Financial Glossary

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A ( 77 DEFINITIONS )

Absorption costing
Absorption costing is a method of assigning costs to inventory. It includes fixed overhead costs in addition to variable overhead costs added to direct materials and direct labour to calculate unit cost. top

Accelerated amortization
Accelerated amortization is a method of allocating the cost of an asset in which the annual amortization amounts are larger in an asset's early years and decrease over time. An example of accelerated amortization would be the double-declining balance method. top

Account
An account is a place within an accounting system where the increases and decreases in a specific asset, liability, owner's equity, revenue, or expense are recorded and stored. top

Account analysis
An account analysis is the identification of each important item and amount in an account followed by document vouching and inquiry to determine whether amounts should be classified elsewhere. top

Account balance
An account balance is the difference between the increases (including the beginning balance) and decreases recorded in the account. An account balance is the beginning balance plus or minus all increases and decreases recorded in the account. top

Account balance audit program
An account balance audit program is a specification of procedures designed to produce evidence about the assertions in financial statements. top

Account form balance sheet
An account form balance sheet is a balance sheet that is arranged with the assets listed on the left side and the liabilities and owners' equity listed on the right. top

Accounting
Accounting is a service activity that provides useful information to people who make rational investment, credit, and similar decisions to help them make better decisions. top

Accounting (as a control objective)
A general category of objective concerned with ensuring that the accounting process for a transaction is performed completely, correctly and in conformity with GAAP. top

Accounting equation
The accounting equation is a description of the relationship between the elements of the balance sheets. The equation is expressed as Assets = Liabilities + Owners' Equity. This is also known as the balance sheet equation. top

Accounting estimate
An accounting estimate is a guess or approximation made by management that is used in compiling financial statements. An example would be accruing for warranties. top

Accounting income
Accounting income is an increase in the reported wealth of a corporation based on actual transactions completed. It is a measure of income based on the accounting model and reported in accordance with accrual-based accounting principles. top

Accounting information systems
An accounting information system is designed to record accurate financial data in a timely manner, to facilitate retrieval of that data in a form useful to management, chronologically based, and to ease periodic preparation of financial statements for external use. top

Accounting period
The accounting period is a length of time that divides the life of a business for the purpose of preparing periodic financial statements. top

Accounting system
The accounting system, as an element of a control structure, is an organization of policies and procedures for the proper recording of transactions. top

Accounts payable
Accounts payable is an account where the liabilities created by buying goods and services on credit are recorded. It is usually a control account for a sub-ledger that contains a separate account for each vendor that grants credit to the entity. top

Accounts payable ledger
An accounts payable ledger is a subsidiary ledger containing a separate account for each vendor that grants credit on account to the entity. top

Accounts receivable
Accounts receivable, also known as trade receivables, is cash due to a corporation from their customers because of purchases from the company of goods or services on credit. top

Accounts receivable ageing schedule
A schedule categorizing accounts receivable by the length of time they have been outstanding. The standard is by 30-day increments. top

Accounts receivable ledger
An accounts receivable ledger is a subsidiary ledger that contains a separate account for each credit customer. top

Accretion of discount
The opening present value multiplied by the interest rate. This term arises because the stream of cash receipts are one period closer at the end of the period than it was at the beginning. top

Accrual
An accrual is the transaction that results in a balance sheet account because cash flows occur after expense or revenue recognition. top

Accrual basis of measurement
The accrual basis of measurement recognizes revenues when they are earned. Expenses are subsequently matched with the revenues they generate. Cash inflows and outflows may occur before or after related revenues and expenses are realized and recognized in accrual accounting statements. top

Accrual method of recording income taxes
The accrual method of recording income taxes, also known as the liability method of recording income taxes, records the future tax impact of temporary difference by using the tax rate that will be in effect in the year of reversal; the future tax impact is recorded on the balance sheet as a liability, and is updated as the tax rates change. top

Accrued expense
An accrued expense is an expense incurred during an accounting period but that, prior to end-of-period adjustments remains unrecorded because payment has not been made. top

Accrued revenues
Accrued revenues are revenues earned during an accounting period that, prior to end-of-period adjustments, remain unrecorded because payment has not been received. top

Accumulated amortization
Accumulated amortization is the cumulative amount of the original cost of an asset that has been amortized to date. top

Accumulated benefit method
The accumulated benefit method is a method of calculating employer contributions for defined pension plans; funding is based on the years of service to date and on the current salary. top

Accuracy
Accuracy, as a control objective, refers to ensuring that dollar amounts are figured correctly. top

Acid-test ratio
The acid-test ratio, also called the quick ratio, is used to test the ability of the firm to meet its short-term obligations. It is calculated by dividing the current liabilities by the company's quick assets (cash, temporary investments, and receivables). top

Active business carried on by a corporation
Active business is any business carried on by the corporation other than a specified investment business or a personal services business and includes an adventure or concern in the nature of trade. Active business income includes "incidental" income pertaining to the active business, such as interest collected on accounts receivable or interest on temporary cash deposits. top

Activity
An activity is any event or transaction that is a cost driver. An activity is any event that causes the incurrence of cost in an organization. top

Activity base
An activity base is a measure of whatever causes the incurrence of a variable cost. top

Activity centre
An activity centre is a part of the production process for which management wants a separate reporting of the cost of the activity involved. top

Activity variance
An activity variance is the net income gained or lost through failure to achieve the budgeted sales in units for the period. To calculate this variance, multiply the difference between budgeted sales and actual sales by the budgeted contribution margin per unit. top

Activity-based costing
Activity-based costing is a two-stage costing method that creates a cost pool for each major activity in an organization (such as setups required, purchase orders issued, etc.). Overhead costs are assigned to products and services on the basis of the number of these activities involved in manufacturing the product or providing the service. top

Activity-based management
Activity-based management is an approach developed out of activity-based costing in response to the competitive pressures of today's global market. The purpose of ABM is to provide organizations with a thorough understanding of the tasks, activities, and processes carried out in pursuit of their organizational goals. top

Actuarial gains and losses (pension plan)
Actuarial gains and losses, with respect to a pension plan obligation, arise from changes in estimates due to actual experience or from changes in assumptions. top

Actuarial revaluation
An actuarial revaluation is where an actuary restates the accrued pension obligation on the basis of evaluations of the actual performance factors since the preceding revaluation and factors affecting the future outlook. top

Actuary
An actuary is a person who calculates statistical risks, life expectancy, and payout probabilities for various purposes. In accounting, actuaries are most often used for determining pension funding. top

Additional information
Additional information in an accounting context, means the introduction of new information systems to report on matters not covered by the historical cost system. Examples would be fair value accounting or FOFI. top

Additional markup
An additional markup is any increase in the sale price above the original sale price. top

Additional markup cancellation
An additional markup cancellation is the cancellation of all or some of an additional markup. top

Additions
Additions are extensions, enlargements, or expansions of an existing capital asset. top

Adjusted basic earnings per share
Adjusted basic earnings per share is basic EPS recalculated as though actual conversions of senior securities that have occurred sometime during the year had occurred at the beginning of the year, giving the full year effect of part-year conversions to recognize the capital structure of the company going forward. top

Adjusted cost base (ACB)
For depreciable property, the adjusted cost base (ACB) of a specific asset is its original cost. However, in the case of non-depreciable property, the ACB is the cost of the property plus or minus specified adjustments provided for in the ITA under subsections 53(1) and 53(2). Note that for property owned on December 31, 1971, its ACB is the Valuation Day value provided in the ITAR. top

Adjusted trial balance
An adjusted trial balance is a trial balance prepared after adjusting journal entries. These are usually the basis for preparing the financial statements. top

Adjusting journal entries
Adjusting journal entries are entries used to record resource changes that occur continuously and must be recorded to accurately reflect the financial results and position of an entry. Examples are the expiry of prepaid insurance premiums and amortization of capital assets. top

Administrative control
Administrative control is the plan of organization and all methods and procedures that are concerned mainly with operational efficiency and adherence to managerial policies and usually relate only indirectly to financial records. top

Administrative fees
Administrative fees are an initial processing and service fee charged up front by lenders when granting a loan. top

Advance Pricing Agreement (APA)
In order to assist taxpayers in determining transfer prices acceptable for the purpose of the ITA and the tax conventions, CCRA has introduced an Advance Pricing Agreement (APA) program for major transfer pricing issues and corporations. Multinational corporations would most likely use this process due to its prohibitive cost. An APA is considered to be a binding agreement between a taxpayer and CCRA. The idea is to promote voluntary compliance by assuring taxpayers that the transfer pricing methodology they use to establish transfer prices is acceptable. top

Advance Tax Rulings
Advanced Tax Rulings are established through CCRA's rulings division, which provides binding advanced tax rulings for contemplated transactions. As long as the eventual transaction is completed in accordance with the terms outlined in the ruling request, CCRA is bound by its determination of the tax treatment. Those cases deemed to be of interest to the tax community are published by CCRA. top

Adverse opinion
An adverse opinion is the opposite of an unqualified opinion, it is an opinion that states that the financial statements are not in conformity with GAAP. top

Adverse selection
Adverse selection is the tendency of individuals with private information that affects a potential trading partner's benefits, to make offers detrimental to the trading partner. The classic example is life insurance, in which if a medical is not required, people with serious illnesses tend to select life insurance policies with high payout to the detriment of the life insurance company. top

Ageing method
The ageing method is a method of estimating uncollectible accounts receivable by applying probability estimates of non-collection to specific balances that have been classified by age. top

Agency costs
Agency costs are defined as the decline in firm value that results from agents pursuing their own interests to the detriment of the principal's interests. top

Agency theory
Agency theory is a branch of game theory that studies the design of contracts to motivate a rational agent to act on behalf of a principal when the agent's interests would otherwise conflict with those of the principal. top

Allocation base
An allocation base is any measure of activity (such as labour-hours, number of employees or square meters of space) that is used to charge service department costs out. The allocation bases are used to charge service department costs to other departments. top

Allowable business investment loss (ABIL)
An allowable business investment loss (ABIL) is equal to 50 percent of the taxpayer's business investment loss for the year and it is deductible against all other sources of income because the general rules applicable to capital gains and losses do not apply to an ABIL. top

Allowable capital loss
A taxpayer's allowable capital loss for a taxation year from the disposition of any property is 50 percent of the taxpayer's capital loss for the year from the disposition of the property. top

Allowance for doubtful accounts
An allowance for doubtful accounts is a contra account to accounts receivable that represents the portion of outstanding receivables whose collection is doubtful. When the contra account is netted against the receivable account in the financial statements, the balance should reflect the best estimate of the amount that will actually be collected. top

Allowance method for doubtful accounts
The allowance method for doubtful accounts is an accounting procedure that a) estimates and reports bad debts expense from credit sales for the period of the sales and, b) reports accounts receivable at the amount of cash proceeds that is expected from their collection. top

Allowance method for LCM
The allowance method for LCM is a method that requires the lower-of-cost or market evaluation of investments to be assessed for the portfolio as a whole and any required write-down to be recorded as an allowance, or contra account, which can be reversed as market conditions change or the composition of the portfolio changes. top

Alternative minimum tax (AMT)
The alternative minimum tax (AMT) is a structure for computing a basic minimum amount of tax payable. AMT prevents a taxpayer from significantly reducing or eliminating his tax obligation as a result of investing in tax shelters and making excessive use of tax incentives. Basically, AMT ensures that all taxpayers, particularly relatively high income individuals, pay a fair share of taxes. Note that there are few taxpayers that are affected by the AMT. top

Amalgamation
An amalgamation involves the complete merging of the assets, liabilities, and shareholdings of two or more corporations. All the former corporations cease to exist and a new corporation is born. In effect, all the amalgamated corporations have disposed of their assets to a new corporation and all the shareholders have disposed of their shares in the former corporations in exchange for shares in the new corporation. top

Amortizable costs
The amortizable cost is the total amount of amortization to be recognized over the useful life of the asset. Generally, this cost will be cost less residual value. top

Amortization
Amortization is an accounting allocation of the cost of capital goods that is deducted as an expense in computing net profits. top

Amortization period of loans
The amortization period of loans is a hypothetical period over which a loan is to be repaid; it is used as a basis for calculating periodic repayments. Note that the amortization period may be longer than the actual term of the loan. top

Analytical procedures
Analytical procedures are procedures used in the audit evaluation of financial statement accounts by studying and comparing relationships among financial and non-financial data. top

Analytical procedures risk
Analytical procedures risk is the probability that analytical procedures will fail to detect material errors. top

Announcement date (options)
The announcement date is the date on which the issue of options is announced. top

Annuity
An annuity is a series of constant payments made at uniform time intervals. top

Annuity due
An annuity due is a payment or receipt stream in which the payments (or receipts) occur at the beginning of each interest-compounding period. top

Anti-dilutive element
An anti-dilutive element, in the calculation of fully diluted EPS, is a security or option that would have the effect of increasing EPS if converted; such instruments are excluded from the calculation of fully-diluted EPS. top

Application description (computer systems)
The application description, in computer systems documentation, consists of systems flowcharts, description of all inputs, and outputs, record formats, lists of computer codes, and control features. top

Appraisal costs
Appraisal costs are costs incurred in detecting which of the individual units in a production run do not conform to specification. This is a section of the quality costing report. top

Appropriated retained earnings
Appropriated retained earnings is a subaccount of retained earnings caused by a discretionary management decision to apportion retained earnings for a specific purpose. top