance - Process by which an insurance company obtains insurance on its insurance claims with other insurers in order to spread the risk. REIT - See REAL ESTATE INVESTMENT TRUST. Related Party Transaction - Business or other transaction between persons who do not have an arm's-length relationship (e.g., a relationship with independent, competing interests). The most common is between family members or controlled entities. For tax purposes, these types of transactions are generally subject to a greater level of scrutiny. Relevant Assertions - Assertions that have a meaningful bearing on whether the account is fairly stated. Reorganization - This is a change in the businesses capital arrangements. If for a CORPORATION there are seven statutory options for reorganization that would cause the corporation and shareholders to not recognize any GAIN or LOSS on the exchange of stock. Repairs - EXPENDITURES made in order to keep property in good condition but that do not appreciably prolong the life or increase the value of the property. Replacements - EXPENDITURES for making good or whole the portions of property that have deteriorated through use or have been destroyed through accident. Report Release Date - The date the company's financial statements are issued. Repos - See REPURCHASE AGREEMENT. Repurchase Agreement (Repos) - Agreement whereby an institution purchases SECURITIES under a stipulation that the seller will repurchase the securities within a certain time period at a certain price. Research and Development (R&D) - Research is a planned activity aimed at discovery of new knowledge with the hope of developing new or improved products and services. Development is the translation of research findings into a plan or design of new or improved products and services. Reserve - ACCOUNT used to earmark a portion of EQUITY or fund balance to indicate that it is not available for expenditure. An obsolete term in the United States. More commonly used in Europe. Resident Alien - This is an individual that is not a citizen, but who has a residence in the United States. They are taxed on all of their INCOME worldwide in the same manner a citizen of the United States is. Restricted Assets - Cash or other ASSETS whose use in whole or in part is restricted for specific purposes bound by virtue of contracted agreements. Restricted Fund - Fund established to account for assets whose income must be used for purposes established by donors or grantors of such ASSETS. (See FUND ACCOUNTING and UNRESTRICTED FUNDS.) Restructuring - Reorganization within an entity. Restructuring may occur in the form of changing the components of CAPITAL, renegotiating the terms of DEBT agreements, etc. Retained Earnings - Accumulated undistributed earnings of a company retained for future needs or for future distribution to its owners. Return on Investment (ROI) - Ratio measure of the profits achieved by a firm through its basic operations. An indicator of management's general effectiveness and efficiency. The simplest version is the ratio of NET INCOME to total ASSETS. Revenue Recognition - Method of determining whether or not income has met the conditions of being earned and realized or is realizable. Revenues - Sales of products, merchandise, and services; and earnings from INTEREST, DIVIDEND, rents. Review - Accounting service that provides some assurance as to the reliability of financial information. In a review, a CERTIFIED PUBLIC ACCOUNTANT (CPA) does not conduct an examination under GENERALLY ACCEPTED AUDITING STANDARDS (GAAS). Review Engagement - Agreement between a CERTIFIED PUBLIC ACCOUNTANT (CPA) and his or her client to perform a review. (See ACCOUNTANTS' REPORT.) Review Report - See ACCOUNTANTS' REPORT. Right to Setoff - DEBTOR'S legal right, to discharge all or a portion of the DEBT owed to another party by applying against the debt an amount that the other party owes to the debtor. Risk Management - Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity's operating philosophy. ROI - See RETURN ON INVESTMENT. Routine Transactions - Recurring financial activities reflected in the accounting records in the normal course of business. S Corporation - An S Corporation is a corporation which, under the Internal Revenue Code, is generally not subject to federal income taxes. Instead, taxable income of the corporation is passed through to its stockholders in a manner similar to that of a partnership. Safe Harbor Rule - Concept in statutes and regulations whereby a person who meets listed requirements will be preserved from adverse legal action. Frequently, safe harbors are used where a legal requirement is somewhat ambiguous and carries a risk of punishment for an unintended violation. Sale-Leaseback Transaction - Sale of property by a seller who simultaneously leases the property back from the purchaser. Salvage Value - Selling price assigned to retired FIXED ASSETS or merchandise unsalable through usual channels. SAS - See STATEMENTS ON AUDITING STANDARDS. SEC - See SECURITIES AND EXCHANGE COMMISSION. SEC Filings - Financial and informational DISCLOSURES required by the SEC in order to comply with certain sections of the Securities Act of 1933 and the Securities and Exchange Act of 1934. Some of the more common filings that publicly owned companies must submit are the FORM 10-K, FORM 10-Q and FORM 8-K. SEC Registration Statement - DISCLOSURE document that must be filed with the SEC in connection with a public offering of SECURITIES, unless the offering is exempt. Securities and Exchange Commission (SEC) - Agency authorized by the United States Congress to regulate the financial reporting practices of most public corporations. Security - Any kind of transferable certificate of ownership including EQUITY SECURITIES and DEBT SECURITIES. Securitization -Source of financing whereby an entity's ASSETS (typically mortgage loans, lease obligations or other types of RECEIVABLES) are placed in a special purpose vehicle that issues SECURITIES collateralized by such assets. Security Interest - Legal interest of one person in the property of another to assure performance of a second person under a contract. Self Employment Tax - Most individuals that are in business for themselves, such as SOLE PROPRIETORS, PARTNERS or independent contractor, are subject to self employment taxes. The taxes provide coverage for the self employed individual for social security (OASDI) and Medicare benefits (HI) similar to the taxes withheld by employers from wages it pays the employees. Settlement Method - Method of ACCOUNTING for SECURITIES whereby transactions are recorded on the date the securities settle by the delivery or receipt of securities and the receipt or payment of cash. SFAS - See STATEMENT OF FINANCIAL ACCOUNTING STANDARDS. Short Sale - Sale of an item before it is purchased. A person entering into a short sale believes the price of the item will decline between the date of the short sale and the date he or she must purchase the item to deliver the item under the terms of the short sale. Short-Term - Current; ordinarily due within one year. Significant Accounts - An account is significant if there is more than a remote likelihood that the account could contain misstatements that individually or when aggregated with others, could have a material effect on the financial statements, considering the risks of both overstatement and understatement. Significant Deficiency - Acontrol deficiency or combination of control deficiencies, that adversely affects the company's ability to initiate, authorize, record, process or report external financial data reliably in accordance with GAAP such that there is more than a remote likelihood that a misstatement of the company's annual or interim financial statements that is more than inconsequential will not be prevented or detected. Significant Findings or Issues - Substantive matters that are important to the procedures performed, evidence obtained, or conclusions reached and include but are not limited to: 1. significant matters Single Audit Act - The Single Audit Act of 1984 and the Single Audit Act Amendments of 1996 establish requirements for audits of states, local governments, and nonprofit organizations that administer federal financial assistance programs above a certain threshold. Simple Plans - An employer may adopt a simplified retirement plan called a SIMPLE Plan (Savings incentive match plan for employees) if it has fewer than 100 employees that received at least $5,000 in compensation in the preceding year. Simple Trust - This type of TRUST is required to distribute all its income currently, whether or not the TRUSTEE actually does so, and it has no provision in the trust instrument for charitable contributions. It is to be distinguished from a COMPLEX TRUST. A trust may be a simple trust in one year and a complex trust in another year. In the year in which the trust distributes its corpus, it loses its classification as a simple trust. Small Business Stock - Noncorporate investors may exclude up to 50 percent of the GAIN they realize on the disposition of qualified small business stock issued after Aug. 10, 1993, and held for more than five years. The amount of gain eligible for the 50 percent exclusion is subject to per-issuer limits. In order to qualify for the EXCLUSION, the CORPORATION issuing the stock must be a C Corporation (but excluding certain investment corporations) and it must use at least 80 percent of its assets in active conduct of one or more qualified trade or businesses. In addition, its gross assets cannot exceed $50 million. Sole Proprietorship - See PROPRIETORSHIP. Special Assessment - Charge made by a local government for the cost of an improvement or service. It is usually levied on those who will benefit from the service. Special Report - Special report is a term applied to AUDITORs' reports issued in connection with various types of financial presentations, including: Financial statements that are prepared in conformity with a comprehensive basis of accounting other than generally accepted accounting principles. Specified elements, accounts or items of a financial statement. Compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements. Financial presentations to comply with contractual agreements or regulatory provisions. Financial information presented in prescribed forms or schedules that require a prescribed form of auditor's reports. Spinoff - Transfer of all, or a portion of, a subsidiary's stock or other ASSETS to the stockholders of its parent company on a PRO RATA basis. Spot Market - Market for buying and selling commodities or financial instruments for immediate delivery and payment based on the settlement conventions of the particular market. Spread - Difference between two prices, usually a buying and selling price. SSARS - See STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW SERVICES. Standard Deduction - Individual taxpayers who do not itemize their deductions are entitled to a standard deduction amount by which to reduce ADJUSTED GROSS INCOME in arriving at taxable income. The amount of the standard deduction varies by the type of the taxpayer and changes each year. A schedule of standard deductions is easily found in the instructions for the federal form 1040. Each state may also use a standard deduction format, but the amounts and computations differ from the federal and from state to state. Certain taxpayers may not be entitled to use the standard deduction. An example of this would be a married filing separate taxpayer. If one taxpayer itemizes then the other is required to by law even if the married filing separate taxpayer is unknowing of what is included on the spouses separate return. A reason for this might be the prevention of pooling and duplication of deductions. Start-up Costs - (1) Costs, excluding acquisition costs, incurred to bring a new unit into production. (2) Costs incurred to begin a business. Stated Value - Per share amount set by the BOARD OF DIRECTORS to be placed in the CAPITAL STOCK account upon issuance of NO-PAR VALUE. Statement of Cash Flows - A statement of cash flows is one of the basic financial statements that is required as part of a complete set of financial statements prepared in conformity with generally accepted accounting principles. It categorizes net cash provided or used during a period as operating, investing and financing activities, and reconciles beginning and ending cash and cash equivalents. Statement of Financial Accounting Standards (SFAS) - Statements issued by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB). Statement of Financial Condition - Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis of ACCOUNTING used in its preparation and presentation as of a specified date, the entity's ASSETS, LIABILITIES and the EQUITY of its owners. Also known as BALANCE SHEET. Statements on Auditing Standards (SAS) - Statements issued by the Accounting Standards Board of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA). Statements on Standards for Accounting and Review Services (SSARS) - Statements issued by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) that specifically relate to REVIEWS and COMPILATIONS. (See ACCOUNTANTS' REPORT.) Statute of Limitations - This sets out the period within which actions may be brought upon claims or within which rights may be enforced. As it pertains to tax returns, the statute of limitations is generally three years from the date a return is due or filed. Stepped Up Basis - Generally, the basis of property acquired by INHERITENCE, BEQUEST or device from a DECENDANT is the FAIR MARKET VALUE of the property on the date of the decendant's death. Thus if the fair market value is more than the decedent's basis, a taxpayers basis in the property received is stepped-up. Stock Compensation Plan - FRINGE BENEFIT that gives employees the option to purchase the employer's stock at a specified price during a specified period. Stock Option - Right to purchase or sell a specified number of shares of stock at specified prices and times. Stock Rights - Stock rights are rights issued to stockholders of a CORPORATION that entitle them to purchase new shares of stock in the corporation for a stated price that is often substantially less than the FAIR MARKET VALUE of the stock. These rights may be exercised by paying the stated price, may be sold, or may be allowed to expire or lapse. Stock rights are generally treated as stock DIVIDENDS. Stock Split - Increase in the number of shares of a company's COMMON STOCK outstanding that result from the issuance of additional shares proportionally to existing stockholders without additional capital investment. The PAR VALUE of each share is reduced proportionally. Straight-Line Depreciation - ACCOUNTING method that reflects an equal amount of wear and tear during each period of an ASSET'S useful life. For instance, the annual STRAIGHT-LINE DEPRECIATION of a $2,500 asset expected to last five years is $500. (See ACCELERATED DEPRECIATION.) Strike Price - Price of a financial instrument at which conversion or exercise occurs. Subsequent Event - Material event that occurs after the end of the accounting period and before the publication of an entity's FINANCIAL STATEMENTS. Such events are disclosed in the notes to the financial statements. (See MATERIALITY.) Surviving Spouse - This is a person whose husband or wife died during the tax year. A surviving spouse may file a JOINT RETURN for the year in which the death occurred. In addition a joint return may be filed for the two succeeding tax years if during that time the surviving spouse: 1. Remains unmarried; and Swap - Financial contract in which two parties agree to exchange net streams of payments over a specified period. The payments are usually determined by applying different indices (e.g., interest rates, foreign exchange rates, equity indices) to a NOTIONAL amount. The term notional is used because swap contracts generally do not involve exchanges of PRINCIPAL. 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.) Tax - Charge levied by a governmental unit on income, consumption, wealth, or other basis. Tax Court - The U.S. Tax Court is a legislative court functioning to adjudicate controversies between taxpayers and the IRS arising out of deficiencies assessed by the IRS for INCOME, GIFT, ESTATE, windfall profit and certain EXCISE TAXES. It has no jurisdiction over other taxes such as employment taxes. Various sales taxes and certain excise taxes. Tax Credit for the Elderly and Disabled - Taxpayers age 65 or older or those under 65 who are retired with permanent and total disability are eligible to claim a credit to reduce the amount of their tax liability. It is designed primarily to benefit those individuals who receive small amounts of retirement INCOME. Each taxpayer is allocated an initial base amount based on his or her filing status determining the credit. The base amount is then reduced by the amount of nontaxable income, or is phased out for taxpayers whose ADJUSTED GROSS INCOME exceeds certain levels. Tax Lien - ENCUMBRANCE placed on property as security for unpaid taxes. Tax Shelter - Arrangement in which allowable tax deductions or EXCLUSIONS result in the deferral of tax on INCOME that would otherwise be payable currently. Tax Year - The period used to compute a taxpayer's TAXABLE INCOME is tax year. It is an annual period that is either a calendar year , FISCAL YEAR or fractional part of a year for which the return is made. Taxable Income - Taxable income is generally equal to a taxpayer's ADJUSTED GROSS INCOME during the TAX YEAR less any allowable EXEMPTIONS and deductions. Taxpayer Identification Number (TIN) - Any individual or other taxable entity that is required to file a return, statement or any other document with the IRS must indicate his (or its) taxpayer identification number. For an individual, the social security number is used, and if you do not have a social security number, the IRS will assign you a TIN. A federal or employer ID number is assigned to other types of entities and will use that as their TIN. Tenancy-in-Common - Co-ownership of property. In a valid tenancy-in-common, a deceased co-owner's title passes to his or her heirs without being included in the estate of the deceased co-owner. Term Loan - Loan for a specified time period. Timing of Tests of Control - The AUDITOR must perform tests of controls over a period of time that is adequate to determine whether, as of the date specified in management's report, the controls necessary for achieving the objectives of the control criteria are operating effectively. Total Gain - Excess of the proceeds realized on the sale of either INVENTORY or noninventory goods. Trade Date - Date when a SECURITY transaction is entered into, to be settled on at a later date. Transactions involving financial instruments are generally accounted for on the trade date. Transferred Basis - A transferred basis is the basis of property in the hands of a transferor, donor or GRANTOR. In this sense a prior owner's basis in the property is transferred to the taxpayer. Transferred basis occurs in the following transactions: GIFTS, transfers in trusts, certain transfers to controlled CORPORATIONS, contributions to PARTNERSHIPS and LIQUIDATING distributions from a corporation. Transferee Liability - A person may be held LIABLE for another taxpayer's delinquent taxes if: 1. The transferee received assets of the transferor-taxpayer; and However the insolvency requirement does not apply to GIFT taxes. The transferee is only liable to the extent of the value of the property received from the transferor. Thus, transferee liability merely provides a means for the IRS to recover any assets the transferor-taxpayer attempts to transfer to avoid paying taxes. Treasury Bill - Short-term obligation that bears no INTEREST and is sold at a discount. Treasury Bond - Long-term obligation that matures more than five years from issuance and bears INTEREST. Treasury Instruments - Direct financial obligations of the United States government. (See TREASURY BILL; TREASURY BOND; TREASURY NOTE; TREASURY STOCK.) Treasury Note - Intermediate-term obligation that matures one to five years from issuance and bears INTEREST. Treasury Stock - Stock reacquired by the issuing company. It may be held indefinitely, retired, issued upon exercise of STOCK OPTIONS or resold. Troubled Debt Restructuring - Agreement between DEBTOR and CREDITOR which amends the terms of a DEBT that has little chance of being paid in accordance with its contractual terms. The agreement may involve the transfer of ASSETS in full or partial satisfaction of the debt. Trust - Ancient legal practice where one person (the GRANTOR) transfers the legal title to an ASSET, called the principle or corpus, to another person (the TRUSTEE), with specific instructions about how the corpus is to be managed and disposed. Trustee - Person who is given legal title to, and management authority over, the property placed in a trust. Unaudited Financial Statements - FINANCIAL STATEMENTS which have not undergone a detailed AUDIT examination by an independent CERTIFIED PUBLIC ACCOUNTANT (CPA). Unearned Income - Payments received for services which have not yet been performed. Uniform Accountancy Act (UAA) - The UAA is the proposal for a new regulatory framework for the public accounting profession which was developed jointly by the American Institute of Certified Public Accountants (AICPA) and the National Association of State Boards of Accountancy (NASBA). The new framework is intended to enhance interstate reciprocity and practice across state lines by CPAs, meet the future needs of the profession, respond to the marketplace and protect the public that the profession serves. Uniform Capitalization Rules - These are a set of rules intended to be a single comprehensive set of rules to govern the capitalization, or inclusion in INVENTORY of direct and indirect cost of producing, acquiring and holding property. Under the rules, taxpayers are required to capitalize the direct costs and an allocable portion of the indirect costs attributable to real and tangible personal property produced or acquired for resale. The obvious effect of the uniform capitalization rules is that taxpayers may not take current deductions for these costs but instead must be recovered through DEPRECIATION or AMORTIZATION. Unqualified Opinion - AUDIT opinion not qualified for any material scope restrictions nor departures from GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). The AUDITOR may issue an unqualified opinion only when there are no identified material weaknesses and when there have been no restrictions on the scope of the auditor's work. Also known as CLEAN OPINION. Unrestricted Funds - Resources of a not-for-profit entity that have no restrictions as to use or purpose. (See FUND ACCOUNTING and RESTRICTED FUND.) Use of Professional Skepticism when Evaluating the Results of Testing - The AUDITOR must conduct the audit of internal control over financial reporting and the audit of the financial statements with professional skepticism, which is an attitude that includes a questioning mind and a critical assessment of audit evidence. Variable Rate Loan - Loan whose interest rate changes over its life in relation to the level of an index. Variance - Deviation or difference between an estimated value and the actual value. Venture Capital - Investment company whose primary objective is capital growth. New ASSETS invested largely in companies that are developing new ideas, products, or processes. Vesting - Point at which certain benefits available to an employee are no longer contingent on the employee continuing to work for the employer. Walkthroughs - The most effective means for an AUDITOR to confirm his understanding how internal control over financial reporting is designed and operates to evaluate and test its effectiveness. It includes making inquiries of and observing the personnel who actually perform the controls; reviewing documents that are used in, and that result from, the application of the controls; and comparing supporting documentation to the accounting records. In a walkthrough, the auditor traces a transaction from origination through the company's information systems to the point where it is reflected in the company's financial reports. Walkthroughs provide the auditor with evidence to: 1. Confirm the auditor's understanding of the process flow of transactions. Warrant - Option to purchase additional SECURITIES from the issuer. Wash Sale - A wash sale occurs if stock or securities are sold at a LOSS and the seller acquires substantially identical stock or SECURITIES 30 days before or after the sale. Stock or securities for this purpose includes contracts or operations to acquire or sell stock or securities. Losses incurred in a wash sale cannot be deducted. It does not matter if the total 60 day period begins in one tax year and ends in another. However, the disallowed loss is not permanently lost. Instead, the basis in the newly acquired stock or securities is the same basis as of the stock or securities sold, adjusted by the difference in price of the stock or securities. Withholding - Amount withheld or deducted from employee salaries by the employer and paid by the employer, for the employee, to the proper authority. Withholding Allowance - Each taxpayer is allowed to claim a withholding allowance, which exempts a certain amount of wages from being subject to WITHHOLDING. The allowance is designed to prevent too much taxes being withheld from a taxpayers wages and a person can compute this by completing form W-4 and submitting it to their employer. Working Capital - Excess of CURRENT ASSETS over CURRENT LIABILITIES. Working Papers - (1) Records kept by the AUDITOR of the procedures applied, the tests performed, the information obtained, and the pertinent conclusions reached in the course of the AUDIT. (2) Any records developed by a CERTIFIED PUBLIC ACCOUNTANT (CPA) during an audit. Work in Progress - INVENTORY account consisting of partially completed goods awaiting completion and transfer to finished inventory. Wrap-Around Mortgage - Second MORTGAGE which conveniently expands the total amount of borrowing by the mortgagor without disturbing the original mortgage. Yellow Book - Written by the GENERAL ACCOUNTING OFFICE, the yellow book sets forth standards to be followed in auditing the FINANCIAL STATEMENTS of entities that receive federal financial assistance. "Yellow Book" is the name given to "Government Auditing Standards" issued by the Comptroller General of the United States which contains standards for audits of government organizations, programs, activities and functions, and of government assistance received by contractors, nonprofit organizations and other nongovernment organizations. Yield - Return on an INVESTMENT an investor receives from DIVIDENDS or INTEREST expressed as a percentage of the cost of the SECURITY. Yield to Maturity - Rate of return on a SECURITY to its maturity, giving effect to the stated interest rate, accrual of discount, or AMORTIZATION of PREMIUM. Zero-Coupon Bond - BOND on which the holder receives only one payment at maturity which includes both PRINCIPAL and INTEREST from issuance to maturity.
Bookkeeping terms I-O
Bookkeeping terms P-Z (below) Need Accounting Training, Finance Training or QuickBooks Training? We recommend Webucator!
2. results of auditing procedures indicating a need for significant modification of planned auditing procedures
3. audit adjustments
4. disagreements among members of the engagement team
5. circumstances that cause difficulty in applying auditing procedures
6. significant changes in the assessed level of audit risk
7. matters that could result in modification of the AUDITOR's report
2. Maintains as his home a household that is the principal place of abode during the entire TAX YEAR for a child for whom a dependency exemption may be claimed.
2. The transferor was INSOLVENT at the time or was rendered insolvent by that transfer or related series of transfers.
Valuation Allowance - Method of lowering or raising an object's CURRENT VALUE by adjusting its acquisition cost to reflect its market value by use of a CONTRA ACCOUNT.
2. Confirm the auditor's understanding of the design of controls identified for all five components of internal control over financial reporting, including those related to the prevention or detection of fraud.
3. Confirm that the auditor's understanding of the process is complete by determining whether all points in the process at which misstatements related to each relevant financial statement assertion that could occur have been identified.
4. Evaluate the effectiveness of the design of controls.
5. Confirm whether controls have been placed in operation.
