Category: Dictionary (Accounting, Tax, Auditing)

Endorsement: The process by which the payee transfers ownership of a CHECK to a bank or another party by writing his or her name on the back of it.

Employee Stock Ownership Plan (ESOP): Stock bonus plan of an employer that acquires SECURITIES issued by the plan sponsor.

Emerging Issues Task Force (EITF): Assists the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and provides guidance on early identification of emerging issues affecting financial reporting and problems in implementing authoritative pronouncements.

Effective Tax Rate: Total income taxes expressed as a percentage of NET INCOME before taxes.

Effective Interest Rate: The rate of INTEREST actually paid or earned.

Effective Interest Method: A way of AMORTIZING BOND DISCOUNTS or PREMIUMS by applying a constant interest rate to the CARRYING VALUE of the BONDS at the beginning of each interest period.

Economics: The study of the ways goods and services are produced, transported, sold, and used.

Econometrics: Use of computer analysis and modeling techniques to describe in mathematical terms the relationship between key economic forces such as labor, capital, interest rates, and government policies, the test the effects of changes in economic scenarios.

<span style="color: #ff0000;Earnings Price Ratio: Relationship of EARNINGS PER SHARE (EPS) to current stock price.

Earnings Per Share (EPS): Measure of performance calculated by dividing the net earnings of a company by the average number of shares outstanding during a period.

Earned Income Tax Credit (EITC): A refundable tax credit for eligible low income workers, subject to computations based on qualifying children and phase in and phase out income levels.

Dutch Auction: Auction system in which the price of an item is gradually lowered until it meets a responsive bid and is sold.

Due Diligence: (1) Procedures performed by underwriters in connection with the issuance of a SECURITIES EXCHANGE COMMISSION (SEC) registration statement. These procedures involve questions concerning the company and its business, products, competitive position, recent financial and other developments and prospects. Also performed by others in connection with acquisitions and other transactions. (2) Requirement found in ethical codes that the person governed by the ethical rules exercise professional care in conducting his or her activities.

Due Date: Each governing agency and its forms scheduled reporting and most importantly payments have a required due date. It is this date that if most files timely may result in a penalty, fine, and commence interest charges.

Dual Dating: Dating of the ACCCOUNTANTS’ or AUDITORS’ REPORT when a subsequent event disclosed in the FINANCIAL STATEMENTS occurs after completion of the field work but before issuance of the report. For example, “January 3, 19xx, except for Note x, as to which the date is March 10, 19xx.”

Draft: Signed, written order by which one party (drawer) instructs another party (drawee) to pay a specified sum to a third party (payee).

Double-Entry Bookkeeping: Method of recording financial transactions in which each transaction is entered in two or more accounts and involves two-way, self-balancing posting. Total DEBITS must equal total CREDITS.

Double-Declining-Balance Depreciation Method (DDB): Method of ACCELERATED DEPRECIATION, approved by the INTERNAL REVENUE SERVICE (IRS), permitting twice the rate of annual DEPRECIATION as the STRAIGHT-LINE DEPRECIATION method.

Double Taxation: The act of taxing corporate earnings twice, once as the NET INCOME of the CORPORATION and once as the DIVIDENDS distributed to stockholders.

Documentation Completion Date: A complete and final set of audit documentation should be assembled for retention as of a date not more than 45 days after the report release date.

Dividends Yield: Used to measure the current return to an investor in a stock.

Dividends Payable: A LIABILITY for payment of a COMPANY’s earnings to its shareholders.

Dividends in Arrears: DIVIDENDS on cumulative PREFERRED STOCK that remain unpaid in the year they are due.

Dividend Payout Ratio: Percentage of earnings paid to shareholders in CASH.

Distributions: Payment by a business entity to its owners of items such as cash ASSETS, stocks, or earnings.

Distribution Expense: Expense of selling, advertising, and delivery of goods and services.

Dissolution: Termination of a CORPORATION.

Disposable Income: Personal INCOME remaining after personal taxes and noncommercial government fees have been paid.

Discretionary Trust: Arrangement in which the TRUSTEE has the authority to make INVESTMENT decisions and has control over investments within the framework of the TRUST instrument.services.

Discounted Cash Flow: Present value of future cash estimated to be generated.

Discount Yield: Yield on a SECURITY sold at a DISCOUNT.

Discount Bond: BOND selling below its REDEMPTION VALUE.

Discount: Reduction from the full amount of a price or DEBT.

Discontinued Operations: Portion of a business that is planned to be or is discontinued.

Disclosure: Process of divulging accounting information so that the content of FINANCIAL STATEMENTS is understood.

Disclaimer of Opinion: Statement by an AUDITOR indicating inability to express an opinion on the fairness of the FINANCIAL STATEMENTS provided and the reason for the inability. The auditor is required to disclaim depending on the limitation in scope.

Direct Overhead: Portion of OVERHEAD costs allocated to manufacturing, by the application of a standard factor termed a BURDEN RATE or OVERHEAD APPLICATION RATE.

Direct Labor Costs: The labor cost is for specific work that can be easily and economically traced to an end product.

Detective Controls: These have the objective of detecting errors or fraud that have already occurred that could result in a misstatement of the financial statements.

Detailed Income Statement: A complete and explicit statement of an economic entity’s financial activities and holdings.

Derivatives: Financial instruments whose value varies with the value of an underlying asset (such as a stock, BOND, commodity or currency) or index such as interest rates. Financial instruments whose characteristics and value depend on the characterization of an underlying instrument or asset.

Deposit Method: Expense allowance made for wear and tear on an ASSET over its estimated useful life.

Dependent Care Expenses: Qualified child care expenses will allow a taxpayer this computed credit against tax. The amounts can be found on the individual forms as the limitations and computation may change each tax year.

Demand Loan: Loan repayable on demand. Also known as a CALL LOAN.

Deflation: Decline in the prices of goods and services.

<span style="color: #ff0000"Defined Contribution Plan: See EMPLOYEE BENEFIT PLAN.

Deficiency in Operation: This exists when a properly designed control does not operate as designed, or when the person performing the control does not possess the necessary authority or qualifications to perform the control effectively.

Deficiency in Design: This exists when a control necessary to meet the control objective is missing or an existing control is not properly designed so that even if the control operates as designed, the control objective is not always met.

Deferred Payment Annuity: ANNUITY whose contract provides that payments to the annuitant be postponed until a number of periods have elapsed.

Deferred Interest Bond: BOND that pays INTEREST at a later date.

Deferred Income Taxes: ASSETS or LIABILITIES that arise from timing or measurement differences between tax and accounting principles.

Deferral: The postponement of the date that an expense already paid or incurred, or of a REVENUE already received, is entered in the LEDGER.

Defeasance: Annulment of a contract or deed; a clause within a contract or deed that provides for annulment.

Decedent: An accelerated method of depreciating a tangible long-lived ASSET by applying a fixed-rate based on some multiple of the STRAIGHT-LINE DEPRECIATION rate to its CARRYING VALUE.

Declare : Authorize the payment of DIVIDEND on a specified date, an act of the BOARD OF DIRECTORS of a CORPORATION.

Decedent: Individual who has died.

Debt-to-Equity Ratio : A way of measuring the relationship of DEBT financing to EQUITY FINANCING, or the extent to which a companyis leveraged.

Coupon: INTEREST rate on a DEBT SECURITY the ISSUER promises to pay to the holder until maturity, expressed as an annual percentage of FACE VALUE. INTEREST rate on a DEBT SECURITY the ISSUER promises to pay to the holder until maturity, expressed as an annual percentage of FACE VALUE.

Debt Security: Document which is evidence of an obligation or LIABILITY.

Debt Retirement: Repayment of DEBT.

Debt Instrument: Written promise to repay a DEBT.

Debt: General name for money, notes, BONDS, goods or services which represent amounts owed.

Debenture Stock: Stock issued under a contract providing for fixed payments at scheduled intervals and more like preferred stock than a DEBENTURE, since their status in liquidation is EQUITY and not DEBT.

Debenture: General DEBT obligation backed only by the integrity of the borrower and documented by an agreement called and INDENTURE.

Death Benefit: Amounts received under a life insurance contract and paid by reason of the death of the insured. (Although most death benefits are paid at termination of life, certain plans now pay accelerated death benefits while the insured is still alive, i.e.: an AIDS patient might possibly receive accelerated death benefit)

Dealer: Individual or firm acting as a principal in a securities transaction.

DDB: Method of ACCELERATED DEPRECIATION, approved by the INTERNAL REVENUE SERVICE (IRS), permitting twice the rate of annual DEPRECIATION as the STRAIGHT-LINE DEPRECIATION method.

Date of Auditors’/Accountants’ Report: Last day the AUDITORS perform fieldwork and the last day of responsibility relating to significant events subsequent to the financial statement date.

Current Yield: Annual INTEREST on a BOND divided by the market price.

Current Value: 1) Value of an ASSET at the present time as compared with the asset’s HISTORICAL COST. (2) In finance, the amount determined by discounting the future revenue stream of an asset using COMPOUND INTEREST PRINCIPLES.

Creditor: Party that loans money or other ASSETS to another party.

Credit Agreement: Arrangement in which one party borrows or takes possession in the present by promising to pay in the future.

Coverdell Education Savings Account (Education IRA): A tax exempt trust exclusively for the purpose of paying qualified higher education costs of the trusts designated beneficiary.

Coupon: INTEREST rate on a DEBT SECURITY the ISSUER promises to pay to the holder until maturity, expressed as an annual percentage of FACE VALUE.

Cost Basis: METHOD OF REVENUE RECOGNITION which recognizes profits after costs are completely recovered. Generally used only when the total amount of collections is highly uncertain. In tax, the ACCOUNTING METHOD used to depreciate ASSETS.

Corporate Bond: DEBT instrument issued by a private CORPORATION, as distinct from one issued by a government agency or a municipality.

Copyright: An exclusive right granted by the federal government to the possessor to publish and sell literary, musical, or other artistic materials for a period of the author’s life plus 50 years, including computer programs.

Convertible Stock : Stock that may be exchanged for other SECURITIES of the issuer.

Conversion : Exchange of a convertible security such as a BOND into another security such as a fixed number of shares of the issuing CORPORATION’s COMMON STOCK.

Controls Tests: Tests directed toward the design or operation of an internal control structure policy or procedure to assess its effectiveness in preventing or detecting material misstatements in a financial report.

Contract: In general, agreement by which rights or acts are exchanged for lawful consideration.

Contra-Liability Account: A deduction from a LIABILITY, such as discounts on notes payable, which is a deduction from the balance of notes payable.

Continuing Professional Education (CPE): Educational programs for CERTIFIED PUBLIC ACCOUNTANTS (CPAs) to keep informed on changes that occur within the profession. State Boards for Public Accountancy and the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) each have separate CPE requirements.

Continuing Operations:Portion of a business entity expected to remain active.

Contingency: An event that might happen but that is not likely or planned.

Consumer Goods: Goods bought for personal or household use, as distinguished from capital goods or producer’s goods, which are used to produce other goods.

Consolidated Financial Statements: Combined FINANCIAL STATEMENTS of a parent company and one or more of its subsidiaries as one economic unit

Constructive Receipt: A taxpayer is considered to have received the income even though the monies are not in hand, it may have been set aside or otherwise made available. An example is interest on a bank account.

Consistency: ACCOUNTING postulate which stipulates that, except as otherwise noted in the FINANCIAL STATEMENT, the same accounting policies and procedures have been followed from period to period by an organization in the preparation and presentation of its financial statements.

Comprehensive Income: An investment strategy aimed at long-term capital appreciation with low risk; moderate; cautious; opposite of aggressive behavior; show possible losses but wait for actual profits. Concept which directs the least favorable effect on net income.

Conservatism: An investment strategy aimed at long-term capital appreciation with low risk; moderate; cautious; opposite of aggressive behavior; show possible losses but wait for actual profits. Concept which directs the least favorable effect on net income.

Condensed Financial Statement: A FINANCIAL STATEMENT for external reporting that presents only the major categories of information.

Compound Interest Principles: Interest computed on principal plus interest earned in previous periods.

Complex Trust: A trust that is to be distinguished from a simple trust in the fact that it permits accumulation or distribution of current income during the tax year and provides for charitable contributions.

Compilation Report: See ACCOUNTANTS’ REPORT.

Compilation Engagement : Agreement between a CPA firm and its client to issue a COMPILATION REPORT.

Compensatory Balance: Funds that a borrower must keep on deposit as required by a bank.

Compensate: To pay or make payment for something.

Comparative Financial Statement: FINANCIAL STATEMENT presentation in which the current amounts and the corresponding amounts for previous periods or dates also are shown.

Company Level Controls: Controls that exist at the company level that have an impact on controls at the process, transaction, or application level.