Financial Accounting Glossary N - Z

N

Net assets equals total assets less total liabilities. Also describes total equity. (p.48W)

Net income the amount a business earns after subtracting all expenses necessary for its sales; also called profits or earnings. (p.45W)

Net loss the excess of expenses over revenues for a period. (p.45W)

Net realizable value the expected sale price of an item minus the cost of making the sale. (p.272W)

O

Objectivity principle accounting guideline that requires financial statement information to be supported by independent, unbiased evidence rather than someone's opinion; objectivity adds to the reliability, verifiability, and usefulness of information. (p.55W)

Obsolescence a condition in which, because of new inventions and improvements, a plant asset can no longer be used to produce goods or services with a competitive advantage. (p.400W)

Operating activities the use of assets to carry out an organization's plans in the areas of research, development, purchasing, production, distribution, and marketing. (p.15W)

Operating lease a lease that is not a capital lease; costs of operating leases are reported as rent expense. (p.464W) - this is beyond the syllabus, but is useful additional information.

P

Paid-in capital is shareholder's financial investment into a company. (p.50W)

Par value an arbitrary value assigned to capital stock when the stock is authorized. (p.548W)

Plant and equipment tangible fixed assets used to produce goods or services. (p.396W)

Posting the process of transferring journal entry information to the ledger. (p.106W)

Prepaid expenses items paid for in advance of receiving their benefits; classified as assets. (p.93 & P.141W)

Principal the value of a loan repayable, not including the interest. (P.366)

Prior period adjustment a correction of a material error in a previous year that is reported in the statement of retained earnings (or statement of changes in stockholders' equity) net of any income tax effects. (p.576W) - this is beyond the syllabus, but is useful additional information.

Profit and loss account a financial statement in which expenses are subtracted from revenues to show whether the business earned a profit; it lists the types and amounts of revenues earned and expenses incurred by a business over a period of time; also called income statement (p.45W)

Profitability refers to a company's ability to generate an adequate return on invested capital. (p.663W)

Purchase discount a term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period. (p.217W)

Purchase order a business document used by the purchasing department to place an order authorising the seller to ship the ordered merchandise at the stated price and terms. (p.338W)

Purchase requisition a business document listing merchandise needed by a department and requesting it be purchased. (p.337W)

R

Raw materials inventory goods a company acquires to use in making products. Realisable value the expected proceeds from converting assets into cash. (p.359W)

Receiving note/report a form used within a company to notify the appropriate persons that ordered goods are received and to describe the quantities and condition of the goods. (p.338W)

Retained earnings shareholders' equity that results from a corporation's cumulative profits that have not been distributed to shareholders. (p.50W)

Return derives from the idea of getting something back from an investment in a business. (p.6W)

Revenues the amounts earned from selling products or services; also called sales - also called income. (p.45W)

S

Sales the amounts earned from selling products or services; also called revenues - also called income. (p.45W)

Sales discount a term used by a seller to describe a cash discount granted to customers for paying within the discount period (p.217W)

Scrap/salvage value management's estimate of the amount that will be recovered at the end of a plant asset's useful life through a sale or as a trade-in allowance on the purchase of a new asset; also called residual value. (p.400W)

Securities and Exchange Commission (SEC) the US federal agency that sets reporting rules for organizations that sell ownership shares to the public. (p.7W)

Segment of a business a component of a company's operations that serves a particular line of business or class of customers and that has assets, activities, and financial results of operations that can be distinguished from other parts of the business. (p.569W) - this is beyond the syllabus.

Share Premium (UK) /Contibuted Capital In Excess Of Par Value (US) Stock sold at a price greater than the par value of staock (p.548W)

Shareholders (UK) /Stockholders (US) the owners of a corporation. (p.13W)

Shareholders' Funds (UK) / Stockholders’ Equity (US) is a term used to describe total equity in a company owned by shareholders. (p.549W)

Short-term investments current assets that serve a similar purpose to cash equivalents; generally mature between 3 and 12 months at which time management expects to convert them into cash; can be either debt or equity securities also called temporary investments. (p.373W)

Short-term loan (UK) notes (US) payable obligation to repay loans within one year. (p.447W)

Solvency a company's long-run financial viability and its ability to cover long-term obligations. (p.663W)

Source documents another name for business papers; these documents are the source of information recorded with accounting entries and can be in either paper or electronic form. (p.91W)

Specific identification costing method is when each item of stock is individually costed. This is usually the case in a business that has low unit sales and high unit costs. A car dealership would use this methodology. (p.268W)

Standard costs the costs that should be incurred under normal conditions to produce a specific product or component or to perform a specific service. – outside syllabus

Statement of cash flows a financial statement that describes a company's cash receipts and payments in a period. Cash flows are arranged by an organisation's activities: operating, investing, and financing. (p.608W)

Statement of changes in shareholders' equity a financial statement that lists the beginning and ending balances of each equity account and describes all the changes that occurred during the period.

Stock (1) – a British term for inventory. (p.214W)

Stock (2) - A US term for shares. (p.13W)

Straight-line depreciation method allocates equal amounts of an asset's net cost to depreciation expense during its useful life. (p.401W)

Subsidiary a corporation that is controlled by another corporation (the parent) because the parent owns more than 50% of the subsidiary's voting stock. (pC-11W)

T

T-account a simple account form used as a helpful tool in showing the effects of transactions and events on specific accounts. A cashbook can be presented in T-account format. (p.97W)

Tangible fixed assets - assets used in the company operations that have a useful life of more than one accounting period. (p.396W)

Trade discount a reduction below a list or catalog price that may vary in amount for wholesalers, retailers, and final consumers. (p.217W)

Trademark or trade name symbol, name, phrase, or jingle identified with a company or service. When it has a measurable value it is classified as an intangible asset on a company balance sheet. (p.422W)

Trial balance a list of accounts and their balances at a point in time; the total debit balances should equal the total credit balances. (p.111W)

U

Unearned revenues liabilities created when customers pay in advance for products or services; created when cash is received before revenues are earned; satisfied by delivering the products or services in the future. Also known as deferred revenue/income. (p.94W)

Useful economic life the length of time a fixed asset will be productively used in the operations of a business. (p.400W)

W

Warranty an agreement that obligates the seller or manufacturer to repair or replace a product when it breaks or otherwise fails to perform properly within a specified period. (p.457W)

Weighted average the method of assigning cost to inventory in which the unit prices of the items making up the current inventory are weighted by the number of units of each in the current inventory. The total of these amounts is then divided by the total number of units available for sale to find the unit cost of the inventory balance and of the units that were sold. (p.268W)