Category: Dictionary (Accounting, Tax, Auditing)

Monetary Items:​ Definite fixed amounts stated in terms of dollars, either by law or by contract agreement.

Modified Accelerated Cost Recovery System:​ A mandatory system of DEPRECIATION for income tax purposes, enacted by Congress in 1986.

Modeling:​ Designing and manipulating a mathematical representation of an economic system or corporate financial application so that the effect of changes can be studied and forecast.

Mixed Costs:​ Costs that result when both VARIABLE COSTS and FIXED COSTS are charged to the same GENERAL LEDGER account.

Microeconomics:​ Study of the behavior of basic economic units such as companies, industries, or households.

Microeconomic Pricing Model:​ An accounting model that is based on the economic theory that profit will be greater when the difference between total revenue and TOTAL COST is the greatest.

Merchandise:​ Items that can be bought or sold; commercial goods.

Maturity:​ The time at which payment of a loan or BOND becomes due.

Materials Inventory Account:​ An INVENTORY account made up of the balances of materials, parts, and supplies on hand at a given time.

Matching Principle: A fundamental concept of basic accounting. In any one given accounting period, you should try to match the revenue you are reporting with the expenses it took to generate that revenue in the same time period, or over the periods in which you will be receiving benefits from that expenditure. A simple example is depreciation expense. If you buy a building that will last for many years, you don’t write off the cost of that building all at once. Instead, you take depreciation deductions over the building’s estimated useful life. Thus, you’ve “matched” the expense, or cost, of the building with the benefits it produces, over the course of the years it will be in service.

Married Taxpayers: Taxpayers that are married may file a JOINT RETURN, therefore combining their INCOME and expenses. Individuals will be considered married if:
1. They are living as husband and wife;
2. They are recognized living as common law marriage; or
3. Legally married but separated and living apart but not legally divorced.
Marriage is determined as of the last day of the tax year.

Markup: The amount added to the price of a product by a retailer to arrive at a selling price.

Marketing: Moving goods and services from the provider to consumer.

Manufacturing Overhead: Another term for FACTORY OVERHEAD COSTS.

Marketable Securities: Stocks and other negotiable instruments which can be easily bought and sold on either listed exchanges or over-the-counter markets.

Market Share: Percentage of industry sales of a particular COMPANY or product.

Market Interest Rate: The rate of interest paid in the MARKET on BONDS of similar risk.

Market Index: Numbers representing weighted values of the components that make up the INDEX.

Market: Public place where products or services are bought and sold, directly or through intermediaries.

Markdown: Amount subtracted from the selling price, when a customer sells SECURITIES to a DEALER in the OVER-THE-COUNTER market.

Mark-to-Market: Method of valuing ASSETS that results in adjustment of an asset’s carrying amount to its market value.

Marginal Tax Rate: Amount of tax imposed on an additional dollar of income.

Manufacture: To make or process (a product), especially by using machines.

Manipulation: Buying or selling a SECURITY to create a false appearance of active trading and thus influence other investors to buy or sell shares.

Management’s Report: Management is required to include in its annual report its assessment of the effectiveness of the company’s internal control over financial reporting in addition to its audited financial statements as of the end of the most recent fiscal year.

Management Discussion and Analysis (MD&A) : SEC requirement in financial reporting for an explanation by management of significant changes in operations, ASSETS, and LIQUIDITY.

Management: Combined fields of policy and administration and the people who provide the decisions and supervision necessary to implement the owner’s business objectives and achieve stability and growth.

Macroeconomics: Analysis of a nation’s economy as a whole, using such aggregate data as price levels, unemployment, INFLATION, and industrial production.

Lower of Cost or Market: Valuing ASSETS for financial reporting purposes. Ordinarily, “cost” is the purchase price of the asset and “market” refers to its current replacement cost. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) requires that certain assets (e.g., INVENTORIES) be carried at the lower of cost or market.

Loss on Disposal of Plant and Equipment: The account in which a LOSS is recorded when a firm sells or trades in an ASSET and receives an amount less than the BOOK VALUE for that asset.

Loss: Excess of EXPENDITURES over REVENUE for a period or activity. Also, for tax purposes, an excess of basis over the amount realized in a transaction.

Long-Term Loss: Negative counterpart to LONG-TERM GAIN as defined by the same legislation.

Long-Term Gain: Subsequent to the Tax Reform Act of 1984 and prior to provisions of the Tax Reform Act of 1986 effective in 1988, a gain on the sale of a capital asset where the HOLIDNG PERIOD was six months or more and the profit was subject to the LONG-TERM CAPITAL GAINS tax.

Long Term: HOLDING PERIOD of six months or longer, according to the Tax Reform Act of 1984 and applicable in calculating the CAPITAL GAINS tax until 1988.

Long Bond: BOND that matures in more than 10 years.

Loan Value: Amount a LENDER is willing to LOAN against COLLATERAL.

Loan: Transaction wherein an owner of property, called the LENDER allows another party, the borrower, to use the property.

Litigation Support/Dispute Resolution: A service that CPAs often provide to attorneys – e.g., expert testimony about the value of a business or other asset, forensic accounting (a partner stealing from his other partners, or a spouse understating his income in a matrimonial action). The lawyer hires the CPA to do the investigation and determine the amount of money stolen or understated.

Listed Property: Limits are imposed on the DEPRECIATION deduction a taxpayer may claim on certain listed property as follows:
1. A passenger car;
2. Other property used as transportation;
3. Property used for purposes of entertainment, recreation, or amusement;
4. A computer and peripheral equipment; and
5. Cellular telephone.

Liquidity: Available money on hand to pay bills when they are due and to take care of unexpected needs for CASH.

Liquid Assets: Cash, cash equivalents, and marketable SECURITIES.

Limited Liability Partnership (LLP): GENERAL PARTNERSHIP which, via registration with an appropriate state authority, is able to enshroud all its partners in LIMITED LIABILITY. Rules governing LLPs vary significantly from state to state.

Limited Liability Company (LLC): Form of doing business combining LIMITED LIABILITY for all owners (called members) with taxation as a PARTNERSHIP. An LLC is formed by filing ARTICLES OF ORGANIZATION with an appropriate state official. Rules governing LLCs vary significantly from state to state.

Limited Liability: The obligation of owners of a CORPORATION, who are liable only for the amount of their INVESTMENT and are not liable for the corporation’s DEBTS.

Limited Company: A COMPANY, usually registered in the United Kingdom, that is organized to protect its owners from financial responsibility.

LIFO Liquidation: The reduction of INVENTORY levels at year’s end below beginning-of-the-year levels for businesses using the LAST IN, FIRST OUT (LIFO) inventory method.

Lifetime Learning Credit: This allows a credit for 20 percent of qualified tuition and fees paid by the taxpayer with respect to one or more students for any year that the HOPE SHCOLARSHIP CREDIT is not claimed.

Life Expectancy: Age to which an average person can be expected to live, as calculated by an ACTUARY.

Lien: CREDITOR’s claim against property. For example a MORTGAGE is a lien against a house.

Liability: DEBTS or OBLIGATIONS owed by one entity (DEBTOR) to another entity (CREDITOR) payable in money, goods, or services.

Leveraged Lease: Transaction under which the LESSOR borrows funds to acquire property which is leased to a third party. The property and lease rentals are security for the LESSOR’S indebtedness.

Leveraged Buy Out: Acquisition of a controlling INTEREST in a company in a transaction financed by the issuance of DEBT instruments by the acquired entity.

Leverage: The use of borrowed funds to increase the profit from an investment.

Letter of Intent: Any letter expressing an intention to take an action, sometimes subject to other action being taken.

Letter of Credit: Conditional bank commitment issued on behalf of a customer to pay a third party in accordance with certain terms and conditions. The two primary types are commercial letters of credit and standby letters of credit.

Lessor: Owner of property, the temporary use of which is transferred to another (LESSEE) under the terms of a LEASE.

Lessee: Person or entity that has the right to use property under the terms of a LEASE.

Lending Securities: SECURITIES borrowed from a broker’s INVENTORY, other MARGIN accounts, or from other brokers, when a customer makes a short sale and the securities must be delivered to the buying customer’s broker.

Lender: Individual or firm that extends money to a borrower with the expectation of being repaid, usually with INTEREST.

Leasehold: Property INTEREST a LESSEE owns in the leased property.

Lease-Purchase Agreement: Agreement providing that portions of lease payments may be applied toward the purchase of the property under lease.

Lease: Conveyance of land, buildings, equipment or other ASSETS from one person (LESSOR) to another (LESSEE) for a specific period of time for monetary or other consideration, usually in the form of rent.

Lay Off: Reduce the risk in standby commitment, under which the bankers agree to purchase and resell to the public any portion of a stock issue not subscribed to by shareowners who hold rights.

Last In, First Out (LIFO): ACCOUNTING method of valuing inventory under which the costs of the last goods acquired are the first costs charged to expense. Commonly known as LIFO.

Land: Property; real estate.

Laissez-Faire: Doctrine that interference of government in business and economic affairs should be minimal.

Labor: Physical or mental effort; work.

Key Industry: Industry of primary importance to a nation’s economy.

Key Employee: For purposes of rules that apply to top heavy plans, a key employee:
1. An officer of the employer earning more than $130,000;
2. An individual who owns more than 5 percent of the employer;
3. An individual who owns more than 1 percent of the employer and compensation greater than $150,000.

Keogh Plan: Also known as an HR 10, this is a qualified retirement plan for self employed who do not incorporate their business. If qualifications are met the taxpayer may receive a deduction for contributions made.

Junk Bonds: DEBT SECURITIES issued by companies with higher than normal credit risk. Considered “non-investment grade” bonds, these SECURITIES ordinarily yield a higher rate of interest to compensate for the additional risk.

Journal Entry: A notation in the GENERAL JOURNAL. It records a single transaction.

Joint Return: A return filed by married taxpayers or surviving spouses.

Jeopardy: If the IRS believes that collection of tax appears to be in jeopardy (danger of being uncollected), it may immediately assess and collect such tax. The intermediate steps are bypassed.

Issuer: This term means an issuer, the securities of which are registered under Section 12 of the Securities Exchange Act of 1934, or that is required to file reports under Section 15(d) of that Act, or that files or has filed a registration statement with the SEC that has not yet become effective under the Securities Act of 1933 and that it has not withdrawn.

Issued and Outstanding: Shares of a CORPORATION, authorized in the corporate charter, which have been issued and are outstanding.

Issue: Stock or BONDS sold by a CORPORATION or a government entity at a particular time.

Involuntary Conversions: This is a conversion of property where it is in whole or part destroyed, stolen, seized, requisitioned or condemned (or where there is a threat or imminence of requisition or condemnation).

Invoice: Bill prepared by a seller of goods or services and submitted to the purchaser.

Investment Tax Credit: This is a component of the general business credit and consists of the following:
1. The energy credit;
2. The rehabilitation credit; and
3. The reforestation credit.

Investment Income: Income from SECURITIES and other non-business investments; such as DIVIDENDS, INTEREST, etc.

Investment Banker: Firm, acting as underwriter or agent, that serves as intermediary between an issuer of SECURITIES and the investing public.

Investment: EXPENDITURE used to purchase goods or services that could produce a return to the investor.

Investing: The practice of putting money into something, such as property, in order to earn INTEREST or make a profit.

Invest : The procedure for converting the INCOME STATEMENT from an ACCRUAL to a CASH BASIS.

Inventory Turnover: A ratio used to indicate the number of times a COMPANY’s average inventory is sold during an accounting period.

cIntrinsic Value: Valuation determined by applying data inputs to a valuation theory or model.

International Mutual Fund: MUTUAL FUND that invests in SECURITIES markets throughout the world so that if one market is in a slump, money can still be made in others.

International Accounting Standards Committee (IASC): An independent private sector body, formed in 1973, with the objective of harmonizing the accounting principles which are used in businesses and other organizations for financial reporting around the world. Its members are 143 professional accounting bodies in 104 countries.

Internal Revenue Service (IRS): Federal agency that administers the INTERNAL REVENUE CODE. The IRS is part of the United States TreasuryDepartment.

More about Internal Revenue Code: Collection of tax rules of the federal government. Also referred to as Title 26 of the United States Code.

Internal Control Over Financial Reporting: A process designed by, or under the supervision of the company’s principal executive and principal financial officers or persons performing similar functions and effected by the company’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES and includes those policies and procedures that:
1. Pertain to the maintenance of records that accurately and fairly reflect the transactions and dispositions of the assets of the company.
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company.
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Interest Rate: An amount of money charged for borrowing money or paid for the use of somebody else’s money.

Interest Coverage Ratio: A way of measuring the degree of protection that a CREDITOR has from a DEBTOR’s DEFAULT on interestpayments.

Insured Account: Account at a bank, savings and loan association, credit union, or brokerage firm that belongs to a federal or private insurance organization.

Insurance: System whereby individuals and companies that are concerned about potential hazards pay premiums to an insurance company, which reimburses them in the event of loss.

Instrument: A legal document used for a specific purpose, such as paying for goods received.

Institute of Management Accounts (IMA): A professional organization made up primarily of management accountants.

Installment Method: Tax ACCOUNTING method of reporting GAIN on the sale of an ASSET exchanged for a RECEIVABLE. In general, the gain is reported as the note is paid off.

Insolvent: When an entity’s LIABILITIES exceed its ASSETS.