These credit purchases help speed up commerce and increase sales because it allows customers to purchase items before they actually have the funds to buy them. Before a credit sale can be made, credit terms must be established.
Most terms are dictated by industry practices and the specific goods sold in those industries. So, what do Credit Terms Mean? In many Industries, working on Credit is common practice. Let's clarify our understanding of this with an example.
Pretty simple right! Here's how you would decipher the code -. Terms of Credit Code. Credit CR definition: An accounting entry that may either decrease assets or increase liabilities and equity on the company's balance sheet, depending on the transaction. When using the double-entry accounting method there will be two recorded entries for every transaction: A credit and a debit. Debit DR definition: An accounting entry where there is either an increase in assets or a decrease in liabilities on a company's balance sheet.
Diversification definition: The process of allocating or spreading capital investments into varied assets to avoid over-exposure to risk. Equity and owner's equity OE definition: In the most general sense, equity is assets minus liabilities. The owners of the stock are known as shareholders. Insolvency definition: A state where an individual or organization can no longer meet financial obligations with lender s when their debts come due.
Generally accepted accounting principles GAAP definition: A set of rules and guidelines developed by the accounting industry for companies to follow when reporting financial data. Following these rules is especially critical for all publicly traded companies.
General ledger GL definition: A complete record of the financial transactions over the life of a company. Liabilities current and long-term definition: A company's debts or financial obligations incurred during business operations. Current liabilities CL are those debts that are payable within a year, such as a debt to suppliers. Long-term liabilities LTL are typically payable over a period of time greater than one year.
An example of a long-term liability would be a multi-year mortgage for office space. This can shield business owners from losing their entire life savings if, for example, someone were to sue the company. Net income NI definition: A company's total earnings, also called net profit. Net income is calculated by subtracting total expenses from total revenues. Present value PV definition: The current value of a future sum of money based on a specific rate of return. See an example of the time value of money here.
Return on investment ROI definition : A measure used to evaluate the financial performance relative to the amount of money that was invested. The ROI is calculated by dividing the net profit by the cost of the investment. The result is often expressed as a percentage. See an example here. Roth IRAs are not tax-deductible; however, eligible distributions are tax-free, so as the money grows, it is not subject to taxes upon withdrawals.
Fund consisting of ASSETS where the holder agrees to remit the assets, income from the assets, or both, to a specified beneficiary in due course or at a specified time. The AICPA establishes ethical and auditing standards as well as standards for other services performed by its members. Through committees, it develops guidance for specialized industries. An alternative to formal litigation which includes techniques such as arbitration, mediation, and a non-binding summary jury trial.
Person in a brokerage house, bank trust dept. Substantive tests of financial information which examine relationships among data as a means of obtaining evidence.
Such procedures include: 1 comparison of financial information with information of comparable prior periods; 2 comparison of financial information with anticipated results e. Report to the stockholders of a company which includes the company's annual, audited BALANCE SHEET and related statements of earnings, stockholders' or owners' equity and cash flows , as well as other financial and business information.
The providing of various accounting or data-processing services by an accountant , the output of which is in the form of financial statements ostensibly to be used solely for internal management purposes. Explicit or implicit representations by an entity's management that are embodied in financial statement components and for which the AUDITOR obtains and evaluates evidential matter when forming his or her opinion on the entity's financial statements.
An economic resource that is expected to be of benefit in the future. Probable future economic benefits obtained as a result of past transactions or events. Anything of value to which the firm has a legal claim. Any owned tangible or intangible object having economic value useful to the owner. A way of measuring how profitably and efficiently assets are being used to produce sales.
This is determined by dividing net sales by average total assets. At a price equal to the face, or nominal, value of a security.
The written record of the basis for the AUDITOR 's conclusions that provides the support for the auditor's representations, whether those representations are contained in the auditor's report or otherwise. May be referred to as work papers or working papers. The risk that the AUDITOR may unknowingly fail to modify appropriately his or her opinion on financial statements that are materially misstated.
Maximum number of shares of any class a company may legally create under the terms of its articles of incorporation. The average number of days required to sell the current inventory of products available for sale.
It is found by dividing the number of days in a year by inventory turnover. A ratio that shows the average length of time it takes a company to receive payment for credit sales. A way of arriving at the cost of inventory that computes the average cost of all goods available for sale during a fixed period in order to determine the value of inventory. Payors of interest, dividends and other reportable payments must withhold income tax equal at a rate equal to the fourth lowest rate applicable to single filers if they fail to supply a federal id or if they fail to certify that they are not subject to it.
A periodic statement , usually monthly, that a bank sends to the holder of a checking account showing the balance in the account at the beginning of the month, during, and at the end of the month.
Average market price of a group of securities at a given time. The beta is the covariance of a stock in relation to the rest of the stock market. Bid is the highest price a prospective buyer is prepared to pay at a particular time for a trading unit of a given SECURITY ; asked is the lowest price acceptable to a prospective seller of the same security. These laws are coordinated with federal acts. Individuals responsible for overseeing the affairs of an entity, including the election of its officers.
Bonds can either be registered in the owner's name or are issued as bearer instruments. The process of recording financial transactions and keeping financial records.
The non technical term used by some to describe any cash or other property that is received in exchange of property that would be otherwise nontaxable. The number of units of a product that must be sold before a company makes enough money to pay for direct and indirect costs of making the product. Combining of two entities. Any division of an organization authorized to operate, within prescribed or otherwise established limitations, under substantial control by its own management.
Bylaws are approved by a corporation's stockholders, if a stock corporation, or other owners, if a non-stock corporation. A benefit plan maintained by an employer for the benefit of the employees under which each participant has the opportunity to select the benefits they desire.
Certain minimum choices and nondiscriminatory rules apply. Loan repayable on demand. Redeemable by the issuer before the scheduled maturity. BOND which accords an issuer the right to redemption before it is due. Sophisticated model of the relationship between expected risk and expected return. Outlay of money to acquire or improve capital assets such as buildings and machinery. Capital gains have historically been taxed at a lower rate than ordinary income. Funds used by a not-for-profit organization to account for all resources used for the development of a land improvement or building addition or renovation.
The money va l ue assigned to a corporation's issued shares. Expenditures that are written off during two or more accounting periods. Provision of tax law that allows current losses or certain tax credits to be utilized in the tax returns of future periods.. ASSET account on a balance sheet representing paper currency and coins, negotiable money orders and checks, bank balances, and certain short-term government securities. Brokerage firm account whose transactions are settled on a cash basis.
Net of cash receipts and cash disbursements relating to a particular activity during a specified accounting period. A multicolumn journal used to record sums of cash paid out for expenses. A multicolumn journal used to record business transactions involving the receipt of CASH from other individuals or businesses. Any loss of an asset due to fire storm act of nature causing asset damage from unexpected or accidental force.
Generally it is deductible regardless of whether it is business or personal. Formal instrument issued by a bank upon the deposit of funds which may not be withdrawn for a specified time period.
Typically, an early withdrawal will incur a penalty. Individual who is trained to develop and implement financial plans for individuals, businesses, and organizations, utilizing knowledge of income and estate tax , investments, risk management analysis and retirement planning. CFPs are certified after completing a series of requirements that include education, experience, ethics and an exam.
CFPs are not regulated by a governmental authority. An accreditation conferred by the Institute of Management Accountants that indicates the designee has passed an examination and attained certain levels of education and experience in the practice of accounting in the private sector. A refund is not automatically mailed if one is due.
A taxpayer, whether business or individual, must file a request on a form. It must also be filed within the timeframe allotted or the refund may be lost. An individual can claim a refund back to whatever year it was due but it will only be paid three years back or less. Characteristics of CMO residuals vary greatly and can be extremely complex in nature.
A way of borrowing money by using unsecured short-term loans sold directly to the public, usually through professionally managed investments firms. An alliance of five professional organizations dedicated to disseminating appropriate internal control standards. Controls that exist at the company level that have an impact on controls at the process, transaction , or application level. 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.
Review of financial records to determine whether the entity is complying with specific procedures or rules. Interest computed on principal plus interest earned in previous periods. Change in EQUITY of a business enterprise during a period from transactions and other events and circumstances from sources not shown in the income statement.
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. 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. Generally established to reduce the other account to amounts that can be realized or collected.
In general, agreement by which rights or acts are exchanged for lawful consideration. This exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. Measure of risk that errors exceeding a tolerable amount will not be prevented or detected by an entity's internal controls. 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.
The TAX that an incorporated business must pay to the federal government and, often, to state and city governments as well. Form of doing business pursuant to a charter granted by a state or federal government. Procedures used for rationally classifying, recording, and allocating current or predicted costs that relate to a certain product or production process.
Rate of return that a business could earn if it chose another investment with equivalent risk. Figure representing the cost of buying raw materials and producing finished goods. Generally used only when the total amount of collections is highly uncertain. A tax exempt trust exclusively for the purpose of paying qualified higher education costs of the trusts designated beneficiary.
Arrangement in which one party borrows or takes possession in the present by promising to pay in the future. ASSET that one can reasonably expect to convert into cash , sell, or consume in operations within a single operating cycle , or within a year if more than one cycle is completed each year.
Individual or firm acting as a principal in a securities transaction. 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. Written promise to repay a DEBT. Repayment of DEBT. Failure to meet any financial obligation. Annulment of a contract or deed; a clause within a contract or deed that provides for annulment.
Income received but not earned until all events have occurred. 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.
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. 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. 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. These have the objective of detecting errors or fraud that have already occurred that could result in a misstatement of the financial statements. The labor cost is for specific work that can be easily and economically traced to an end product. A material that will become part of a finished product and can be easily and economically traced to specific product units.
Payment by cash or check. The auditor is required to disclaim depending on the limitation in scope. Reduction from the full amount of a price or DEBT.
Present value of future cash estimated to be generated. Expense of selling, advertising, and delivery of goods and services. Percentage of earnings paid to shareholders in CASH.
Used to measure the current return to an investor in a stock. 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. Method of recording financial transactions in which each transaction is entered in two or more accounts and involves two-way, self-balancing posting.
Signed, written order by which one party drawer instructs another party drawee to pay a specified sum to a third party payee. For example, "January 3, 19xx, except for Note x, as to which the date is March 10, 19xx. 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.
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. Auction system in which the price of an item is gradually lowered until it meets a responsive bid and is sold. Wages, salaries, professional fees, and other amounts received as compensation for services rendered.
A refundable tax credit for eligible low income workers, subject to computations based on qualifying children and phase in and phase out income levels. Measure of performance calculated by dividing the net earnings of a company by the average number of shares outstanding during a period. 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.
Rate of change in the gross national product, as expressed in an annual percentage. The study of the ways goods and services are produced, transported, sold, and used. Compensation arrangement, generally in writing, used by employers in addition to salary or wages. Some plans such as group term life insurance , medical insurance and qualified retirement plans are treated favorably under the tax law.
Most common qualified retirement plans are: 1 defined benefit plans - a promise to pay participants specified benefits that are determinable and based on such factors as age, years of service, and compensation; or 2 defined contribution plans - provide an individual account for each participant and benefits based on items such as amounts contributed to the account by the employer and employee and investment experience.
Merchandise on hand at the end of an accounting period. 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.
The document should be as specific as necessary in the circumstances for a reviewer to gain a thorough understanding of the significant findings or issues. Price when the supply of goods in a particular market matches demand. Also, the amount of a business' total assets less total liabilities. Act that departs from what should be done; imprudent deviation, unintentional mistake or omission. Usually paid through quarterly installments. Activities that involve management judgments or assumptions in formulating account balances in the absence of a precise means of measurement.
Transfer of money, property or services in exchange for any combination of these items. Tax or duty on the manufacture , sale , or consumption of commodities. Common exclusions include gifts, inheritances, and death proceeds paid under a life insurance contract.
Also known as excluded income. Organization which is generally exempt from paying federal income tax. Exempt organizations include religious organizations, charitable organizations, social clubs, and others. Amount of a taxpayer's income that is not subject to tax. All individuals, TRUSTS, and estates qualify for an exemption unless they are claimed as a dependent on another individual's tax return.
Exemptions also are granted to taxpayers for their dependents. Individuals that loose or terminate their residency within the 10 year period immediately preceding the close of a tax year , if the termination or loss is for the sole purpose of avoiding tax.
The difference in perception between the public and the CPA as a result of accounting and audit service. An AUDITOR that has a reasonable understanding of audit activities and has studied the company 's industry as well as the accounting and auditing issues relevant to the industry. Each year the AUDITOR must obtain sufficient evidence about whether the company 's internal control over financial reporting , including the controls for all internal control components, is operating effectively.
Reporting to stockholders and the public, as opposed to internal reporting for management 's benefit. To get rid of the liability by payment; to bring to an end. Events and transactions distinguished by their unusual nature and by the infrequency of their occurrence.
Extraordinary items are reported separately, less applicable income taxes, in the entity's statement of income or operations. Amount due at maturity from a BOND or note. Various production -related costs that cannot be practically or conveniently traced to an end product. Federal law enacted in giving persons the right to see their credit records at credit reporting bureaus. Price at which property would change hands between a buyer and a seller without any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts.
System established by the Federal Reserve Act of to regulate the U. Person who is responsible for the administration of property owned by others. Commonly known as FIFO. Taxpayers meeting statutory requirements MUST file various returns on the prescribed forms. And they must be filed timely or the y may not be considered as filed. The products that have been made and are ready for sale. An inventory account unique to manufacturing operations. A business partnership , especially when it is unincorporated.
Investment contract sold by an insurance company that guarantees fixed payments, either for life or for a specified period , to an annuitant. Costs that remain constant within a defined range of activity, volume , or time period.
Attachment to real property that is not intended to be moved and would create damage to the property if it were moved. Inventory cannot be valued lower than the " floor " which is the net realizable value of the inventory less an allowance for a normal profit margin.
Indicates the point at which title to goods passes. A shipping term that means that the seller bears transportation costs to the place of delivery. A shipping term that means that the buyer bears transportation costs from the point of origin. A balance sheet that projects the financial position of a business for a future period.
Projecting the cash receipts and the cash payments for a future period. A corporation which is not organized under the laws of ones territories or states.
Taxing of foreign corporations depends on whether the corporation has Nexus or effectively connected income in that state.
Restating foreign currency in equivalent dollars; unrealized gains or losses are postponed and carried in Stockholder 's Equity until the foreign operation is substantially liquidated. This is usually done on the annual individual tax return and there is s specific form provided for this. SEC filing which is the quarterly report due 45 days after each of the first three quarter.
Legal arrangement whereby the owner of a trade name, franchisor, contracts with a party that wants to use the name on a non-exclusive basis to sell goods or services, franchisee. Frequently, the franchise agreement grants strict supervisory powers to the franchisor over the franchisee which, nevertheless, is an independent business.
Willful misrepresentation by one person of a fact inflicting damage on another person. Transportation charges on merchandise purchased for resale. Transportation charges on merchandise sold; an operating expense. Requirement to disclose all material facts relevant to a transaction. Generally used by government entities and not-for-profits.
Research of such factors as interest rates, gross national product, inflation , unemployment, and inventories as tools to predict the direction of the economy. Transferable agreement to deliver or receive during a specific future month a standardized amount of a commodity. The amount that an investment will be worth at a future date if it is invested at compound interest.
Conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. Accounting and auditing office of the United States government.
An independent agency that reviews federal financial transactions and reports directly to Congress. Group that has authority to establish standards of financial reporting for all units of state and local government. The simple and most flexible type of journal.
A valid transfer of property from one taxpayer to another without consideration or compensation. A gift may be subject to the unified estate and gift transfer tax. Assumption that a business can remain in operation long enough for all of its current plans to be carried out. Activities that relate to offering a private company 's shares to the general investing public including registering with the SEC.
The sum of beginning inventory and the net cost of purchases during a period ; the total goods available for sale to customers during an accounting period. Official legal documents that dictate how an entity is operated. Any amount a corporation pays to a shareholder to directly or indirectly buy back its stock.
The beginning point for the determination of income , including income from whatever sources derived. The total amount of sales for cash and on credit accumulated during a specific accounting period.
Legal arrangement involving a promise by one person to perform the obligations of a second person to a third person, in the event the second person fails to perform. An individual entitled to special tax rates that fall midway between single rates and married filing joint rates, if they fit the qualifying profile. A financial term for a specific type of commodities planning and trading.
0コメント