Accounting Dictionary - 8 - ASS
ANGEL INVESTOR is a private wealthy individual that has no
<blockquote class="postcontent restore">association with a venture capital firm, investment fund, etc. The
"angel" invests his/her private money into what he/she believes to be
promising opportunities, i.e., normally startup companies. Sometimes two
or more "angels" will jointly invest into opportunitites to spread the
ANNUALIZE is a statistical technique whereby figures covering a period
of less than one year are extended to cover a 12-month period. The
technique, to be accurate, must take seasonal variations into
ANNUAL REPORT is the requirement for all public companies to file an
annual report with the Securities and Exchange Commission detailing the
preceding year's financial results and plans for the upcoming year. Its
regulatory version is called "Form 10 K." The report contains financial
information concerning a company's assets, liabilities, earnings,
profits, and other year-end statistics. The annual report is also the
most widely-read shareholder communication.
ANNUITY, in finance, is a series of fixed payments, usually over a fixed
number of years; or for the lifetime of a person, in which case it
would be called a life-contingent annuity or simply life annuity.
ANOMALY, generally, is a deviation from the common rule. It is an
irregularity that is difficult to explain using existing rules or
theory. In securities, it is an unexplained or unexpected price or rate
relationship that seems to offer an opportunity for an arbitrage-type
profit, although not typically without risk. Examples include the
tendency of small stocks to outperform large stocks, of stocks with low
price-to-book value ratios to outperform stocks with high price-to-book
value ratios, and of discount currency forward contracts to outperform
premium currency forward contracts.
AP is Accounts Payable.
APIC is an acronym for Additional Paid-In-Capital (finance/business).
APPLIED RESEARCH is designed to solve practical problems of the modern
world, rather than to acquire knowledge for knowledge's sake.
APPORTION is to divide and share out according to a plan.
APPRECIATION is the increase in the value of an asset in excess of its
depreciable cost, which is due to economic, and other conditions, as
distinguished from increases in value due to improvements or additions
made to it.
APPROPRIATE / APPROPRIATED / APPROPRIATION is distribution of net income
to various accounts and / or the allocation of retained earnings for a
designated purpose, e.g. plant expansion.
AR is Accounts Receivable.
ARBITRAGE is the movements of funds to take advantage of differences in
exchange or interest rates; such movements quickly eliminate any such
ARGUMENT IN ACCOUNTING usually revolves around the premise that
characterizes fair values of assets as being more relevant but less
reliable than their historical costs, with fair value being ultimately
more informative only if its increased relevance outweighs its reduced
ARM’S LENGTH TRANSACTION is a transaction that is conducted as though
the parties were unrelated, thereby avoiding any semblance of conflict
ARR is an acronym for Accounting Rate of Return.
ARTICLES OF INCORPORATION is the primary legal document of a
corporation; they serve as a corporation's constitution. The articles
are filed with the state government to begin corporate existence. The
articles contain basic information on the corporation as required by
ARTICLES OF PARTNERSHIP is the contract creating a partnership.
ARTICULATION, in business, is the shape or manner in which things come
together and a connection is made. In the spoken word, it is expressing
in coherent verbal form.
ASB see ACCOUNTING STANDARDS BOARD.
ASEAN (Association of Southeast Asian Nations) is a trading block of
countries in SE Asia. Originally formed as an anti-communist military
alliance, it is now focused on developing a free trade agreement among
AS-IS CONDITION is the transfer of title to a property in an existing condition with no warranties or representations.
ASK PRICE, in the context of the over-the-counter market, the term "ask"
refers to the lowest price at which a market maker will sell a
specified number of shares of a stock at any given time. The term "bid"
refers to the highest price a market maker will pay to purchase the
stock. The ask price (also known as the "offer" price) will almost
always be higher than the bid price. Market makers make money on the
difference between the bid price and the ask price. That difference is
called the "spread".
ASSESSED VALUE is the estimated value of property used for tax purposes.
ASSESSMENT is a. proportionate share of a shared expense; or, b. amount
of tax or other levied special payment due to a governmental
municipality or association.
ASSET is anything owned by an individual or a business, which has
commercial or exchange value. Assets may consist of specific property or
claims against others, in contrast to obligations due others. (See also
ASSET AVAILABILITY is the stated condition or availability of an asset
for usability. The subject asset is not available if it is already in
use, at capacity, undergoing maintenance, broken, etc.
Accounting Dictionary - 9 -AUD
ASSET EARNING POWER is a common profitability measure used to
<blockquote class="postcontent restore">determine the profitability of a business by taking its total earning
before taxes and dividing that by total assets.
ASSET REVALUATION RESERVE is an accounting concept and represents a
reassessment of the value of a capital asset as at a particular date.
The reserve is considered a category of the equity of the entity. An
asset is originally recorded in the accounts at its cost and depreciated
periodically over its estimated useful life as a measure of the amount
of the asset's value consumed in that period. In practice, the actual
useful life of an asset can be miscalculated or an event can cause a
change to the useful life. Consequently, assets occasionally need to be
revalued in order to reflect a more close approximation to their "worth"
in the accounts. When the asset is revalued, the offsetting entry (in a
double entry accounting system) would be either made to the profit or
loss accounts or to the equity of the entity.
ASSET REVERSION is asset recovery by the sponsoring employer through
termination of a defined benefit pension fund and/or of assets in excess
of amounts required to pay accrued benefits of a pension fund. In the
U.S., assets recovered through reversion are subject to corporate income
tax and an excise tax.
ASSET SALE is the sale of certain named assets of a corporation,
partnership or sole proprietorship. Usually the seller retains ownership
of the cash and cash equivalents (such as Accounts Receivable) and the
liabilities of the entity. The seller then will pay the liabilities with
the cash, any down payment and the cash equivalents as they become
cash. Assets named are typically trade name, trade fixtures, inventory,
leasehold rights, telephone number rights and goodwill. Assets sold can
be tangible or intangible.
ASSETS HELD FOR SALE are those assets, primarily long-term assets, that
an entity wishes to dispose of or liquidate through sale to others.
ASSET TURNOVER RATIO is a general measure of a firm's ability to
generate sales in relation to total assets. It should be used only to
compare firms within specific industry groups and in conjunction with
other operating ratios to determine the effective employment of assets.
ASSIGNED VALUE is a value that serves as an agreed-upon reference for
comparison; normally derived from or based upon experimental work of
some national or international organization.
ASSOCIATE, in business, is a person brought together with a company or
another person into a relationship in any of various intangible ways.
ASSUMPTION, generally, is one or more beliefs or unconfirmed facts that
contribute to a conclusion. Specifically, it is the act of taking on the
responsibility or assuming the liabilities of another.
ASSURANCE has been defined by the American Institute of Certified Public
Accountants (AICPA) as "Independent Professional Services that improve
information quality or its context". Such services are very broad and
could include assessments of various industries, e.g., Internet security
or quality of health facilities.
ATA (Accredited Tax Advisor), in the US, is a national credential
conferred by Accreditation Council for Accountancy and Taxation to
professionals who handle sophisticated tax planning issues, including
ownership of closely held businesses, qualified retirement plans and
ATP is an acronym for After Tax Profit, Accredited Tax Preparer, and possibly more.
ATP (Accredited Tax Preparer), in the US, is a national credential
conferred by Accreditation Council for Accountancy and Taxation to
professionals who have a thorough knowledge behind the existing tax code
and tax preparation of individuals, corporate and partnership tax
ATTEST is to authenticate, affirm to be true, genuine, or correct, as in an official capacity.
ATTRITION a reduction in numbers usually as a result of resignation, retirement, or death.
AUDIT is the inspection of the accounting records and procedures of a
business, government unit, or other reporting entity by a trained
accountant for the purpose of verifying the accuracy and completeness of
the records. It could be conducted by a member of the organization
(internal audit) or by an outsider (independent audit). A CPA audit
determines the overall validity of financial statements. A tax audit
(IRS in the U.S.) determines whether the appropriate tax was paid. An
internal audit generally determines whether the company’s procedures are
followed and whether embezzlement or other illegal activity occurred.
AUDIT BUREAU OF CIRCULATION (ABC) is a third-party organization that
verifies the circulation of print media through periodic audits.
AUDIT COMMITTEE, in a larger or more sophisticated corporation, the
board may find it useful to appoint an audit committee whose oversight
extends not only to external audits, but also to internal audits,
internal controls, and external reporting. Ideally, an audit committee
is composed of three to five non-management directors and, as needed,
outsiders with accounting and financial expertise. In a smaller
corporation the audit committee may be a single director with financial
expertise and audit experience who takes the lead in exercising the
board's audit oversight responsibility.
AUDIT EVIDENCE includes written and electronic information (such as
checks, records of electronic fund transfers, invoices, contracts, and
other information) that permits the auditor to reach conclusions through
AUDIT FAILURE is an Instance where the auditor said that the financial
statements were fairly stated when in fact, they were not.
AUDITING STANDARDS provide minimum guidance for the auditor that helps
determine the extent of audit steps and procedures that should be
applied to fulfill the audit objective. They are the criteria or
yardsticks against which the quality of the audit results are evaluated.
</blockquote> Accounting Dictionary - 10 - AVO
AUDIT OPINION LETTER is a signed representation by an auditor as to
<blockquote class="postcontent restore"> the reliability and fairness of a set of financial statements. It is
usually presented at the beginning of an audit report.
AUDITOR is an accountant usually certified by a national professional
association of accountants, if one exists in the corporation’s country,
or certified by another country's recognized national association of
accountants. Corporations will often work with both internal auditors
and external auditors.
AUDIT PLAN/PLANNING is developing an overall strategy for the expected
conduct and scope of the audit. The nature, extent, and timing of
planning varies with the size and complexity of the entity, experience
with the entity, and knowledge of the entity's business.
AUDIT REPORT is a signed, written document which presents the purpose,
scope, and results of the audit. Results of the audit may include
findings, conclusions (opinions), and recommendations.
AUDIT RISK is a combination of the risk that material errors will occur
in the accounting process and the risk the errors will not be discovered
by audit tests. Audit risk includes uncertainties due to sampling
(sampling risk) and to other factors (non-sampling risk).
AUDIT SCHEDULES are the information formats developed by the external
auditors to guide the corporation in the preparation of particular
information presented in a particular manner that facilitates the audit.
These should always be completed by the corporation prior to the start
of the audit.
AUDIT SCOPE refers to the activities covered by an internal audit. Audit
scope includes, where appropriate: audit objectives; nature and extent
of auditing procedures performed; Time period audited; and related
activities not audited in order to delineate the boundaries of the
AUDIT STRATEGY is a game plan to attack audit issues before they are
raised. Reasons and justifications for all positions must be understood
and the foundation laid for taking the position.
AUTHORIZATION OF STOCK is the provision in a corporate charter giving permission to issue stock.
AUTHORIZATION SCHEDULE is the guideline under which the subject activity
is controlled and authorized. For example, expenditure spending may be
controlled by amounts and the managerial level required authorizing or
approving a preset trigger amount. As the amount increases over certain
preset levels, higher managerial authority is required for approval.
AUTHORIZED CAPITAL STOCK is the maximum number of shares of common stock
that can be issued under a company's Articles of Incorporation. Issued
shares are normally less than the number of authorized shares.
AUTHORIZED STOCK see AUTHORIZED CAPITAL STOCK.
AUXILIARY JOURNAL is a journal in which accounting information is stored
both before and after the transfer to the General Ledger.
AVAILABLE FOR SALE is a term that means exactly what is says, i.e. an
asset is available for purchase and transfer of ownership upon reaching
an agreed upon price.
AVAL is a term meaning inseparable from the financial instrument. This
gives a guarantee and is abstracted from the performance of the
underlying trade contract: Article 31 of the 1930 Geneva Convention of
the Bills Of Exchange states that the aval can be written on the bill
itself or on an allonge. US Banks are prohibited from avalizing drafts.
AVALIZOR is an institution or person who gives an aval.
AVERAGE AGE OF INVENTORY is calculated by the formula: 365 / inventory turnover.
AVERAGE COST is total cost for all units bought (or produced) divided by the number of units.
AVERAGE COST METHOD is using a weighted average cost for items in inventory rather than actual cost for each specific item.
AVERAGE SETTLEMENT PERIOD is calculated:
For Debtors = Trade Debtors X 365 days / Credit Sales
For Creditors = Trade Creditors X 365 days / Credit Purchases.
AVOIDABLE COST is the amount of expense that would not occur if a
particular decision were to be implemented (e.g., if an employee is laid
off at a company that is self-insured for unemployment compensation,
the avoidable cost is total direct salary less payments for unemployment
benefits plus savings in employee benefits).