Financial Glossary

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N ( 56 DEFINITIONS )

nadequacy
Inadequacy is a condition in which the capacity of plant assets becomes too small for the productive demands of the business. top

Nash equilibrium
The Nash equilibrium is the only strategy pair such that given the strategy choice of the other player, each player is content with his or her strategy and therefore has no incentive to change his or her play. top

Natural business year
The natural business year of a business is the 12 months ending when the activities of the business are at their lowest point. top

Natural hedge
A natural hedge is created when institutions coordinate the duration, value, etc. of financial assets with financial liabilities to offset any changes in values. top

Nature (of audit procedures)
The nature of audit procedures refers to the seven general procedures: recalculation, physical observation, confirmation, verbal enquiry, document examination, scanning, and analytical procedures. top

Negative assurance
Negative assurance would be written as follows: "Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles." This level of assurance is only permitted in reviews of unaudited financial statements, letters to underwriters, and reviews of interim financial information. top

Negative goodwill
Negative goodwill in a consolidation accounted for as a purchase is when the purchase price is less than the fair market value of acquired assets. The amount is assigned to non-monetary assets. top

Negative leverage
Negative leverage occurs when a company earns less on equity than the rate of return on assets because of the presence of debt, with a cost in excess of the return on assets, in the capital structure. top

Net assets
Net assets are total assets less total liabilities. It is also known as owner's equity. top

Net basis of recording leases
The net basis of recording leases on the lessor or lessee's books is when the lease receivable (payable) is recorded net of interest. This means that the total payments are discounted to present value. This is common for lessees. top

Net book value
Net book value is the original cost of an asset plus any capitalized post-acquisition cost less accumulated amortization to date. top

Net capital losses
Net capital losses are the excess of allowable capital losses over taxable capital gains for that year. Allowable capital losses can only be deducted against taxable capital gains. As such, when there are net capital losses they may be carried back three years and forward indefinitely to offset the excess of taxable capital gains over allowable capital losses for those years. top

Net income
Net income is the excess of revenues over expenses for a period. top

Net income (for tax purposes)
Net income is used to designate income as calculated under section 3 of the ITA. It serves to distinguish income for tax purposes pursuant to section 3 from its various components, as identified by their source (employment income, business income, property income, capital gains, and income from other sources). The concept of net income for tax purposes encompasses the whole income measurement process, which includes additions, deductions and exemptions, and the period for the computation. top

Net loss
Net loss is the excess of expenses over revenues for a period. top

Net present value (NPV)
The net present value (NPV) of an investment is equal to the present value of the net cash flows from that investment minus the net cost of the investment. The two important factors to consider when calculating an investment's NPV are the appropriate interest rate factor to use and the determination of the cash flows. top

Net realizable value (NRV)
The net realizable value (NRV) is the amount of funds expected to be received upon the sale or liquidation of an asset net of incremental expenses. top

Net worth
Net worth is defined as total assets minus total liabilities. In a corporation, net worth is capital stock plus retained earnings. top

Neutrality
Neutrality occurs when the information provided is not reflective of a particular viewpoint, a predetermined result, or a particular person's opinion. top

Neutrality (for tax purposes)
Neutrality means that the tax system should not influence the allocation of resources within the private sector; it must not affect the business or investment decisions of taxpayers. top

Nexus of contracts
A nexus of contracts is the concept that means that firms are thought of as a series of related contracts. top

No-par shares
No-par shares are shares that do not carry a designated or assigned value per share; therefore, no discount or premium is recognized. The entire amount of the proceeds received by the company is credited to share capital. top

Noise traders
Noise traders are participants in financial markets who do not employ all publicly available information. They trade for reasons other than that provided by publicly available information. For example, retirement might trigger the sale of stock regardless of the current information about that stock. top

Nomenclature
Nomenclature refers to the terms used to refer to different parts of a provision within the ITA; it also reflects the structure of each section of the ITA. top

Nominal accounts (temporary accounts)
Nominal accounts are general ledger accounts closed to retained earnings at the end of an accounting period. These are usually income statement accounts. top

Nominal dollar capital maintenance
Nominal dollar capital maintenance is the concept that income results only after preserving financial capital in dollars. The closing amount of net financial assets must exceed the amount at the start before income is present. top

Nominal interest rate
The nominal interest rate is the interest rate stated in a loan agreement or on the face of a debt security. It is the rate at which interest is paid on the stated principal. top

Non-arm's length transactions
Non-arm's length transactions are transactions between related persons. They can also be transactions between persons who are unrelated but who do not deal with each other at arm's length. The ITA requires that transactions between taxpayers be carried on as they would on the open market under normal market conditions. top

Non-controlling interest (minority interest)
A non-controlling interest is when a company controls a subsidiary but does not own 100% of the voting shares. It still includes 100% of the net assets and net income in the consolidated financial statements. The non-controlling interest in earnings is the portion of the subsidiary's earnings that accrue to the other, minority shareholders. The non-controlling interest in assets (a balance sheet credit) is the portion of net assets that represents the minority shareholders' interest. top

Non-cooperative games
In non-cooperative games, the parties do not have the option of entering into a binding agreement therefore any agreement made can be broken by either party. top

Non-cumulative preferred shares
Non-cumulative preferred shares are preferred shares on which the right to receive dividends is forfeited for any year that the dividends are not declared. top

Non-current liability
A non-current liability is the same as a long-term liability. It is a liability due or payable beyond the next operating cycle or fiscal year. top

Non-depreciable property
Non-depreciable property includes all property that does not decrease in value through wear and tear for the purpose of earning income and, therefore, it is not eligible for CCA under the ITA. Such property includes land, receivables, inventory, investments, personal use property, and listed personal property. top

Non-interest bearing notes
Non-interest bearing notes are notes with no stated interest rate, usually with face values higher than the amount borrowed. top

Non-monetary assets and liabilities
Non-monetary assets and liabilities are assets or liabilities whose value is not fixed in terms of dollars. An example would be warranty liability. The actual amount of the liability cannot be known in advance. It is estimated for financial statement purposes. top

Non-proprietary information
Non-proprietary information is information that does not directly affect a firm's cash flows. An example would include financial statement information. top

Non-public company
A non-public company is a company with less than $5 million in assets and fewer than 500 shareholders. They are not required to register and file reports under the Exchange Act. top

Non-public offering
A non-public offering, also called private placement, is the sale of securities to a small number of persons or institutional investors (usually not more than 35) who can demand and obtain sufficient information without the formality of registration. top

Non-reciprocal transfer
A non-reciprocal transfer is a transfer or transaction in which the firm either transfers resources or receives resources. An example would be payment of a cash dividend. top

Non-recourse factoring (of accounts receivable)
The non-recourse factoring of accounts receivable is when the risk of non-payment on factored accounts receivable is assumed by the finance company. In the event that accounts cannot be collected in full, the financing company must absorb the loss. Since risk is transferred, the vendor company will not show the receivable or a liability on its financial statements. top

Non-resident
A non-resident is a person who usually resides outside Canada who has no social or economic ties within Canada. A non-resident person is liable for Part I tax only if he was employed in Canada, carried on a business in Canada, or disposed of a taxable Canadian property. A non-resident may be liable for Canadian tax on other types of income, such as interest, dividends, pension income, and so on under Part XIII of the ITA. top

Non-sampling risk
Non-sampling risk comprises all risk other than sampling risk. top

Non-statistical sampling
Non-statistical sampling is audit sampling in which auditors do not utilize statistical calculations to express the results. top

Non-trade receivable
A non-trade receivable is cash due to a corporation from transactions other than the sale of goods or services. top

Non-value-added activity
A non-value-added activity is an activity that consumes resources or takes time, but does not add value for which customers are willing to pay. top

Normal cost system
A normal cost system is the system of applying overhead cost to jobs by multiplying activity times the predetermined overhead rate. top

Normal service cost
Normal service cost is the same as current service cost. It is the actuarial present value of pension entitlement earned by the employee in a given year. It is part of pension expense. top

Normalized overhead rate
A normalized overhead rate is a rate based on the average activity of many periods - past and present - rather than based only on the expected activity of the current period. top

Normative theories
Normative theories are theories that tell individuals or constituents what they should do. top

Notes payable
Notes payable are an obligation to repay money or other assets evidenced by a signed contractual agreement or note. top

Notes receivable
Notes receivable are amounts due to a corporation because of purchases of goods or services on credit or a loan arrangement that must be evidenced by a legal document called a note. top

Notice of Assessment
Upon assessing a tax return filed by a taxpayer, CCRA issues a Notice of Assessment that either confirms the tax return is assessed as filed, or if CCRA made changes, an explanation is included on the assessment. It also details the assessed taxes and penalties and interest, if any, the amount of tax paid by the taxpayer, and any balance owing. top

Notice of Objection
A Notice of Objection is a means of objecting to an assessment and disputing it if a taxpayer does not agree with the assessment or reassessment issued by CCRA. For individuals, a Notice of Objection must be filed in writing the later of one year after the required due date of the return and 90 days after the mailing date on the Notice of Assessment or Reassessment. For all other taxpayers, the Notice of Objection must be filed by 90 days following the mailing date on the Notice of Assessment or Reassessment. top

Notice of Reassessment
A Notice of Reassessment is issued by CCRA if changes were made to the taxpayer's tax return, either by the taxpayer or CCRA, subsequent to the issuance of the Notice of Assessment. It compares the previous assessment with the reassessed values and explains the respective changes. top

Notwithstanding
Notwithstanding means that the stated provision in the ITA that follows "notwithstanding" is not to be considered in interpreting the balance of the provision. The equivalent in everyday language is "in spite of." top

NSF cheque
An NSF cheque is a cheque from a customer deposited by a company which has been returned because of "not sufficient funds" in the customer's account. top