AccountingTerminologyGuide

A|B|C|D|E|F| G|H|I|J|K|L|M|N| O|P|Q|R|S|T|U|V| W|Y|Z

TheNewYorkStateSocietyofCPAs(NYSSCPA)GeneralCommitteeonPublicRelationshas
preparedthisglossaryasaneducationaltoolforjournalistswhoreportonandinterpretfinancial
information.
HowtoUsethisGuide
Tojumptoaletterinthealphabet,clicktheletteratthetop. WhenyouseeTopofPage,clickthelink
anditwillbringyouhere.
Capitalizedtermsthatappearwithindefinitionsofothertermsarealsodefinedinthisguide.Related
termsarecrossreferencedtoprovideaclearerunderstandingoftheirinterdependentrelationships.
Commonlyusedacronyms(e.g.,IRS)arelistedintheirabbreviatedformsanddefinedasthecomplete
term(e.g.,InternalRevenueService).
A
AMisstatementisInconsequentialIfareasonablepersonwouldconcludeafterconsideringthe
possibilityoffurtherundetectedmisstatementsthatthemisstatementeitherindividuallyorwhen
aggregatedwithothermisstatementswouldclearlybeimmaterialtothefinancialstatements.Ifa
reasonablepersoncouldnotreachsuchaconclusionregardingaparticularmisstatement,that
misstatementis morethaninconsequential.
Abatementcompleteremovalofanamountdue,(usuallyreferringtoataxabatementapenalty
abatementoraninterestabatementwithinagoverningagency.)
AcceleratedDepreciationMethodthatrecordsgreaterDEPRECIATIONthanSTRAIGHTLINE
DEPRECIATIONintheearlyyearsandlessdepreciationthanstraightlineinthelateryearsofan
ASSET'Sholdingperiod.(SeeSTRAIGHTLINEDEPRECIATION.)
AccountFormalrecordthatrepresents,inwords,moneyorotherunitofmeasurement,certain
resources,claimstosuchresources,transactionsorothereventsthatresultinchangestothose
resourcesandclaims.
AccountPayableAmountowedtoaCREDITORfordeliveredgoodsorcompletedservices.
AccountReceivableClaimagainstaDEBTORforanuncollectedamount,generallyfroma
completedtransactionofsalesorservicesrendered.
AccountablePlanAnaccountableplanisanyreimbursementorotherexpenseallowance
arrangementofanemployerthatmeetsallofthefollowingrequirements(thereforeexcludingitfrom
grossw2earnedincomeandtax):(1)itprovidesreimbursementsadvancesorallowancesincluding
perdiemandmeals,toemployeesforanyjobrelateddeductiblebusinessexpense(2)employees
mustbeabletosubstantiateexpensescoveredintheplan(3)employeemustreturnanyexcess
advancesorpayments.
AccountantPersonskilledintherecordingandreportingoffinancialtransactions.(SeeCERTIFIED
PUBLICACCOUNTANT.)

Accountants'ReportFormaldocumentthatcommunicatesanindependentaccountant's:(1)
expressionoflimitedassuranceonFINANCIALSTATEMENTSasaresultofperforminginquiryand
analyticprocedures(ReviewReport)(2)resultsofproceduresperformed(AgreedUponProcedures
Report)(3)nonexpressionofopinionoranyformofassuranceonapresentationintheformof
financialstatementsinformationthatistherepresentationofmanagement(CompilationReport)or(4)
anopiniononanassertionmadebymanagementinaccordancewiththeStatementsonStandardsfor
AttestationEngagements(AttestationReport).Anaccountants'reportdoesnotresultfromthe
performanceofanAUDIT.(SeeAUDITORS'REPORT)
AccountingRecordingandreportingoffinancialtransactions,includingtheoriginationofthe
transaction,itsrecognition,processing,andsummarizationintheFINANCIALSTATEMENTS.
AccountingChangeChangein(1)anaccountingprinciple(2)anaccountingestimateor(3)the
reportingentitythatnecessitatesDISCLOSUREandexplanationinpublishedfinancialreports.
AccountingPrinciplesBoard(APB)SeniortechnicalcommitteeoftheAMERICANINSTITUTEOF
CERTIFIEDPUBLICACCOUNTANTS(AICPA)whichissuedpronouncementsonaccounting
principlesfrom19591973.TheAPBwasreplacedbytheFINANCIALACCOUNTINGSTANDARDS
BOARD(FASB).
AccrualBasisMethodofACCOUNTINGthatrecognizesREVENUEwhenearned,ratherthanwhen
collected.Expensesarerecognizedwhenincurredratherthanwhenpaid.
AccumulatedDepreciationTotalDEPRECIATIONpertainingtoanASSETorgroupofassetsfrom
thetimetheassetswereplacedinservicesuntilthedateoftheFINANCIALSTATEMENTortaxreturn.
ThistotalistheCONTRAACCOUNTtotherelatedassetaccount.
AdditionalPaidinCapitalAmountspaidforstockinexcessofitsPARVALUEorSTATEDVALUE.
Also,otheramountspaidbystockholdersandchargedtoEQUITYACCOUNTSotherthanCAPITAL
STOCK.
AdjustedBasisAfterataxpayer'sbasisinpropertyisdetermined,itmustbeadjustedupwardto
includeanyadditionsofcapitaltothepropertyandreducedbyanyreturnsofcapitaltothetaxpayer.
Additionsmightincludeimprovementstothepropertyandsubtractionsmayincludedepreciationor
depletion.Ataxpayer'sadjustedbasisinpropertyisdeductedfromtheamountrealizedtofindthegain
orlossonsaleordisposition.
AdjustedGrossIncomeGrossincomereducedbybusinessandotherspecifiedexpensesof
individualtaxpayers.Theamountofadjustedgrossincomeaffectstheextenttowhichmedical
expenses,nonbusinesscasualtyandtheftlossesandcharitablecontributionsmaybedeductible.Itis
alsoanimportantfigureinthebasisofmanyotherindividualplanningissuesaswellasakeylineitem
ontheIRSform1040andrequiredstateforms.
AdjustingJournalEntryAnaccountingentrymadeintoasubsidiaryledgercalledtheGeneral
journaltoaccountforaperiodschanges,omissionsorotherfinancialdatarequiredtobereported"in
thebooks"butnotusuallypostedtothejournalsusedfortypicalperiodtransactions(thecashreceipts
journal,cashdisbursementsjournal,thepayrolljournal,salesjournalandsoon)theentryispostedto
thegeneralledgeraccountsdirectlyandusuallywillbenumbereditself,datedandhavean
explanation.Example:AJE#112312003,debitCashinbank$1,000.Creditinterestincome$1,000,
torecordinterestincomeonbusinessbankaccountatyearend,notrecordedincashreceiptsjournal
butcreditedbythebank.(Crossreferencebankreconciliationandaccountwhereitwasfound)
AdverseOpinionExpressionofanopinioninanAUDITORS'REPORTwhichstatesthatFINANCIAL

STATEMENTSdonotfairlypresentthefinancialposition,resultsofoperationsandcashflowsin
conformitywithGENERALLYACCEPTEDACCOUNTINGPRINCIPLES(GAAP).Theauditorwillissue
anadverseopinionwhenthereisanexistenceofamaterialweaknessontheeffectivenessofinternal
controloverfinancialreporting.
AffiliatedCompanyCompany,orotherorganizationrelatedthroughcommonownership,common
controlofmanagementorowners,orthroughsomeothercontrolmechanism,suchasalongterm
LEASE.
AgencyFundFundconsistingofASSETSwheretheholderagreestoremittheassets,incomefrom
theassets,orboth,toaspecifiedbeneficiaryinduecourseorataspecifiedtime.
AgreedUponProceduresReportSeeACCOUNTANTS'REPORT.
AICPASeeAMERICANINSTITUTEOFCERTIFIEDPUBLICACCOUNTANTS.
AlternativeDisputeResolutionAnalternativetoformallitigationwhichincludestechniquessuchas
arbitration,mediation,andanonbindingsummaryjurytrial.
AlternativeMinimumTax(AMT)Taximposedtobackuptheregularincometaximposedon
CORPORATIONandindividualstoassurethattaxpayerswitheconomicallymeasuredincome
exceedingcertainthresholdspayatleastsomeincometax.
AmericanDepositoryReceipts(ADRs)Receiptsforsharesofforeigncompanystockmaintainedby
anintermediaryindicatingownership.
AmericanInstituteofCertifiedPublicAccountants(AICPA)Nationalprofessionalmembership
organizationthatrepresentspracticingCERTIFIEDPUBLICACCOUNTANTS(CPAs).TheAICPA
establishesethicalandauditingstandardsaswellasstandardsforotherservicesperformedbyits
members.Throughcommittees,itdevelopsguidanceforspecializedindustries.Itparticipateswiththe
FINANCIALACCOUNTINGSTANDARDSBOARD(FASB)andtheGOVERNMENTACCOUNTING
STANDARDSBOARD(GASB)inestablishingaccountingprinciples.
AmortizationGradualandperiodicreductionofanyamount,suchastheperiodicwritedownofa
BONDpremium,thecostofanintangibleASSETorperiodicpaymentOfMORTGAGESorother
DEBT.
AnalyticalProceduresSubstantivetestsoffinancialinformationwhichexaminerelationshipsamong
dataasameansofobtainingevidence.Suchproceduresinclude:(1)comparisonoffinancial
informationwithinformationofcomparablepriorperiods(2)comparisonoffinancialinformationwith
anticipatedresults(e.g.,forecasts)(3)studyofrelationshipsbetweenelementsoffinancialinformation
thatshouldconformtopredictablepatternsbasedontheentity'sexperience(4)comparisonof
financialinformationwithindustrynorms.
AnnualReportReporttothestockholdersofacompanywhichincludesthecompany'sannual,
auditedBALANCESHEETandrelatedstatementsofearnings,stockholders'orowners'equityand
cashflows,aswellasotherfinancialandbusinessinformation.
AnnuitySeriesofpayments,usuallypayableatspecifiedtimeintervals.
AntidilutionConditionthatmayincreasethecomputationofEARNINGSPERSHARE(EPS)or
decreaselosspersharesolelybecauseoftheinclusionofCOMMONSTOCKequivalents,suchas
STOCKOPTIONS,WARRANTS,convertibleDEBTorconvertiblePREFERREDSTOCK,nomination

orselectionoftheindependentAUDITORs.
AssemblyofFinancialStatementsTheprovidingofvariousaccountingordataprocessingservices
byanaccountant,theoutputofwhichisintheformoffinancialstatementsostensiblytobeusedsolely
forinternalmanagementpurposes.
AssertionExplicitorimplicitrepresentationsbyanentity'smanagementthatareembodiedin
financialstatementcomponentsandforwhichtheAUDITORobtainsandevaluatesevidentialmatter
whenforminghisorheropinionontheentity'sfinancialstatements.
AuditDocumentationThewrittenrecordofthebasisfortheAUDITOR'sconclusionsthatprovides
thesupportfortheauditor'srepresentations,whetherthoserepresentationsarecontainedinthe
auditor'sreportorotherwise.(Maybereferredtoasworkpapersorworkingpapers)
AuditEngagementAgreementbetweenaCPAfirmanditsclienttoperformanAUDIT.
AuditRiskTheriskthattheAUDITORmayunknowinglyfailtomodifyappropriatelyhisorheropinion
onfinancialstatementsthataremateriallymisstated.
AuditSamplingApplicationofanAUDITproceduretolessthan100%oftheitemswithinanaccount
BALANCEorclassoftransactionsforthepurposeofevaluatingsomecharacteristicofthebalanceor
class.
AuditingStandardsGuidelinestowhichanAUDITORadheres.Auditingstandardsencompassthe
auditor'sprofessionalqualities,aswellashisorherjudgmentinperforminganAUDITandinpreparing
theAUDITORS'REPORT.AuditsconductedbyindependentCERTIFIEDPUBLICACCOUNTANT
(CPA)usuallyinaccordancewithGENERALLYACCEPTEDAUDITINGSTANDARDS(GAAS),which
consistofstandardsapprovedandadoptedbythemembershipoftheAMERICANINSTITUTEOF
CERTIFIEDPUBLICACCOUNTANTS(AICPA).
AuditorPersonwhoAUDITSfinancialaccountsandrecordskeptbyothers.Includesbothpublic
accountingfirmsregisteredwiththePCAOBandassociatedpersonsthereof.
Auditors'Report WrittencommunicationissuedbyanindependentCERTIFIEDPUBLIC
ACCOUNTANT(CPA)describingthecharacterofhisorherworkandthedegreeofresponsibility
taken.Anauditors'reportincludesastatementthattheAUDITwasconductedinaccordancewith
GENERALLYACCEPTEDAUDITINGSTANDARDS(GAAS),whichrequirethattheAUDITORplan
andperformtheaudittoobtainreasonableassuranceaboutwhethertheFINANCIALSTATEMENTS
arefreeofmaterialmisstatement,aswellasastatementthattheauditorbelievestheauditprovidesa
reasonablebasisforhisorheropinion.(SeeACCOUNTANTS'REPORT.)
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BackupWithholdingPayorsofinterest,dividendsandotherreportablepaymentsmustwithhold
incometaxequalatarateequaltothefourthlowestrateapplicabletosinglefilersiftheyfailtosupply
afederalid#oriftheyfailtocertifythattheyarenotsubjecttoit.
BadDebtAllorportionofanACCOUNT,loan,ornotereceivableconsideredtobeuncollectible.
BalanceSumofDEBITentriesminustheSUMofCREDITentriesinanACCOUNT.Ifpositive,the

differenceiscalledaDEBITBALANCEifnegative,aCREDITBALANCE.
BalanceSheetBasicFINANCIALSTATEMENT,usuallyaccompaniedbyappropriate
DISCLOSURESthatdescribethebasisofACCOUNTINGusedinitspreparationandpresentationofa
specifieddatetheentity'sASSETS,LIABILITIESandtheEQUITYofitsowners.Alsoknownasa
STATEMENTOFFINANCIALCONDITION.
BankruptcyLegalprocess,governedbyfederalstatute,wherebytheDEBTSofaninsolventperson
areliquidatedafterbeingsatisfiedtothegreatestextentpossiblebytheDEBTOR'SASSETS.During
bankruptcy,thedebtor'sassetsareheldandmanagedbyacourtappointedTRUSTEE.
BequestAgiftbywillofpersonalproperty.Ifthebequestismoneytotheextentitispaidoutof
incomefrompropertyitistaxabletotherecipient.Generallybequestvalueisfairmarketatthedateof
thedecedent'sdeath.
BlueSkyLawsStatelawsthatregulatetheISSUANCEofSECURITIES.Theselawsarecoordinated
withfederalacts.
BoardofDirectorsIndividualsresponsibleforoverseeingtheaffairsofanentity,includingthe
electionofitsofficers.TheboardofaCORPORATIONthatissuesstockiselectedbystockholders.
(SeeAUDITCOMMITTEE.)
BondOnetypeoflongtermPROMISSORYNOTE,frequentlyissuedtothepublicasaSECURITY
regulatedunderfederalsecuritieslawsorstateBLUESKYLAWS.Bondscaneitherberegisteredin
theowner'snameorareissuedasbearerinstruments.
BookValueAmount,netorCONTRAACCOUNTbalances,thatanASSETorLIABILITYshowson
theBALANCESHEETofacompany.AlsoknownasCARRYINGVALUE.
BootThenotechnicaltermusedbysometodescribeanycashorotherpropertythatisreceivedin
exchangeofpropertythatwouldbeotherwisenontaxable.
BudgetFinancialplanthatservesasanestimateoffuturecost,REVENUESorboth.
BusinessCombinationsCombiningoftwoentities.UnderthePURCHASEMETHODOF
ACCOUNTING,oneentityisdeemedtoacquireanotherandthereisanewbasisofaccountingforthe
ASSETSandLIABILITIESoftheacquiredcompany.InaPOOLINGOFINTERESTS,twoentities
mergethroughanexchangeofCOMMONSTOCKandthereisnochangeintheCARRYINGVALUEof
theassetsorliabilities.
BusinessSegmentAnydivisionofanorganizationauthorizedtooperate,withinprescribedor
otherwiseestablishedlimitations,undersubstantialcontrolbyitsownmanagement.
BylawsCollectionofformal,writtenrulesgoverningtheconductofaCORPORATION'Saffairs(such
aswhatofficersitwillhave,whattheirresponsibilitiesare,andhowtheyaretobechosen).Bylawsare
approvedbyacorporation'sstockholders,ifastockcorporation,orotherowners,ifanonstock
corporation.(SeeGOVERNINGDOCUMENTS.)
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CafeteriaPlanAbenefitplanmaintainedbyanemployerforthebenefitoftheemployeesunder

whicheachparticipanthastheopportunitytoselectthebenefitstheydesire.Certainminimumchoices
andnondiscriminatoryrulesapply.
CallLoanLoanrepayableondemand.AlsoknownasDEMANDLOAN.
CallableInstrumentBONDwhichaccordsanissuertherighttoredemptionbeforeitisdue.
CapTolimit.CapitalASSETSintendedtofurtherproduction.Theamountinvestedina
PROPRIETORSHIP,PARTNERSHIP,orCORPORATIONbyitsowners.
CapitalGainPortionofthetotalGAINrecognizedonthesaleorexchangeofanoninventoryasset
whichisnottaxedasORDINARYINCOME.Capitalgainshavehistoricallybeentaxedatalowerrate
thanordinaryincome.
CapitalStockOwnershipsharesofaCORPORATIONauthorizedbyitsARTICLESOF
INCORPORATION.Themoneyvalueassignedtoacorporation'sissuedshares.TheBALANCE
SHEETaccountwiththeaggregateamountofthePARVALUEorSTATEDVALUEofallstockissued
byacorporation.
CapitalizedCostExpenditureidentifiedwithgoodsorservicesacquiredandmeasuredbythe
amountofcashpaidorthemarketvalueofotherproperty,CAPITALSTOCK,orservicessurrendered.
Expendituresthatarewrittenoffduringtwoormoreaccountingperiods.
CapitalizedInterestINTERESTcostincurredduringthetimenecessarytobringanASSETtothe
conditionandlocationforitsintendeduseandincludedaspartoftheHISTORICALCOSTofacquiring
theasset.
CapitalizedLeaseLEASErecordedasanASSETacquisitionaccompaniedbyacorresponding
LIABILITYbytheLESSEE.
CapitalProjectsFundsFundsusedbyanotforprofitorganizationtoaccountforallresourcesused
forthedevelopmentofalandimprovementorbuildingadditionorrenovation.
CarryingValueAmount,netorCONTRAACCOUNTbalances,thatanASSETorLIABILITYshows
ontheBALANCESHEETofacompany.AlsoknownasBOOKVALUE.
CarryoversProvisionoftaxlawthatallowscurrentlossesorcertaintaxcreditstobeutilizedinthe
taxreturnsoffutureperiods.
CashBasisMethodofbookkeepingbywhichREVENUESandEXPENDITURESarerecordedwhen
theyarereceivedandpaid.(SeeOTHERCOMPREHENSIVEBASISOFACCOUNTING.)
CashEquivalentsShortterm(generallylessthanthreemonths),highlyliquidINVESTMENTSthat
areconvertibletoknownamountsofcash.
CashFlowsNetofcashreceiptsandcashdisbursementsrelatingtoaparticularactivityduringa
specifiedaccountingperiod.
CasualtyLossAnylossofanassetduetofirestormactofnaturecausingassetdamagefrom
unexpectedoraccidentalforce.Generallyitisdeductibleregardlessofwhetheritisbusinessor
personal.

CDSeeCERTIFICATEOFDEPOSIT.
CertificateofDeposit(CD)Formalinstrumentissuedbyabankuponthedepositoffundswhichmay
notbewithdrawnforaspecifiedtimeperiod.Typically,anearlywithdrawalwillincurapenalty.
CertifiedFinancialPlanner(CFP)Individualwhoistrainedtodevelopandimplementfinancialplans
forindividuals,businesses,andorganizations,utilizingknowledgeofincomeandestatetax,
investments,riskmanagementanalysisandretirementplanning.CFPsarecertifiedaftercompletinga
seriesofrequirementsthatincludeeducation,experience,ethicsandanexam.CFPsarenotregulated
byagovernmentalauthority.
CertifiedInternalAuditor(CIA)InternalAUDITORwhohassatisfiedtheexaminationrequirements
oftheInstituteofInternalAuditors.
CertifiedManagementAccountant(CMA)AnaccreditationconferredbytheInstituteof
ManagementAccountantsthatindicatesthedesigneehaspassedanexaminationandattainedcertain
levelsofeducationandexperienceinthepracticeofaccountingintheprivatesector.
CertifiedPublicAccountant(CPA)ACCOUNTANTwhohassatisfiedtheeducation,experience,
andexaminationrequirementsofhisorherjurisdictionnecessarytobecertifiedasapublicaccountant.
CFPSeeCERTIFIEDFINANCIALPLANNER.
CIASeeCERTIFIEDINTERNALAUDITOR.
ClaimforRefundArefundisnotautomaticallymailedifoneisdue.Ataxpayer,whetherbusinessor
individual,mustfilearequestonaform.Itmustalsobefiledwithinthetimeframeallottedortherefund
maybelost.Anindividualcanclaimarefundbacktowhateveryearitwasduebutitwillonlybepaid
threeyearsbackorless.
CleanOpinionAUDITopinionnotqualifiedforanymaterialscoperestrictionsnordeparturesfrom
GENERALLYACCEPTEDACCOUNTINGPRINCIPLES(GAAP).AlsoknownasUNQUALIFIED
OPINION.
ClosedEndMutualFundMUTUALFUNDwithafixednumberofsharesoutstandingthatmaybe
boughtorsold.CMOSeeCOLLATERALIZEDMORTGAGEOBLIGATION.
CollateralASSETprovidedtoaCREDITORassecurityforaloan.
CollateralizedMortgageObligation(CMO)SECURITYwhosecashflowsequalthedifference
betweenthecashflowsofthecollateralizingASSETSandthecollateralizedobligationsofasecuritized
TRUST.CharacteristicsofCMOresidualsvarygreatlyandcanbeextremelycomplexinnature.
CombinedFinancialStatementFINANCIALSTATEMENTcomprisingtheaccountsoftwoormore
entities.
ComfortLetterLetterprovidedbyacompany'sindependentpublicaccountanttoanunderwriter
whentheunderwriterhasaDUEDILIGENCEresponsibilityunderSection11oftheSecuritiesActof
1933regardingfinancialinformationincludedinanofferingstatement.
CommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO)Anallianceof

fiveprofessionalorganizationsdedicatedtodisseminatingappropriateinternalcontrolstandards.
CommonStockCAPITALSTOCKhavingnopreferencesgenerallyintermsofdividends,voting
rightsordistributions.(SeePREFERREDSTOCK.)
CompanyLevelControlsControlsthatexistatthecompanylevelthathaveanimpactoncontrolsat
theprocess,transaction,orapplicationlevel.
ComparativeFinancialStatementFINANCIALSTATEMENTpresentationinwhichthecurrent
amountsandthecorrespondingamountsforpreviousperiodsordatesalsoareshown.
CompensatoryBalanceFundsthataborrowermustkeepondepositasrequiredbyabank.
CompilationPresentationoffinancialstatementdatawithouttheACCOUNTANT'Sassuranceasto
conformitywithGENERALLYACCEPTEDACCOUNTINGPRINCIPLES(GAAP).
CompilationEngagementAgreementbetweenaCPAfirmanditsclienttoissueaCOMPILATI0N
REPORT.(SeeACCOUNTANTS'REPORT.)
CompilationReportSeeACCOUNTANTS'REPORT.
ComplianceAuditReviewoffinancialrecordstodeterminewhethertheentityiscomplyingwith
specificproceduresorrules.
ComplexTrustAtrustthatistobedistinguishedfromasimpletrustinthefactthatitpermits
accumulationordistributionofcurrentincomeduringthetaxyearandprovidesforcharitable
contributions.
CompoundInterestPrinciplesInterestcomputedonprincipalplusinterestearnedinprevious
periods.
ComprehensiveIncomeChangeinEQUITYofabusinessenterpriseduringaperiodfrom
transactionsandothereventsandcircumstancesfromsourcesnotshownintheincomestatement.
TheperiodincludesallchangesinequityexceptthoseresultingfromINVESTMENTSbyownersand
distributionstoowners.
ConfirmationAUDITOR'Sreceiptofawrittenororalresponsefromanindependentthirdparty
verifyingtheaccuracyofinformationrequested.
ConservatismAninvestmentstrategyaimedatlongtermcapitalappreciationwithlowrisk
moderatecautiousoppositeofaggressivebehaviorshowpossiblelossesbutwaitforactualprofits.
Conceptwhichdirectstheleastfavorableeffectonnetincome.
ConsistencyACCOUNTINGpostulatewhichstipulatesthat,exceptasotherwisenotedinthe
FINANCIALSTATEMENT,thesameaccountingpoliciesandprocedureshavebeenfollowedfrom
periodtoperiodbyanorganizationinthepreparationandpresentationofitsfinancialstatements.
ConsolidatedFinancialStatementsCombinedFINANCIALSTATEMENTSofaparentcompany
andoneormoreofitssubsidiariesasoneeconomicunit.
ConsolidationBUSINESSCOMBINATIONoftwoormoreentitiesthatoccurswhentheentities

transferalloftheirNETASSETStoanewentitycreatedforthatpurpose.(SeeMERGER.)
ConstructiveReceiptAtaxpayerisconsideredtohavereceivedtheincomeeventhoughthemonies
arenotinhand,itmayhavebeensetasideorotherwisemadeavailable.Anexampleisinterestona
bankaccount.
ContingentLiabilityPotentialLIABILITYarisingfromapasttransactionorasubsequentevent.
ContinuingOperationsPortionofabusinessentityexpectedtoremainactive.
ContinuingProfessionalEducation(CPE)EducationalprogramsforCERTIFIEDPUBLIC
ACCOUNTANTS(CPAs)tokeepinformedonchangesthatoccurwithintheprofession.StateBoards
forPublicAccountancyandtheAMERICANINSTITUTEOFCERTIFIEDPUBLICACCOUNTANTS
(AICPA)eachhaveseparateCPErequirements.
ContraAccountACCOUNTconsideredtobeanoffsettoanotheraccount.Generallyestablishedto
reducetheotheraccounttoamountsthatcanberealizedorcollected.
ControlDeficiencyThisexistswhenthedesignoroperationofacontroldoesnotallowmanagement
oremployees,inthenormalcourseofperformingtheirassignedfunctions,topreventordetect
misstatementsonatimelybasis.
ControlRiskMeasureofriskthaterrorsexceedingatolerableamountwillnotbepreventedor
detectedbyanentity'sinternalcontrols.
ControlsTestsTestsdirectedtowardthedesignoroperationofaninternalcontrolstructurepolicyor
proceduretoassessitseffectivenessinpreventingordetectingmaterialmisstatementsinafinancial
report.
ConvertibleStockStockthatmaybeexchangedforotherSECURITIESoftheissuer.
CorporationFormofdoingbusinesspursuanttoachartergrantedbyastateorfederalgovernment.
CorporationstypicallyarecharacterizedbytheissuanceoffreelytransferableCAPITALSTOCK,
perpetuallife,centralizedmanagement,andlimitationofowners'LIABILITYtotheamounttheyinvest
inthebusiness.
CostAccountingProceduresusedforrationallyclassifying,recording,andallocatingcurrentor
predictedcoststhatrelatetoacertainproductorproductionprocess.
CostRecoveryMethodMETHODOFREVENUERECOGNITIONwhichrecognizesprofitsafter
costsarecompletelyrecovered.Generallyusedonlywhenthetotalamountofcollectionsishighly
uncertain.Intax,theACCOUNTINGMETHODusedtodepreciateASSETS.
CoverdellEducationSavingsAccount(EducationIRA)Ataxexempttrustexclusivelyforthe
purposeofpayingqualifiedhighereducationcostsofthetrustsdesignatedbeneficiary.
CPASeeCERTIFIEDPUBLICACCOUNTANT.
CPESeeCONTINUINGPROFESSIONALEDUCATION.
CreditEntryontherightsideofaDOUBLEENTRYBOOKKEEPINGsystemthatrepresentsthe

reductionofanASSETorexpenseortheadditiontoaLIABILITYorREVENUE.(SeeDEBIT.)
CreditAgreementArrangementinwhichonepartyborrowsortakespossessioninthepresentby
promisingtopayinthefuture.
CreditBalanceBALANCEremainingafteroneofaseriesofbookkeepingentries.Thisamount
representsaLIABILITYorincometotheentity.(SeeBALANCE.)
CreditorPartythatloansmoneyorotherASSETStoanotherparty.
CurrentAssetASSETthatonecanreasonablyexpecttoconvertintocash,sell,orconsumein
operationswithinasingleoperatingcycle,orwithinayearifmorethanonecycleiscompletedeach
year.
CurrentLiabilityObligationwhoseLIQUIDATIONisexpectedtorequiretheuseofexisting
resourcesclassifiedasCURRENTASSETS,orthecreationofothercurrentliabilities.
CurrentValue(1)ValueofanASSETatthepresenttimeascomparedwiththeasset'sHISTORICAL
COST.(2)Infinance,theamountdeterminedbydiscountingthefuturerevenuestreamofanasset
usingCOMPOUNDINTERESTPRINCIPLES.
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DateofAuditors'/Accountants'ReportLastdaytheAUDITORSperformfieldworkandthelastday
ofresponsibilityrelatingtosignificanteventssubsequenttothefinancialstatementdate.
DeathBenefitAmountsreceivedunderalifeinsurancecontractandpaidbyreasonofthedeathof
theinsured.(Althoughmostdeathbenefitsarepaidatterminationoflife,certainplansnowpay
accelerateddeathbenefitswhiletheinsuredisstillalive,i.e.:anAIDSpatientmightpossiblyreceive
accelerateddeathbenefit)
DebitEntryontheleftsideofaDOUBLEENTRYBOOKKEEPINGsystemthatrepresentsthe
additionofanASSETorexpenseorthereductiontoaLIABILITYorREVENUE.(SeeCREDIT.)
DebitBalanceBALANCEremainingafteroneoraseriesofbookkeepingentries.Thisamount
representsanASSEToranexpenseoftheentity.(SeeBALANCE.)
DebtGeneralnameformoney,notes,BONDS,goodsorserviceswhichrepresentamountsowed.
DebtSecurityDocumentwhichisevidenceofanobligationorLIABILITY.
DebtServiceFundFundwhosePRINCIPALorINTERESTissetasideandaccumulatedtoretire
DEBT.
DebtorPartyowingmoneyorotherASSETStoaCREDITOR.
DecedentIndividualwhohasdied.
DefalcationTomisuseorembezzlefunds.

DefaultFailuretomeetanyfinancialobligation.DefaulttriggersaCREDITOR'Srightsandremedies
identifiedintheagreementandunderthelaw.
DefeasanceAnnulmentofacontractordeedaclausewithinacontractordeedthatprovidesfor
annulment.
DeferredChargeCostincurredforsubsequentperiodswhicharereflectedasASSETS.
DeferredIncomeIncomereceivedbutnotearneduntilalleventshaveoccurred.Deferredincomeis
reflectedasaLIABILITY.
DeferredIncomeTaxesASSETSorLIABILITIESthatarisefromtimingormeasurementdifferences
betweentaxandaccountingprinciples.
DeficiencyinDesignThisexistswhenacontrolnecessarytomeetthecontrolobjectiveismissingor
anexistingcontrolisnotproperlydesignedsothatevenifthecontroloperatesasdesigned,thecontrol
objectiveisnotalwaysmet.
DeficiencyinOperationThisexistswhenaproperlydesignedcontroldoesnotoperateasdesigned,
orwhenthepersonperformingthecontroldoesnotpossessthenecessaryauthorityorqualificationsto
performthecontroleffectively.
DeficitFinancialshortagethatoccurswhenLIABILITIESexceedASSETS.
DefinedBenefitPlanSeeEMPLOYEEBENEFITPLAN.
DefinedContributionPlanSeeEMPLOYEEBENEFITPLAN.
DemandLoanLoanrepayableondemand.AlsoknownasaCALLLOAN.
DependentCareExpensesQualifiedchildcareexpenseswillallowataxpayerthiscomputedcredit
againsttax.Theamountscanbefoundontheindividualformsasthelimitationsandcomputationmay
changeeachtaxyear.
DepletionMethodofcomputingadeductiontoACCOUNTforareductioninvalueofextractable
naturalresources.
DepositMethodRelatedtothesalesofrealestate,underthismethodthesellerdoesnotrecognize
anyprofits,doesnotrecordanoteRECEIVABLE,andcontinuestoreflectthepropertyandrelated
DEBTintheseller'sFINANCIALSTATEMENTS,recordingthebuyer'sinitialinvestmentand
subsequentpaymentsasadeposit.
DepreciationExpenseallowancemadeforwearandtearonanASSEToveritsestimatedusefullife.
(SeeACCELERATEDDEPRECIATIONandSTRAIGHTLINEDEPRECIATION.)
DerivativesFinancialinstrumentswhosevaluevarieswiththevalueofanunderlyingasset(suchas
astock,BOND,commodityorcurrency)orindexsuchasinterestrates.Financialinstrumentswhose
characteristicsandvaluedependonthecharacterizationofanunderlyinginstrumentorasset.
DetectionRiskRiskthattheAUDITORwillnotdetectamaterialmisstatement.
DetectiveControlsThesehavetheobjectiveofdetectingerrorsorfraudthathavealreadyoccurred

thatcouldresultinamisstatementofthefinancialstatements.
DisbursementPaymentbycashorcheck.
DisclaimerofOpinionStatementbyanAUDITORindicatinginabilitytoexpressanopiniononthe
fairnessoftheFINANCIALSTATEMENTSprovidedandthereasonfortheinability.Theauditoris
requiredtodisclaimdependingonthelimitationinscope.
DisclosureProcessofdivulgingaccountinginformationsothatthecontentofFINANCIAL
STATEMENTSisunderstood.
DiscontinuedOperationsPortionofabusinessthatisplannedtobeorisdiscontinued.
DiscountReductionfromthefullamountofapriceorDEBT.
DiscountRateRateatwhichINTERESTisdeductedinadvanceoftheissuance,purchasing,selling,
orlendingofafinancialinstrument.Also,therateusedtodeterminetheCURRENTVALUE,orpresent
value,ofanASSETorincomestream.
DiscountedCashFlowPresentvalueoffuturecashestimatedtobegenerated.
DiscretionaryTrustArrangementinwhichtheTRUSTEEhastheauthoritytomakeINVESTMENT
decisionsandhascontroloverinvestmentswithintheframeworkoftheTRUSTinstrument.
DissolutionTerminationofaCORPORATION.
DistributionExpenseExpenseofselling,advertising,anddeliveryofgoodsandservices.
DistributionsPaymentbyabusinessentitytoitsownersofitemssuchascashASSETS,stocks,or
earnings.
DividendsDistributionofearningstoownersofaCORPORATIONincash,otherASSETSofthe
corporation,orthecorporation'sCAPITALSTOCK.
DocumentationCompletionDateAcompleteandfinalsetofauditdocumentationshouldbe
assembledforretentionasofadatenotmorethan45daysafterthereportreleasedate.
DoubleEntryBookkeepingMethodofrecordingfinancialtransactionsinwhicheachtransactionis
enteredintwoormoreaccountsandinvolvestwoway,selfbalancingposting.TotalDEBITSmust
equaltotalCREDITS.
DualDatingDatingoftheACCCOUNTANTS'orAUDITORS'REPORTwhenasubsequentevent
disclosedintheFINANCIALSTATEMENTSoccursaftercompletionofthefieldworkbutbefore
issuanceofthereport.Forexample,"January3,19xx,exceptforNotex,astowhichthedateisMarch
10,19xx."
DueDateEachgoverningagencyanditsformsscheduledreportingandmostimportantlypayments
havearequiredduedate.Itisthisdatethatifmostfilestimelymayresultinapenalty,fine,and
commenceinterestcharges.
DueDiligence(1)Proceduresperformedbyunderwritersinconnectionwiththeissuanceofa
SECURITIESEXCHANGECOMMISSION(SEC)registrationstatement.Theseproceduresinvolve

questionsconcerningthecompanyanditsbusiness,products,competitiveposition,recentfinancial
andotherdevelopmentsandprospects.Alsoperformedbyothersinconnectionwithacquisitionsand
othertransactions.(2)Requirementfoundinethicalcodesthatthepersongovernedbytheethicalrules
exerciseprofessionalcareinconductinghisorheractivities.
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EarnedIncome Wages,salaries,professionalfees,andotheramountsreceivedascompensationfor
servicesrendered.
EarnedIncomeCreditArefundabletaxcreditforeligiblelowincomeworkers,subjectto
computationsbasedonqualifyingchildrenandphaseinandphaseoutincomelevels.
EarningsPerShare(EPS)Measureofperformancecalculatedbydividingthenetearningsofa
companybytheaveragenumberofsharesoutstandingduringaperiod.
EffectiveTaxRateTotalincometaxesexpressedasapercentageofNETINCOMEbeforetaxes.
EITFSeeEMERGINGISSUESTASKFORCE.
EmergingIssuesTaskForce(EITF)AssiststheFINANCIALACCOUNTINGSTANDARDSBOARD
(FASB)andprovidesguidanceonearlyidentificationofemergingissuesaffectingfinancialreporting
andproblemsinimplementingauthoritativepronouncements.
EmployeeBenefitPlanCompensationarrangement,generallyinwriting,usedbyemployersin
additiontosalaryorwages.Someplanssuchasgrouptermlifeinsurance,medicalinsuranceand
qualifiedretirementplansaretreatedfavorablyunderthetaxlaw.Mostcommonqualifiedretirement
plansare:(1)definedbenefitplansapromisetopayparticipantsspecifiedbenefitsthatare
determinableandbasedonsuchfactorsasage,yearsofservice,andcompensationor(2)defined
contributionplansprovideanindividualaccountforeachparticipantandbenefitsbasedonitemssuch
asamountscontributedtotheaccountbytheemployerandemployeeandinvestmentexperience.This
typeincludesPROFITSHARINGPLANS,EMPLOYEESTOCKOWNERSHIPPLANSand401(k)
PLANS.
EmployeeStockOwnershipPlan(ESOP)Stockbonusplanofanemployerthatacquires
SECURITIESissuedbytheplansponsor.
Encumbrance(1)MORTGAGEorotherlienontheentity'sASSETS(2)AnticipatedEXPENDITURE
(3)Uncompletedorundeliveredportionofapurchasecommitment.
EngagementCompletionDocumentAdocumentwherebytheAUDITORidentifiesallsignificant
findingsorissues.Thedocumentshouldbeasspecificasnecessaryinthecircumstancesfora
reviewertogainathoroughunderstandingofthesignificantfindingsorissues.
EquityResidualINTERESTintheASSETSofanentitythatremainsafterdeductingitsLIABILITIES.
Also,theamountofabusiness'totalassetslesstotalliabilities.Also,thethirdsectionofaBALANCE
SHEET,theothertwobeingassetsandliabilities.
EquityAccountACCOUNTintheEQUITYsectionoftheBALANCESHEET.IncludesCAPITAL
STOCK,ADDITIONALPAIDINCAPITALandRETAINEDEARNINGS.

EquityMethodofAccountingInvestorscostbasisisadjustedupordown(inproportiontothe%of
stockownership)astheinvestee'sretainedearningsfluctuationusedforlongterminvestmentsin
equitysecuritiesofaffiliatewhereholdercanexertsignificantinfluence20%ownershiporgreateris
arbitrarilypresumedtohavesignificantinfluenceovertheinvestee.
EquitySecuritiesCAPITALSTOCKandotherSECURITIESthatrepresentownershipshares,orthe
legalrightstopurchaseoracquireCAPITALSTOCK.
ErrorActthatdepartsfromwhatshouldbedoneimprudentdeviation,unintentionalmistakeor
omission.
EscrowMoneyorpropertyputintothecustodyofathirdpartyfordeliverytoaGRANTEE,onlyafter
fulfillmentofspecifiedconditions.
ESOPSeeEMPLOYEESTOCKOWNERSHIPPLAN.
EstateTaxTaxonthevalueofaDECENDENT'Staxableestate,typicallydefinedasthedecedent's
ASSETSlessLIABILITIESandcertainexpenseswhichmayincludefuneralandadministrative
expenses.
EstimatedTaxAmountoftaxLIABILITYataxpayermayexpecttopayforthecurrenttaxperiod.
Usuallypaidthroughquarterlyinstallments.
EstimationTransactionsActivitiesthatinvolvemanagementjudgmentsorassumptionsin
formulatingaccountbalancesintheabsenceofaprecisemeansofmeasurement.
EvidentialMatterUnderlyingACCOUNTINGdataandothercorroboratinginformationthatsupport
theFINANCIALSTATEMENTS.
ExchangesTransferofmoney,propertyorservicesinexchangeforanycombinationoftheseitems.
ExciseTaxTaxordutyonthemanufacture,sale,orconsumptionofcommodities.
ExcludedIncomeSeeEXCLUSIONS.
ExclusionsIncomeitemwhichisexcludedfromataxpayer'sgrossincomebytheINTERNAL
REVENUECODEoranadministrativeaction.Commonexclusionsincludegifts,inheritances,and
deathproceedspaidunderalifeinsurancecontract.Alsoknownasexcludedincome.
ExecutorPersonappointedbyawilltomanageaDECENDENT'Sestate.
ExemptOrganizationOrganizationwhichisgenerallyexemptfrompayingfederalincometax.
Exemptorganizationsincludereligiousorganizations,charitableorganizations,socialclubs,andothers.
ExemptionAmountofataxpayer'sincomethatisnotsubjecttotax.Allindividuals,TRUSTS,and
estatesqualifyforanexemptionunlesstheyareclaimedasadependentonanotherindividual'stax
return.Exemptionsalsoaregrantedtotaxpayersfortheirdependents.
ExpatriationTaxIndividualsthatlooseorterminatetheirresidencywithinthe10yearperiod
immediatelyprecedingthecloseofataxyear,iftheterminationorlossisforthesolepurposeof
avoidingtax.

ExpectationGapThedifferenceinperceptionbetweenthepublicandtheCPAasaresultof
accountingandauditservice.
ExpenditurePayment,eitherincash,byassumingaLIABILITY,orbysurrenderingASSET.
ExperiencedAuditorAnAUDITORthathasareasonableunderstandingofauditactivitiesandhas
studiedthecompany'sindustryaswellastheaccountingandauditingissuesrelevanttotheindustry.
ExplorationExpendituresUnlimiteddeductionsareallowedforataxpayer'sexpensesincurred
whilesearchingforanyoreormineraldeposit(exceptoilorgas).
ExposureDraftDocumentissuedbytheAMERICANINSTITUTEOFCERTIFIEDPUBLIC
ACCOUNTANTS(AICPA),FINANCIALACCOUNTINGSTANDARDSBOARD(FASB),
GOVERNMENTALACCOUNTINGSTANDARDSBOARD(GASB)orotherstandardssetting
authoritiestoinvitepubliccommentbeforeafinalpronouncementisissued.
ExtensionTimegrantedbyataxingauthority,suchastheINTERNALREVENUESERVICE(IRS),a
stateorcity,whichallowsthetaxpayertofiletaxreturnslaterthantheoriginalduedate.
ExtentofTestsofControlEachyeartheAUDITORmustobtainsufficientevidenceaboutwhether
thecompany'sinternalcontroloverfinancialreporting,includingthecontrolsforallinternalcontrol
components,isoperatingeffectively.
ExternalReportingReportingtostockholdersandthepublic,asopposedtointernalreportingfor
management'sbenefit.
ExtinguishmentofDebtTogetridoftheliabilitybypaymenttobringtoanend.
ExtraordinaryItemsEventsandtransactionsdistinguishedbytheirunusualnatureandbythe
infrequencyoftheiroccurrence.Extraordinaryitemsarereportedseparately,lessapplicableincome
taxes,intheentity'sstatementofincomeoroperations.
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401(k)PlanEMPLOYEEBENEFITPLANauthorizedbyINTERNALREVENUECODEsection401(k),
wherebyanemployerestablishesanaccountforeachparticipatingemployeeandeachparticipant
electstodepositaportionofhisorhersalaryintotheaccount.Theamountdepositedisnotsubjectto
incometax.Thisisthemostcommontypeofsalaryreductionplan.
FaceValueAmountdueatmaturityfromaBONDornote.
FactoringSellingaRECEIVABLEatadiscountedvaluetoathirdpartyforcash.
FASBSeeFINANCIALACCOUNTINGSTANDARDSBOARD(FASB).
FairMarketValuePriceatwhichpropertywouldchangehandsbetweenabuyerandasellerwithout
anycompulsiontobuyorsell,andbothhavingreasonableknowledgeoftherelevantfacts.
FavorableVarianceExcessofactualREVENUEoverprojectedrevenue,oractualcostsover
projectedcosts.

FiduciaryPersonwhoisresponsiblefortheadministrationofpropertyownedbyothers.Corporate
managementisaFIDUCIARYwithrespecttocorporateASSETSwhicharebeneficiallyownedbythe
stockholdersandCREDITORS.Similarly,aTRUSTEEisthefiduciaryofaTRUSTandpartnersowe
fiduciaryresponsibilitytoeachotherandtotheircreditors.
FIFOSeeFIRSTIN,FIRSTOUT.
FilingofReturnsTaxpayersmeetingstatutoryrequirementsMUSTfilevariousreturnsonthe
prescribedforms.Andtheymustbefiledtimelyortheymaynotbeconsideredasfiled.
FinancialAccountingStandardsOfficialpromulgations,knownasSTATEMENTSOFFINANCIAL
ACCOUNTINGSTANDARDS,bytheFINANCIALACCOUNTINGSTANDARDSBOARD(FASB)which
arepartofGENERALLYACCEPTEDACCOUNTINGPRINCIPLES(GAAP)intheUnitedStates.
FinancialAccountingStandardsBoard(FASB)Independent,private,nongovernmentalauthority
fortheestablishmentofACCOUNTINGprinciplesintheUnitedStates.
FinancialInstitutionOrganizationengagedinanyofthemanyaspectsoffinanceincluding
commercialbanks,thriftinstitutions,investmentbanks,securitiesbrokersanddealers,creditunions,
investmentcompanies,insurancecompanies,andREALESTATEINVESTMENTTRUSTS.
FinancialStatementsPresentationoffinancialdataincludingBALANCESHEETS,INCOME
STATEMENTSandSTATEMENTSOFCASHFLOW,oranysupportingstatementthatisintendedto
communicateanentity'sfinancialpositionatapointintimeanditsresultsofoperationsforaperiod
thenended.
Firstin,Firstout(FIFO)ACCOUNTINGmethodofvaluingINVENTORYunderwhichthecostsof
thefirstgoodsacquiredarethefirstcostschargedtoexpense.CommonlyknownasFIFO.
FiscalYearPeriodof12consecutivemonthschosenbyanentityasitsACCOUNTINGperiodwhich
mayormaynotbeacalendaryear.FixedAssetAnytangibleASSETwithalifeofmorethanoneyear
usedinanentity'soperations.
FloorTermusedwhendiscussingINVENTORIES.Inventorycannotbevaluedlowerthanthe"floor"
whichisthenetrealizablevalueoftheinventorylessanallowanceforanormalprofitmargin.
ForecastProspectiveFINANCIALSTATEMENTSthatareanentity'sexpectedfinancialposition,
resultsofoperations,andcashflows.
ForeclosureSeizureofCOLLATERALbyaCREDITORwhenDEFAULTunderaloanagreement
occurs.
ForeignCorporationAcorporationwhichisnotorganizedunderthelawsofonesterritoriesor
states.TaxingofforeigncorporationsdependsonwhetherthecorporationhasNexusoreffectively
connectedincomeinthatstate.
ForeignCurrencyTranslationRestatingforeigncurrencyinequivalentdollarsunrealizedgainsor
lossesarepostponedandcarriedinStockholder'sEquityuntiltheforeignoperationissubstantially
liquidated.
ForeignTaxCreditAU.S.taxpayerthatpaysoraccruesincometaxtoaforeigncountrymayelectto
creditordeductthesetaxesinadeterminableusdollaramount.Thisisusuallydoneontheannual

individualtaxreturnandthereissspecificformprovidedforthis.
Form8KSECfilingwhichisafilingthatmustbemadeontheoccurrenceofaneventthatisdeemed
tobeofsignificantimportancetoSECURITYholders.
Form10KSECfilingwhichistheANNUALREPORTdue90daysaftertheregistrant'sBALANCE
SHEETdate.
Form10QSECfilingwhichisthequarterlyreportdue45daysaftereachofthefirstthree
quarter.endsofeachfiscalyear.
FranchiseLegalarrangementwherebytheownerofatradename,franchisor,contractswithaparty
thatwantstousethenameonanonexclusivebasistosellgoodsorservices,franchisee.Frequently,
thefranchiseagreementgrantsstrictsupervisorypowerstothefranchisoroverthefranchiseewhich,
nevertheless,isanindependentbusiness.
Fraud Willfulmisrepresentationbyonepersonofafactinflictingdamageonanotherperson.
FundAccountingMethodofACCOUNTINGandpresentationwherebyASSETSandLIABILITIES
aregroupedaccordingtothepurposeforwhichtheyaretobeused.Generallyusedbygovernment
entitiesandnotforprofits.(SeeRESTRICTEDFUNDandUNRESTRICTEDFUND.)
FutureContractTransferableagreementtodeliverorreceiveduringaspecificfuturemontha
standardizedamountofacommodity.
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GAAPSeeGENERALLYACCEPTEDACCOUNTINGPRINCIPLES.
GAASSeeGENERALLYACCEPTEDAUDITINGSTANDARDS.
GainExcessofREVENUESreceivedovercostsrelatingtoaspecifictransaction.
GAOSeeGOVERNMENTACCOUNTABILITYOFFICE.
GASBSeeGOVERNMENTALACCOUNTINGSTANDARDSBOARD.
GeneralLedgerCollectionofallASSET,LIABILITY,ownersEQUITY,REVENUE,andexpense
accounts.
GeneralPartnershipPARTNERSHIPwithnolimitedpartners.(SeeLIMITEDLIABILITY
PARTNERSHIPandLIMITEDPARTNERSHIP.)
GenerallyAcceptedAccountingPrinciples(GAAP)Conventions,rules,andproceduresnecessary
todefineacceptedaccountingpracticeataparticulartime.Thehighestlevelofsuchprinciplesareset
bytheFINANCIALACCOUNTINGSTANDARDSBOARD(FASB).
GenerallyAcceptedAuditingStandards(GAAS)StandardssetbytheAMERICANINSTITUTEOF
CERTIFIEDPUBLICACCOUNTANTS(AICPA)whichconcerntheAUDITOR'Sprofessionalqualities

andjudgmentintheperformanceofhisorherAUDITandintheactualreport.
GiftAvalidtransferofpropertyfromonetaxpayertoanotherwithoutconsiderationorcompensation.
Agiftmaybesubjecttotheunifiedestateandgifttransfertax.
GoingConcernAssumptionthatabusinesscanremaininoperationlongenoughforallofitscurrent
planstobecarriedout.
GoingPublicActivitiesthatrelatetoofferingaprivatecompany'ssharestothegeneralinvesting
publicincludingregisteringwiththeSEC.
GoodwillPremiumpaidintheacquisitionofanentityoverthefairvalueofitsidentifiabletangibleand
intangibleASSETSlessLIABILITIESassumed.
GoverningDocumentsOfficiallegaldocumentsthatdictatehowanentityisoperated.The
governingdocumentsofaCORPORATIONincludeARTICLESOFINCORPORATIONandBYLAWS
aPARTNERSHIPincludesthepartnershipagreementaTRUSTincludesthetrustagreementortrust
indentureandanLLCincludestheARTICLESOFORGANIZATIONandOPERATINGAGREEMENT.
GovernmentAccountabilityOffice(GAO)AccountingandauditingofficeoftheUnitedStates
government.Anindependentagencythatreviewsfederalfinancialtransactionsandreportsdirectlyto
Congress.
GovernmentalAccountingStandardsBoard(GASB)Groupthathasauthoritytoestablish
standardsoffinancialreportingforallunitsofstateandlocalgovernment.
GranteePersontowhompropertyistransferred.
Grantor(1)Personwhotransfersproperty.(2)Personwhocreatesatrust.
GreenmailAnyamountacorporationpaystoashareholdertodirectlyorindirectlybuybackitsstock.
GrossIncomeThebeginningpointforthedeterminationofincome,includingincomefromwhatever
sourcesderived.(AlsoseeADJUSTEDGROSSINCOME.)
GuarantyLegalarrangementinvolvingapromisebyonepersontoperformtheobligationsofa
secondpersontoathirdperson,intheeventthesecondpersonfailstoperform.
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HeadofHouseholdAnindividualentitledtospecialtaxratesthatfallmidwaybetweensinglerates
andmarriedfilingjointrates,iftheyfitthequalifyingprofile.
HedgeAfinancialtermforaspecifictypeofcommoditiesplanningandtrading.
HistoricalcostOriginalcostofanassettoanentity.
HoldingPeriodThetimeinwhichataxpayeracquirespropertyandthedateonwhichitissold.
HopeScholarshipCreditAmaximumallowablecreditof$1,500perstudentforeachofthefirst2

yearsofpostsecondaryeducation.Itisallowableafteralladditionalrequirementsaremet.
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ImprovementEXPENDITUREdirectedtoaparticularASSETtoimproveitsperformanceoruseful
life.
ImputedInterestIfnointerestoranunrealisticamountofinterestischargedinasalveinvolving
certainkindsofdeferredpayments,thenthetransactionwillbetreatedasiftherealisticrateofinterest
hadbeenused.Thedifferencebetweentherealisticinterestandtheinterestactuallyusedisreferredto
asimputedinterest.
IncomeInflowofREVENUEduringaperiodoftime.(SeeNETINCOME.)
IncomeStatementSummaryoftheeffectofREVENUESandexpensesoveraperiodoftime.
IncomeTaxBasis(1)Fortaxpurposes,theconceptofbasisdeterminestheproperamountofgain
toreportwhenanASSETissold.Basisisgenerallythecostpaidforanassetplustheamountspaidto
improvetheassetlessdeductionstakenagainsttheasset,suchasDEPRECIATIONand
AMORTIZATION.(2)Foraccountingpurposes,aconsistentbasisofaccountingthatusesincometax
accountingruleswhileGENERALLYACCEPTEDACCOUNTINGPRINCIPLES(GAAP)doesnot.(See
OTHERCOMPREHENSIVEBASISOFACCOUNTING.)
IndependenceStandardBoard(ISB)Thisistheprivatesectorstandardsettingbodygoverningthe
independenceofAUDITORsfromtheirpubliccompanyclients.Itcameaboutfromdiscussions
betweentheAICPA,otheraccountingrepresentativesandtheSEC.
IndividualRetirementAccount(IRA)AnIRAisapersonalsavingsplanthatallowsanindividualto
makecashcontributionsperyeardependentontheindividual'sadjustedgrossincomeand
participationinanemployer'sretirementplan.UnderatraditionalIRAtheseearningsarenottaxable
untilthetimeofwithdrawalfromtheplan.
InheritanceAsdistinguishedfromaBEQUESTordevise,aninheritanceispropertyacquiredthrough
lawsofdescentanddistributionfromapersonwhodieswithoutleavingawill.Thevalueofproperty
inheritedidexcludedfromataxpayersgrossincome,butifthepropertyinheritedproducesincomeitis
includedingrossincome.Ataxpayer'sbasisininheritedpropertyisthefairmarketvalueatthetimeof
death.
InitialPublicOffering(IPO) Whenaprivatecompanygoespublicforthefirsttime.
InquiryAprocedurethatconsistsofseekinginformation,bothfinancialandnonfinancial,of
knowledgeablepersonsthroughoutthecompany.Itisusedextensivelythroughouttheauditandoften
iscomplementarytoperformingotherprocedures.Inquiriesmayrangefromformalwritteninquiriesto
informaloralinquiries.
Insolvent Whenanentity'sLIABILITIESexceeditsASSETS.
InstallmentPartialpayment.
InstallmentMethodTaxACCOUNTINGmethodofreportingGAINonthesaleofanASSET

exchangedforaRECEIVABLE.Ingeneral,thegainisreportedasthenoteispaidoff.
IntangibleAssetAssethavingnophysicalexistencesuchastrademarksandpatents.(See
TANGIBLEASSET.)
InterestPaymentfortheuseorforbearanceofmoney.
InterimFinancialStatementsFINANCIALSTATEMENTSthatreporttheoperationsofanentityfor
lessthanoneyear.
InternalAuditAUDITperformedwithinanentitybyitsstaffratherthananindependentcertified
publicaccountant.
InternalControlProcessdesignedtoprovidereasonableassuranceregardingachievementof
variousmanagementobjectivessuchasthereliabilityoffinancialreports.
InternalControlOverFinancialReportingAprocessdesignedby,orunderthesupervisionofthe
company'sprincipalexecutiveandprincipalfinancialofficersorpersonsperformingsimilarfunctions
andeffectedbythecompany'sboardofdirectors,management,andotherpersonnel,toprovide
reasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancial
statementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciplesand
includesthosepoliciesandproceduresthat:
1.Pertaintothemaintenanceofrecordsthataccuratelyandfairlyreflectthetransactionsand
dispositionsoftheassetsofthecompany.
2.Providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationof
financialstatementsinaccordancewithGAAPandthatreceiptsandexpendituresarebeingmadeonly
inaccordancewithauthorizationsofmanagementanddirectorsofthecompany.
3.Providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,
useordispositionofthecompany'sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
InternalRateofReturnMethodthatdeterminesthediscountrateatwhichthepresentvalueofthe
futureCASHFLOWSwillexactlyequalinvestmentoutlay.
InternalRevenueCodeCollectionoftaxrulesofthefederalgovernment.AlsoreferredtoasTitle26
oftheUnitedStatesCode.
InternalRevenueService(IRS)FederalagencythatadministerstheINTERNALREVENUECODE.
TheIRSispartoftheUnitedStatesTreasuryDepartment.
InternationalAccountingStandardsCommittee,the(IASC)isanindependentprivatesectorbody,
formedin1973,withtheobjectiveofharmonizingtheaccountingprincipleswhichareusedin
businessesandotherorganizationsforfinancialreportingaroundtheworld.Itsmembersare143
professionalaccountingbodiesin104countries.
Internet/WorldWideNetTheInternetistheunregulatewildwestshowofcomputernetworks
connectedtogetherthroughouttheworld.TheWorldWideWeborWWW,ispartoftheInternet.
InventoryTangiblepropertyheldforsale,ormaterialsusedinaproductionprocesstomakea
product.
InvestmentEXPENDITUREusedtopurchasegoodsorservicesthatcouldproduceareturntothe

investor.
InvestmentTaxCreditThisisacomponentofthegeneralbusinesscreditandconsistsofthe
following:
1.Theenergycredit
2.Therehabilitationcreditand
3.Thereforestationcredit.
InvoluntaryConversionsThisisaconversionofpropertywhereitisinwholeorpartdestroyed,
stolen,seized,requisitionedorcondemned(orwherethereisathreatorimminenceofrequisitionor
condemnation).
IPOSeeINITIALPUBLICOFFERING.
IRSSeeINTERNALREVENUESERVICE.
IssuerThistermmeansanissuer,thesecuritiesofwhichareregisteredunderSection12ofthe
SecuritiesExchangeActof1934,orthatisrequiredtofilereportsunderSection15(d)ofthatAct,or
thatfilesorhasfiledaregistrationstatementwiththeSECthathasnotyetbecomeeffectiveunderthe
SecuritiesActof1933andthatithasnotwithdrawn.
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JeopardyIftheIRSbelievesthatcollectionoftaxappearstobeinjeopardy(dangerofbeing
uncollected),itmayimmediatelyassessandcollectsuchtax.Theintermediatestepsarebypassed.
JointReturnAreturnfiledbymarriedtaxpayersorsurvivingspouses.
JointVenture WhentwoormorepersonsororganizationsgatherCAPITALtoprovideaproductor
service.OftencarriedoutasaPARTNERSHIP.
JournalAnybookcontainingoriginalentriesofdailyfinancialtransactions.
JunkBondsDEBTSECURITIESissuedbycompanieswithhigherthannormalcreditrisk.
Considered"noninvestmentgrade"bonds,theseSECURITIESordinarilyyieldahigherrateofinterest
tocompensatefortheadditionalrisk.
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KeoghPlanAlsoknownasanHR10,thisisaqualifiedretirementplanforselfemployedwhodonot
incorporatetheirbusiness.Ifqualificationsaremetthetaxpayermayreceiveadeductionfor
contributionsmade.
KeyEmployeeForpurposesofrulesthatapplytotopheavyplans,akeyemployee:
1.Anofficeroftheemployerearningmorethan$130,000
2.Anindividualwhoownsmorethan5percentoftheemployer
3.Anindividualwhoownsmorethan1percentoftheemployerandcompensationgreaterthan

$150,000.
KeyPersonInsuranceBusinessownedlifeinsurancecontracttypicallyonthelivesofprincipal
officersthatnormallyprovidesforguaranteeddeathbenefitstothecompanyandtheaccumulationofa
cashsurrendervalue.
Kiting Writingchecksagainstabankaccountwithinsufficientfundstocoverthem,hopingthatthe
bankwillreceivedepositsbeforethechecksarriveforclearance.
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Lastin,Firstout(LIFO)ACCOUNTINGmethodofvaluinginventoryunderwhichthecostsofthelast
goodsacquiredarethefirstcostschargedtoexpense.CommonlyknownasLIFO.
LeaseConveyanceofland,buildings,equipmentorotherASSETSfromoneperson(LESSOR)to
another(LESSEE)foraspecificperiodoftimeformonetaryorotherconsideration,usuallyintheform
ofrent.
LeaseholdPropertyINTERESTaLESSEEownsintheleasedproperty.
LedgerAnybookofaccountscontainingthesummariesofdebitandcreditentries.
LesseePersonorentitythathastherighttousepropertyunderthetermsofaLEASE.
LessorOwnerofproperty,thetemporaryuseofwhichistransferredtoanother(LESSEE)underthe
termsofaLEASE.
LetterofCreditConditionalbankcommitmentissuedonbehalfofacustomertopayathirdpartyin
accordancewithcertaintermsandconditions.Thetwoprimarytypesarecommerciallettersofcredit
andstandbylettersofcredit.
LeveragedBuyOutAcquisitionofacontrollingINTERESTinacompanyinatransactionfinancedby
theissuanceofDEBTinstrumentsbytheacquiredentity.
LeveragedLeaseTransactionunderwhichtheLESSORborrowsfundstoacquirepropertywhichis
leasedtoathirdparty.ThepropertyandleaserentalsaresecurityfortheLESSOR'Sindebtedness.
LiabilityDEBTSorobligationsowedbyoneentity(DEBTOR)toanotherentity(CREDITOR)payable
inmoney,goods,orservices.
LifetimeLearningCreditThisallowsacreditfor20percentofqualifiedtuitionandfeespaidbythe
taxpayerwithrespecttooneormorestudentsforanyyearthattheHOPESHCOLARSHIPCREDITis
notclaimed.
LIFOSeeLASTIN,FIRSTOUT.
LimitedLiabilityCompany(LLC)Formofdoingbusinesscombininglimitedliabilityforallowners
(calledmembers)withtaxationasaPARTNERSHIP.AnLLCisformedbyfilingARTICLESOF
ORGANIZATIONwithanappropriatestateofficial.RulesgoverningLLCsvarysignificantlyfromstate
tostate.

LimitedLiabilityPartnership(LLP)GENERALPARTNERSHIPwhich,viaregistrationwithan
appropriatestateauthority,isabletoenshroudallitspartnersinlimitedliability.RulesgoverningLLPs
varysignificantlyfromstatetostate.
LimitedPartnershipPARTNERSHIPinwhichoneormorepartners,butnotall,havelimitedliability
tocreditorsofthepartnership.
LiquidAssetsCash,cashequivalents,andmarketableSECURITIES.
Liquidation WindingupanactivitybydistributingitsASSETStotheappropriatepartiesandsettling
itsDEBTS.
ListedPropertyLimitsareimposedontheDEPRECIATIONdeductionataxpayermayclaimon
certainlistedpropertyasfollows:
1.Apassengercar
2.Otherpropertyusedastransportation
3.Propertyusedforpurposesofentertainment,recreation,oramusement
4.Acomputerandperipheralequipmentand
5.Cellulartelephone.
LitigationSupport/DisputeResolutionAservicethatCPAsoftenprovidetoattorneyse.g.,expert
testimonyaboutthevalueofabusinessorotherasset,forensicaccounting(apartnerstealingfromhis
otherpartners,oraspouseunderstatinghisincomeinamatrimonialaction).ThelawyerhirestheCPA
todotheinvestigationanddeterminetheamountofmoneystolenorunderstated.
LLCSeeLIMITEDLIABILITYCOMPANY.
LLPSeeLIMITEDLIABILITYPARTNERSHIP.
LongTermDebtDEBTwithamaturityofmorethanoneyearfromthecurrentdate.
LossExcessofEXPENDITURESoverREVENUEforaperiodoractivity.Also,fortaxpurposes,an
excessofbasisovertheamountrealizedinatransaction.(SeeNETINCOME.)
LowerofCostorMarketValuingASSETSforfinancialreportingpurposes.Ordinarily,"cost"isthe
purchasepriceoftheassetand"market"referstoitscurrentreplacementcost.GENERALLY
ACCEPTEDACCOUNTINGPRINCIPLES(GAAP)requiresthatcertainassets(e.g.,INVENTORIES)
becarriedatthelowerofcostormarket.
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ManagementAccountingReportingdesignedtoassistmanagementindecisionmaking,planning,
andcontrol.AlsoknownasManagerialAccounting.
ManagementDiscussionandAnalysis(MD&A)SECrequirementinfinancialreportingforan
explanationbymanagementofsignificantchangesinoperations,ASSETS,andLIQUIDITY.
Management'sReportManagementisrequiredtoincludeinitsannualreportitsassessmentofthe
effectivenessofthecompany'sinternalcontroloverfinancialreportinginadditiontoitsauditedfinancial

statementsasoftheendofthemostrecentfiscalyear.
ManagerialAccountingSeeMANAGEMENTACCOUNTING.
MarginExcessofsellingpriceovertheunitcost.
MarktoMarketMethodofvaluingASSETSthatresultsinadjustmentofanasset'scarryingamount
toitsmarketvalue.
MarketableSecuritiesStocksandothernegotiableinstrumentswhichcanbeeasilyboughtandsold
oneitherlistedexchangesoroverthecountermarkets.
MarriedTaxpayersTaxpayersthataremarriedmayfileaJOINTRETURN,thereforecombiningtheir
INCOMEandexpenses.Individualswillbeconsideredmarriedif:
1.Theyarelivingashusbandandwife
2.Theyarerecognizedlivingascommonlawmarriageor
3.Legallymarriedbutseparatedandlivingapartbutnotlegallydivorced.
Marriageisdeterminedasofthelastdayofthetaxyear.
MatchingPrincipleAfundamentalconceptofbasicaccounting.Inanyonegivenaccountingperiod,
youshouldtrytomatchtherevenueyouarereportingwiththeexpensesittooktogeneratethat
revenueinthesametimeperiod,orovertheperiodsinwhichyouwillbereceivingbenefitsfromthat
expenditure.Asimpleexampleisdepreciationexpense.Ifyoubuyabuildingthatwilllastformany
years,youdon'twriteoffthecostofthatbuildingallatonce.Instead,youtakedepreciationdeductions
overthebuilding'sestimatedusefullife.Thus,you've"matched"theexpense,orcost,ofthebuilding
withthebenefitsitproduces,overthecourseoftheyearsitwillbeinservice.
MaterialWeaknessAsignificantdeficiencyorcombinationofsignificantdeficienciesthatresultsin
morethanaremotelikelihoodthatamaterialmisstatementoftheannualorinterimfinancialstatements
willnotbepreventedordetected.
MaterialityMagnitudeofanomissionormisstatementsofACCOUNTINGinformationthat,inthelight
ofsurroundingcircumstances,makesitprobablethatthejudgmentofareasonablepersonrelyingon
theinformationwouldchangeorbeinfluenced.
MD&ASeeMANAGEMENTDISCUSSIONANDANALYSIS.
MergerBUSINESSCOMBINATIONthatoccurswhenoneentitydirectlyacquirestheASSETSand
LIABILITIESofoneormoreentitiesandnonewcorporationorentityiscreated.(See
CONSOLIDATION.)
MonetaryItemsDefinitefixedamountsstatedintermsofdollars,eitherbylaworbycontract
agreement.
MortgageLegalinstrumentevidencingasecurityinterestinASSETS,usuallyrealestate.Mortgages
serveasCOLLATERALforPROMISSORYNOTES.
MunicipalBondBONDissuedbyagovernmentorpublicbody,theINTERESTonwhichistypically
exemptfromfederaltaxation.

MatchingPrincipleAfundamentalrulefbaxicaccounting.Inanyonegivenaccountingperiod,you
shouldtrytomatchtherevenueyouarereportingwiththeexpensesittook.
MutualFundInvestmentcompanywhichgenerallyoffersitssharestothegeneralpublicandinvests
theproceedsinadiversifiedportfolioofSECURITIES.(SeeCLOSEDENDMUTUALFUNDand
OPENENDMUTUALFUND.)
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NASBASeeNATIONALASSOCIATIONOFSTATEBOARDSOFACCOUNTANCY.
NationalAssociationofStateBoardsofAccountancyservesasaforumforthe54StateBoards
ofAccountancy,whichadministertheuniformCPAexamination,licenseCertifiedPublicAccountants
andregulatethepracticeofpublicaccountancyintheUnitedStates.
NegativeAssuranceReportissuedbyanACCOUNTANTbasedonlimitedproceduresthatstates
thatnothinghascometotheaccountant'sattentiontoindicatethatthefinancialinformationisnotfairly
presented.
NegligenceTheomissiontodosomethingwhichareasonableman,guidedbythoseordinary
considerationswhichordinarilyregulatehumanaffairs,woulddo,orthedoingofsomethingwhicha
reasonableandprudentmanwouldnotdo.Negligenceisthefailuretousesuchcareasareasonably
prudentandcarefulpersonwoulduseundersimilarcircumstancesitisthedoingofsomeactwhicha
personofordinaryprudencewouldnothavedoneundersimilarcircumstancesorfailuretodowhata
personofordinaryprudencewouldhavedoneundersimilarcircumstances.Thetermrefersonlytothat
legaldelinquencywhichresultswheneveramanfailstoexhibitthecarewhichheoughttoexhibit,
whetheritbeslight,ordinary,orgreat.Itischaracterizedchieflybyinadvertence,thoughtlessness,
inattention,andthelike,while"wantonness"or"recklessness"ischaracterizedbywillfulness.Thelaw
ofnegligenceisfoundedonreasonableconductorreasonablecareunderallcircumstancesof
particularcare.Doctrineofnegligencerestsondutyofeverypersontoexerciseduecareinhisconduct
towardothersfromwhichinjurymayresult.
NetAssetsExcessofthevalueofSECURITIESowned,cash,receivables,andotherASSETSover
theLIABILITIESofthecompany.
NetIncomeExcessorDEFICIToftotalREVENUESandGAINScomparedwithtotalexpensesand
lossesforanACCOUNTINGperiod.(SeeINCOMEandLOSS.)
NetLeaseInadditiontotherentalpayment,theLESSEEassumesallpropertychargessuchas
taxes,insurance,andmaintenance.
NetSalesSalesatgrossinvoiceamountslessanyadjustmentsforreturns,allowances,ordiscounts
taken.
NetWorthSimilartoEQUITY,theexcessofASSETSoverLIABILITIES.
NonforProfitOrganization/TaxExemptOrganizationAnincorporatedorganizationwhichexists
foreducationalorcharitablepurposes,andfromwhichitsshareholdersortrusteesdonotbenefit
financially.Alsocallednotforprofitorganization.
NonresidentAlienAnycitizenthatisnotaresidentorcitizenoftheUnitedStates.Incomeofsuch

individualsissubjecttotaxationifitiseffectivelyconnectedwithaUnitedStatestradeorbusiness.
NonRoutineTransactionsActivitiesthatoccuronlyperiodically,thedatainvolvedaregenerallynot
partoftheroutineflowoftransactions.
NoParStockStockauthorizedtobeissuedbutforwhichnoPARVALUEissetintheARTICLESOF
INCORPORATION.ASTATEDVALUEissetbytheBOARDOFDIRECTORSontheissuanceofthis
typeofstock.
NoParValueStockorbondthatdoesnothaveaspecificvalueindicated.(SeeSTATEDVALUE.)
NotionalValueassignedtoASSETSorLIABILITIESthatisnotbasedoncostormarket(e.g.,the
valueofaservicenotyetrendered).
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ObjectivityEmphasizingorexpressingthenatureofrealityasitisapartfrompersonalreflectionor
feelingsindependenceofmind.
ObligationsAnyamountwhichmayrequirepaymentbyanentityatafuturetime.
OCBOASeeOTHERCOMPREHENSIVEBASISOFACCOUNTING.
OPEBSeeOTHERPOSTRETIREMENTEMPLOYEEBENEFIT.
OpenEndMutualFundMUTUALFUNDthatdoesnothaveafixednumberofsharesoutstanding,
offersnewsharestothepublic,andbuysbackoutstandingsharesatmarketvalue.
OperatingAgreementAgreement,usuallyawrittendocument,thatsetsouttherulesbywhicha
LIMITEDLIABILITYCOMPANY(LLC)istobeoperated.ItistheLLCequivalentofcorporateBYLAWS
oraPARTNERSHIPagreement.
OperatingCyclePeriodoftimebetweentheacquisitionofgoodsandservicesinvolvedinthe
manufacturingprocessandthefinalcashrealizationresultingfromsalesandsubsequentcollections.
OptionRighttobuyorsellsomethingataspecifiedpriceduringaspecifiedtimeperiod.
OrdinaryIncome Oneoftwoclassesofincome(theotherbeingCAPITALGAINS)taxedunderthe
INTERNALREVENUECODE.Historically,ordinaryincomeistaxedatahigherratethancapitalgains.
OrganizationExpendituresThecostsoforganizingatradeorbusinessorforprofitactivitybeforeit
beginsactivebusiness.Ataxpayermayelecttoamortizesuchexpensesforaternnolessthan60
months.Iftheelectionisnotmadethentheexpensesarenotdeductibleandmayonlyberecovered
whenthebusinessceasesoperationorissold.
OtherComprehensiveBasisofAccounting(OCBOA)Consistentaccountingbasisotherthan
GENERALLYACCEPTEDACCOUNTINGPRINCIPLES(GAAP)usedforfinancialreporting.Examples
includeanINCOMETAXBASISoraCASHBASIS.
OtherPostRetirementEmployeeBenefit(OPEB)Allpostretirementbenefitsotherthanpensions,
providedbyemployerstoemployees.

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PaidinCapitalPortionofthestockholders'EQUITYwhichwaspaidinbythestockholders,as
opposedtoCAPITALarisingfromprofitableoperations.
ParentCompanyCompanythathasacontrollinginterestintheCOMMONSTOCKofanother.
PartnershipRelationshipbetweentwoormorepersonsbasedonawritten,oral,orimplied
agreementwherebytheyagreetocarryonatradeorbusinessforprofitandsharetheresultingprofits.
UnlikeaCORPORATION'Sshareholders,thepartnership'sgeneralpartnersareliablefortheDEBTS
ofthepartnership.(SeeGENERALPARTNERSHIP,LIMITEDLIABILITYPARTNERSHIP,LIMITED
PARTNERSHIP.)
ParValueAmountpersharesetintheARTICLESOFINCORPORATIONofaCORPORATIONtobe
enteredintheCAPITALSTOCKSaccountwhereitisleftpermanentlyandsignifiesacushionof
EQUITYcapitalfortheprotectionofCREDITORS.
PassiveActivityLossLOSSgeneratedfromactivitiesinvolvedintheconductofatradeorbusiness
inwhichthetaxpayerdoesnotmateriallyparticipate.
PassiveIncomeIncludesincomederivedfromsuchsourcesasdividends,interest,royalties,rents,
amountsreceivedfrompersonalservicecontracts,andincomereceivedasabeneficiaryofanestate
ortrust.
PatronageDividendsThesedividendsareamountspaidbyacooperativetoitsmembersand
customersbasedonthequantityorvalueofbusinessconductedwithorforthemembersduringthetax
year.
PCAOBPublicCorporationAccountingOversightBoard,aprivatesector,nonprofitcorporation,
createdbytheSarbanesOxleyActof2002,tooverseetheAUDITORsofpubliccompaniesinorderto
protecttheinterestsofinvestorsandfurtherthepublicinterestinthepreparationofinformative,fair,
andindependentauditreports.
PeerReviewProcessbywhichanaccountingfirm'spracticeisevaluatedforcompliancewith
professionalstandards.Theobjectiveisachievedthroughtheperformanceofanindependentreview
byone'speers.
PenaltyThevariousgovernmentcodescontainnumerousprovisionswhichimposepenaltiesona
taxpayer(anytypeoftaxpayer)forfailuretoperformaspecificactoromittingvitalinformationona
return.
PensionRetirementplanofferedbyanemployerforthebenefitofanemployee,usuallyatretirement,
throughaTRUSTEEwhocontrolstheplanASSETS.(SeeEMPLOYEEBENEFITPLAN.)
PerpetualInventorySystemthatrequiresacontinuousrecordofallreceiptsandwithdrawalsofeach
itemofINVENTORY.
PersonalFinancialPlanningProcessforarrivingatacomprehensiveplantosolveanindividual's
personal,business,andfinancialproblemsandconcerns.

PersonalFinancialSpecialist(PFS)CERTIFIEDPUBLICACCOUNTANTwhospecializesin
PERSONALFINANCIALPLANNINGandcompletesaseriesofrequirementsthatincludeeducation,
experience,ethicsandanexam.
PersonalFinancialStatementsFINANCIALSTATEMENTSpreparedforanindividualorfamilyto
showfinancialstatus.
PersonalPropertyMovablepropertythatisnotaffixedtotheland(REALPROPERTY).Personal
propertyincludestangibleitemssuchascash,carsandcomputers,aswellasintangibleitems,suchas
royalties,patentsandcopyrights.
PhantomIncomeIncomereportedonaTAXBASISforwhichnocashorfinancialbenefitisrealized.
PledgedAssetASSETplacedinaTRUSTandusedasCOLLATERALforaDEBT.
PoolingofInterestUsedtoaccountfortheacquisitionofanothercompanywhentheacquiring
companyexchangesitsvotingCOMMONSTOCKforthevotingcommonstockoftheacquired
companywhencertaincriteriaaremet.
PostRetirementBenefitsPENSIONS,healthcare,lifeinsuranceandotherbenefitsthatare
providedbyanemployertoretirees,theirdependents,orsurvivors.
PreferredStockTypeofCAPITALSTOCKthatcarriescertainpreferencesoverCOMMONSTOCK,
suchasapriorclaimonDIVIDENDSandASSETS.
Premium(1)ExcessamountpaidforaBONDoveritsfaceamount.(2)Ininsurance,thecostof
specifiedcoverageforadesignatedperiodoftime.
PrepaidExpenseCostincurredtoacquireeconomicallyusefulgoodsorservicesthatareexpected
tobeconsumedintherevenueearningprocesswithintheoperatingcycle.
PresentValueCURRENTVALUEofagivenfuturecashflowstream,discountedatagivenrate.
PreventiveControlsThesehavetheobjectiveofpreventingerrorsorfraudfromoccurringinthefirst
placethatcouldresultinamisstatementofthefinancialstatements.
PrimeRateRateofinterestchargedbymajorU.S.banksonloansmadetotheirpreferred
customers.
PrincipalFaceamountofaSECURITY,exclusiveofanyPREMIUMorINTEREST.Thebasisfor
INTERESTcomputations.
PrivatePlacementSalesofSECURITIESnotinvolvingaPUBLICOFFERINGandexemptfrom
registrationpursuanttocertainEXEMPTIONS.
PrivilegeArightorimmunitygrantedasapeculiarbenefitadvantage.
PrivityAninterestinatransaction,contractorlegalactiontowhichoneisnotaparty,arisingoutofa
relationshiptooneoftheparties.
ProfitSharingPlanDEFINEDCONTRIBUTIONPLANcharacterizedbythesettingasideofaportion

ofanentity'sprofitsinparticipant'saccounts.(SeeEMPLOYEEBENEFITPLAN.)
ProFormaPresentationoffinancialinformationthatgiveseffecttoanassumedevent(e.g.,
MERGER).
ProjectionProspectiveFINANCIALSTATEMENTSthatincludeoneormorehypothetical
assumptions.
PromissoryNoteEvidenceofaDEBTwithspecificamountdueandinterestrate.Thenotemay
specifyamaturitydateoritmaybepayableondemand.Thepromissorynotemayormaynot
accompanyotherinstrumentssuchasaMORTGAGEprovidingsecurityforthepaymentthereof.(See
DEMANDLOAN.)
ProprietorshipBusinessownedbyanindividualwithoutthelimitedliabilityprotectionofa
CORPORATIONoraLIMITEDLIABILITYCOMPANY(LLC).Alsoknownassoleproprietorship.
ProRataDistributionofanexpense,fund,orDIVIDENDproportionatewithownership.
ProspectiveFinancialInformation(forecastandprojection)Forecast:Prospectivefinancial
statementsthatpresent,tothebestoftheresponsibleparty'sknowledgeandbelief,anentity's
expectedfinancialposition,resultsofoperations,andchangesinfinancialposition.Afinancialforecast
isbasedontheresponsibleparty'sassumptionsreflectingconditionsitexpectstoexistandthecourse
ofactionitexpectstotake.Projection:Prospectivefinancialstatementsthatpresent,tothebestofthe
responsibleparty'sknowledgeandbelief,givenoneormorehypotheticalassumptions,anentity's
expectedfinancialposition,resultsofoperations,andchangesinfinancialposition.
ProspectusMajorpartoftheregistrationstatementfiledwiththeSECURITIESANDEXCHANGE
COMMISSION(SEC)forPUBLICOFFERINGS.AprospectusgenerallydescribesSECURITIESor
partnershipintereststobeissuedandsold.
ProxyDocumentauthorizingsomeoneotherthantheshareholdertoexercisetherighttovotethe
stockownedbytheshareholder.
PublicOfferingOfferingsharestothepublic.GenerallydonethroughSECfilings.
PublicOversightBoard(POB)ThePOBisanindependentoversightboard,composedofpublic
members,whichmonitorsandevaluatespeerreviewsconductedbytheSECPracticeSection
(SECPS)oftheAICPA'sDivisionforCPAFirmsaswellasotheractivitiesoftheSECPS.
PurchaseMethodofAccountingACCOUNTINGforaMERGERbyaddingtheacquiredcompany's
ASSETSatthepricepaidforthemtotheacquiringcompany'sassets.
PushDownAccountingMethodofACCOUNTINGinwhichthevaluesthatarisefromanacquisition
aretransferredor"pusheddown"totheaccountsofanacquiredcompany.
PutsAputisanoptiontosellacertainnumberofsharesofstockatastatedpricewithinacertain
period.Thegainorlossonaputisshortorlongtermdependingontheholdingperiodofthestock
involved.(AlsoseeCALLS)
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QualifiedOpinionAUDITopinionthatstates,exceptfortheeffectofamattertowhichaqualification
relates,theFINANCIALSTATEMENTSarefairlypresentedinaccordancewithGENERALLY
ACCEPTEDACCOUNTINGPRINCIPLES(GAAP).TheAUDITORisrequiredtoqualifywhenthereis
ascopelimitation.
QuasiReorganizationTypeofreorganizationinwhich,withshareholderapproval,themanagement
revaluesASSETSandeliminatestheDEFICIT(increasedbyassetdevaluationsifany)bychargingit
tootherEQUITYaccountswithoutthecreationofanewcorporateentityorwithoutcourtintervention.
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R&DSeeRESEARCHANDDEVELOPMENT.

RatioAnalysisComparisonofactualorprojecteddataforaparticularcompanytootherdataforthat
companyorindustryinordertoanalyzetrendsorrelationships.
RealEstateInvestmentTrust(REIT)InvestorownedTRUSTwhichinvestsinrealestateand,
insteadofpayingincometaxonitsincome,reportstoeachofitsownershisorherproratashareofits
incomeforinclusionontheirincometaxreturns.Thisuniquetrustarrangementisspecificallyprovided
forintheINTERNALREVENUECODE.
RealEstateMortgageInvestmentConduit(REMIC)Anentitythatholdsafixedpoolofmortgages
andissuesmultipleclassesofinterestsinitselftoinvestors.AqualifiedREMICisgenerallytaxedlike
apartnership,unlessittakescontributionsafteritsstartupdayorengagesinaprohibitedtransaction.
RealPropertyLandandimprovements,includingbuildingsandPERSONALPROPERTY,thatis
permanentlyattachedtothelandorcustomarilytransferredwiththeland.
ReasonableAssuranceManagement'sassessmentoftheeffectivenessofinternalcontrolover
financialreportingisexpressedatthelevelofreasonableassurance.Itincludestheunderstandingthat
thereisaremotelikelihoodthatmaterialmisstatementswillnotbepreventedordetectedonatimely
basis.Itisahighlevelofassurance.
RecapitalizationAninternalreorganizationofacorporationincludingarearrangementofthecapital
structurebychangingthekindofstockorthenumberofsharesoutstandingorissuingstockinsteadof
bonds.Itisdistinguishedfrommostothertypesofreorganizationbecauseitinvolvesonlyone
corporationandisusuallyaccomplishedbythesurrenderbyshareholdersoftheirsecuritiesforother
stockorsecuritiesofadifferenttype.
ReceivablesAmountsofmoneyduefromcustomersorotherDEBTORS.
ReconciliationComparisonoftwonumberstodemonstratethebasisforthedifferencebetween
them.
RedemptionValuePricetobepaidbyanENTITYtoretireitsBONDSorPREFERREDSTOCK.
RedHerring"Prerelease"PROSPECTUSoffering.Anannouncementofafutureissuanceof
SECURITIES,givenrestrictedcirculationduringthewaitingperiodof20daysorotherspecifiedperiod
betweenthefilingofaregistrationstatementwiththeSECandtheeffectivedateofthestatement.A

redherringisnotanoffertosellorthesolicitationofanoffertobuy.
RefinancingAgreementArrangementtoprovidefundingtoreplaceexistingfinancing,themost
commonbeingarefinanceofahomeMORTGAGE.
RegulatedInvestmentCompany(RIC)CommonlycalledaMUTUALFUND,thisisadomestic
corporationthatactsasaninvestmentagentforitsshareholdersbytypicallyinvestingingovernment
andcorporatesecuritiesanddistributingtheDIVIDENDSandINTERESTincomeearnedfromsuch
investments.InordertobeconsideredaRICaCORPORATIONmustmakeanirrevocableelectiontax
electioninordertobetreatedasone.
ReinsuranceProcessbywhichaninsurancecompanyobtainsinsuranceonitsinsuranceclaimswith
otherinsurersinordertospreadtherisk.
REITSeeREALESTATEINVESTMENTTRUST.
RelatedPartyTransactionBusinessorothertransactionbetweenpersonswhodonothavean
arm'slengthrelationship(e.g.,arelationshipwithindependent,competinginterests).Themost
commonisbetweenfamilymembersorcontrolledentities.Fortaxpurposes,thesetypesof
transactionsaregenerallysubjecttoagreaterlevelofscrutiny.
RelevantAssertionsAssertionsthathaveameaningfulbearingonwhethertheaccountisfairly
stated.
ReorganizationThisisachangeinthebusinessescapitalarrangements.IfforaCORPORATION
therearesevenstatutoryoptionsforreorganizationthatwouldcausethecorporationandshareholders
tonotrecognizeanyGAINorLOSSontheexchangeofstock.
RepairsEXPENDITURESmadeinordertokeeppropertyingoodconditionbutthatdonot
appreciablyprolongthelifeorincreasethevalueoftheproperty.
ReplacementsEXPENDITURESformakinggoodorwholetheportionsofpropertythathave
deterioratedthroughuseorhavebeendestroyedthroughaccident.
ReportReleaseDateThedatethecompany'sfinancialstatementsareissued.
ReposSeeREPURCHASEAGREEMENT.
RepurchaseAgreement(Repos)AgreementwherebyaninstitutionpurchasesSECURITIESunder
astipulationthatthesellerwillrepurchasethesecuritieswithinacertaintimeperiodatacertainprice.
ResearchandDevelopment(R&D)Researchisaplannedactivityaimedatdiscoveryofnew
knowledgewiththehopeofdevelopingneworimprovedproductsandservices.Developmentisthe
translationofresearchfindingsintoaplanordesignofneworimprovedproductsandservices.
ReserveACCOUNTusedtoearmarkaportionofEQUITYorfundbalancetoindicatethatitisnot
availableforexpenditure.AnobsoletetermintheUnitedStates.MorecommonlyusedinEurope.
ResidentAlienThisisanindividualthatisnotacitizen,butwhohasaresidenceintheUnited
States.TheyaretaxedonalloftheirINCOMEworldwideinthesamemanneracitizenoftheUnited
Statesis.

RestrictedAssetsCashorotherASSETSwhoseuseinwholeorinpart isrestrictedforspecific
purposesboundbyvirtueofcontractedagreements.
RestrictedFundFundestablishedtoaccountforassetswhoseincomemustbeusedforpurposes
establishedbydonorsorgrantorsofsuchASSETS.(SeeFUNDACCOUNTINGandUNRESTRICTED
FUNDS.)
RestructuringReorganizationwithinanentity.Restructuringmayoccurintheformofchangingthe
componentsofCAPITAL,renegotiatingthetermsofDEBTagreements,etc.
RetainedEarningsAccumulatedundistributedearningsofacompanyretainedforfutureneedsorfor
futuredistributiontoitsowners.
ReturnonInvestment(ROI)Ratiomeasureoftheprofitsachievedbyafirmthroughitsbasic
operations.Anindicatorofmanagement'sgeneraleffectivenessandefficiency.Thesimplestversionis
theratioofNETINCOMEtototalASSETS.
RevenueRecognitionMethodofdeterminingwhetherornotincomehasmettheconditionsofbeing
earnedandrealizedorisrealizable.
RevenuesSalesofproducts,merchandise,andservicesandearningsfromINTEREST,DIVIDEND,
rents.
ReviewAccountingservicethatprovidessomeassuranceastothereliabilityoffinancialinformation.
Inareview,aCERTIFIEDPUBLICACCOUNTANT(CPA)doesnotconductanexaminationunder
GENERALLYACCEPTEDAUDITINGSTANDARDS(GAAS).
ReviewEngagementAgreementbetweenaCERTIFIEDPUBLICACCOUNTANT(CPA)andhisor
herclienttoperformareview.(SeeACCOUNTANTS'REPORT.)
ReviewReportSeeACCOUNTANTS'REPORT.
RighttoSetoffDEBTOR'Slegalright,todischargealloraportionoftheDEBTowedtoanotherparty
byapplyingagainstthedebtanamountthattheotherpartyowestothedebtor.
RiskManagementProcessofidentifyingandmonitoringbusinessrisksinamannerthatoffersa
risk/returnrelationshipthatisacceptabletoanentity'soperatingphilosophy.
ROISeeRETURNONINVESTMENT.
RoutineTransactionsRecurringfinancialactivitiesreflectedintheaccountingrecordsinthenormal
courseofbusiness.
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SCorporationAnSCorporationisacorporationwhich,undertheInternalRevenueCode,is
generallynotsubjecttofederalincometaxes.Instead,taxableincomeofthecorporationispassed
throughtoitsstockholdersinamannersimilartothatofapartnership.
SafeHarborRuleConceptinstatutesandregulationswherebyapersonwhomeetslisted
requirementswillbepreservedfromadverselegalaction.Frequently,safeharborsareusedwherea

legalrequirementissomewhatambiguousandcarriesariskofpunishmentforanunintendedviolation.
SaleLeasebackTransactionSaleofpropertybyasellerwhosimultaneouslyleasestheproperty
backfromthepurchaser.
SalvageValueSellingpriceassignedtoretiredFIXEDASSETSormerchandiseunsalablethrough
usualchannels.
SASSeeSTATEMENTSONAUDITINGSTANDARDS.
SECSeeSECURITIESANDEXCHANGECOMMISSION.
SECFilingsFinancialandinformationalDISCLOSURESrequiredbytheSECinordertocomplywith
certainsectionsoftheSecuritiesActof1933andtheSecuritiesandExchangeActof1934.Someof
themorecommonfilingsthatpubliclyownedcompaniesmustsubmitaretheFORM10K,FORM10Q
andFORM8K.
SECRegistrationStatementDISCLOSUREdocumentthatmustbefiledwiththeSECinconnection
withapublicofferingofSECURITIES,unlesstheofferingisexempt.
SecuritiesandExchangeCommission(SEC)AgencyauthorizedbytheUnitedStatesCongressto
regulatethefinancialreportingpracticesofmostpubliccorporations.
SecurityAnykindoftransferablecertificateofownershipincludingEQUITYSECURITIESandDEBT
SECURITIES.
SecuritizationSourceoffinancingwherebyanentity'sASSETS(typicallymortgageloans,lease
obligationsorothertypesofRECEIVABLES)areplacedinaspecialpurposevehiclethatissues
SECURITIEScollateralizedbysuchassets.
SecurityInterestLegalinterestofonepersoninthepropertyofanothertoassureperformanceofa
secondpersonunderacontract.
SelfEmploymentTaxMostindividualsthatareinbusinessforthemselves,suchasSOLE
PROPRIETORS,PARTNERSorindependentcontractor,aresubjecttoselfemploymenttaxes.The
taxesprovidecoveragefortheselfemployedindividualforsocialsecurity(OASDI)andMedicare
benefits(HI)similartothetaxeswithheldbyemployersfromwagesitpaystheemployees.
SettlementMethodMethodofACCOUNTINGforSECURITIESwherebytransactionsarerecorded
onthedatethesecuritiessettlebythedeliveryorreceiptofsecuritiesandthereceiptorpaymentof
cash.
SFASSeeSTATEMENTOFFINANCIALACCOUNTINGSTANDARDS.
ShortSaleSaleofanitembeforeitispurchased.Apersonenteringintoashortsalebelievesthe
priceoftheitemwilldeclinebetweenthedateoftheshortsaleandthedateheorshemustpurchase
theitemtodelivertheitemunderthetermsoftheshortsale.
ShortTermCurrentordinarilyduewithinoneyear.
SignificantAccountsAnaccountissignificantifthereismorethanaremotelikelihoodthatthe
accountcouldcontainmisstatementsthatindividuallyorwhenaggregatedwithothers,couldhavea

materialeffectonthefinancialstatements,consideringtherisksofbothoverstatementand
understatement.
SignificantDeficiencyAcontroldeficiencyorcombinationofcontroldeficiencies,thatadversely
affectsthecompany'sabilitytoinitiate,authorize,record,processorreportexternalfinancialdata
reliablyinaccordancewithGAAPsuchthatthereismorethanaremotelikelihoodthatamisstatement
ofthecompany'sannualorinterimfinancialstatementsthatismorethaninconsequentialwillnotbe
preventedordetected.
SignificantFindingsorIssuesSubstantivemattersthatareimportanttotheproceduresperformed,
evidenceobtained,orconclusionsreachedandincludebutarenotlimitedto:
1.significantmatters
2.resultsofauditingproceduresindicatinganeedforsignificantmodificationofplannedauditing
procedures
3.auditadjustments
4.disagreementsamongmembersoftheengagementteam
5.circumstancesthatcausedifficultyinapplyingauditingprocedures
6.significantchangesintheassessedlevelofauditrisk
7.mattersthatcouldresultinmodificationoftheAUDITOR'sreport
SingleAuditActTheSingleAuditActof1984andtheSingleAuditActAmendmentsof1996
establishrequirementsforauditsofstates,localgovernments,andnonprofitorganizationsthat
administerfederalfinancialassistanceprogramsaboveacertainthreshold.
SimplePlansAnemployermayadoptasimplifiedretirementplancalledaSIMPLEPlan(Savings
incentivematchplanforemployees)ifithasfewerthan100employeesthatreceivedatleast$5,000in
compensationintheprecedingyear.
SimpleTrustThistypeofTRUSTisrequiredtodistributeallitsincomecurrently,whetherornotthe
TRUSTEEactuallydoesso,andithasnoprovisioninthetrustinstrumentforcharitablecontributions.It
istobedistinguishedfromaCOMPLEXTRUST.Atrustmaybeasimpletrustinoneyearanda
complextrustinanotheryear.Intheyearinwhichthetrustdistributesitscorpus,itlosesits
classificationasasimpletrust.
SmallBusinessStockNoncorporateinvestorsmayexcludeupto50percentoftheGAINthey
realizeonthedispositionofqualifiedsmallbusinessstockissuedafterAug.10,1993,andheldfor
morethanfiveyears.Theamountofgaineligibleforthe50percentexclusionissubjecttoperissuer
limits.InordertoqualifyfortheEXCLUSION,theCORPORATIONissuingthestockmustbeaC
Corporation(butexcludingcertaininvestmentcorporations)anditmustuseatleast80percentofits
assetsinactiveconductofoneormorequalifiedtradeorbusinesses.Inaddition,itsgrossassets
cannotexceed$50million.
SoleProprietorshipSeePROPRIETORSHIP.
SpecialAssessmentChargemadebyalocalgovernmentforthecostofanimprovementorservice.
Itisusuallyleviedonthosewhowillbenefitfromtheservice.
SpecialReportSpecialreportisatermappliedtoAUDITORs'reportsissuedinconnectionwith
varioustypesoffinancialpresentations,including:Financialstatementsthatarepreparedinconformity
withacomprehensivebasisofaccountingotherthangenerallyacceptedaccountingprinciples.
Specifiedelements,accountsoritemsofafinancialstatement.Compliancewithaspectsofcontractual
agreementsorregulatoryrequirementsrelatedtoauditedfinancialstatements.Financialpresentations

tocomplywithcontractualagreementsorregulatoryprovisions.Financialinformationpresentedin
prescribedformsorschedulesthatrequireaprescribedformofauditor'sreports.
SpinoffTransferofall,oraportionof,asubsidiary'sstockorotherASSETStothestockholdersofits
parentcompanyonaPRORATAbasis.
SpotMarketMarketforbuyingandsellingcommoditiesorfinancialinstrumentsforimmediate
deliveryandpaymentbasedonthesettlementconventionsoftheparticularmarket.
SpreadDifferencebetweentwoprices,usuallyabuyingandsellingprice.
SSARSSeeSTATEMENTSONSTANDARDSFORACCOUNTINGANDREVIEWSERVICES.
StandardDeductionIndividualtaxpayerswhodonotitemizetheirdeductionsareentitledtoa
standarddeductionamountbywhichtoreduceADJUSTEDGROSSINCOMEinarrivingattaxable
income.Theamountofthestandarddeductionvariesbythetypeofthetaxpayerandchangeseach
year.Ascheduleofstandarddeductionsiseasilyfoundintheinstructionsforthefederalform1040.
Eachstatemayalsouseastandarddeductionformat,buttheamountsandcomputationsdifferfrom
thefederalandfromstatetostate.Certaintaxpayersmaynotbeentitledtousethestandard
deduction.Anexampleofthiswouldbeamarriedfilingseparatetaxpayer.Ifonetaxpayeritemizes
thentheotherisrequiredtobylawevenifthemarriedfilingseparatetaxpayerisunknowingofwhatis
includedonthespousesseparatereturn.Areasonforthismightbethepreventionofpoolingand
duplicationofdeductions.
StartupCosts(1)Costs,excludingacquisitioncosts,incurredtobringanewunitintoproduction.(2)
Costsincurredtobeginabusiness.
StatedValuePershareamountsetbytheBOARDOFDIRECTORStobeplacedintheCAPITAL
STOCKaccountuponissuanceofNOPARVALUE.
StatementofCashFlowsAstatementofcashflowsisoneofthebasicfinancialstatementsthatis
requiredaspartofacompletesetoffinancialstatementspreparedinconformitywithgenerally
acceptedaccountingprinciples.Itcategorizesnetcashprovidedorusedduringaperiodasoperating,
investingandfinancingactivities,andreconcilesbeginningandendingcashandcashequivalents.
StatementofFinancialAccountingStandards(SFAS)StatementsissuedbytheFINANCIAL
ACCOUNTINGSTANDARDSBOARD(FASB).
StatementofFinancialConditionBasicFINANCIALSTATEMENT,usuallyaccompaniedby
appropriateDISCLOSURESthatdescribethebasisofACCOUNTINGusedinitspreparationand
presentationasofaspecifieddate,theentity'sASSETS,LIABILITIESandtheEQUITYofitsowners.
AlsoknownasBALANCESHEET.
StatementsonAuditingStandards(SAS)StatementsissuedbytheAccountingStandardsBoardof
theAMERICANINSTITUTEOFCERTIFIEDPUBLICACCOUNTANTS(AICPA).
StatementsonStandardsforAccountingandReviewServices(SSARS)Statementsissuedby
theAMERICANINSTITUTEOFCERTIFIEDPUBLICACCOUNTANTS(AICPA)thatspecificallyrelate
toREVIEWSandCOMPILATIONS.(SeeACCOUNTANTS'REPORT.)
StatuteofLimitationsThissetsouttheperiodwithinwhichactionsmaybebroughtuponclaimsor
withinwhichrightsmaybeenforced.Asitpertainstotaxreturns,thestatuteoflimitationsisgenerally

threeyearsfromthedateareturnisdueorfiled.
SteppedUpBasisGenerally,thebasisofpropertyacquiredbyINHERITENCE,BEQUESTordevice
fromaDECENDANTistheFAIRMARKETVALUEofthepropertyonthedateofthedecendant's
death.Thusifthefairmarketvalueismorethanthedecedent'sbasis,ataxpayersbasisintheproperty
receivedissteppedup.
StockCompensationPlanFRINGEBENEFITthatgivesemployeestheoptiontopurchasethe
employer'sstockataspecifiedpriceduringaspecifiedperiod.
StockOptionRighttopurchaseorsellaspecifiednumberofsharesofstockatspecifiedpricesand
times.
StockRightsStockrightsarerightsissuedtostockholdersofaCORPORATIONthatentitlethemto
purchasenewsharesofstockinthecorporationforastatedpricethatisoftensubstantiallylessthan
theFAIRMARKETVALUEofthestock.Theserightsmaybeexercisedbypayingthestatedprice,may
besold,ormaybeallowedtoexpireorlapse.StockrightsaregenerallytreatedasstockDIVIDENDS.
StockSplitIncreaseinthenumberofsharesofacompany'sCOMMONSTOCKoutstandingthat
resultfromtheissuanceofadditionalsharesproportionallytoexistingstockholderswithoutadditional
capitalinvestment.ThePARVALUEofeachshareisreducedproportionally.
StraightLineDepreciationACCOUNTINGmethodthatreflectsanequalamountofwearandtear
duringeachperiodofanASSET'Susefullife.Forinstance,theannualSTRAIGHTLINE
DEPRECIATIONofa$2,500assetexpectedtolastfiveyearsis$500.(SeeACCELERATED
DEPRECIATION.)
StrikePricePriceofafinancialinstrumentatwhichconversionorexerciseoccurs.
SubsequentEventMaterialeventthatoccursaftertheendoftheaccountingperiodandbeforethe
publicationofanentity'sFINANCIALSTATEMENTS.Sucheventsaredisclosedinthenotestothe
financialstatements.(SeeMATERIALITY.)
SurvivingSpouseThisisapersonwhosehusbandorwifediedduringthetaxyear.Asurviving
spousemayfileaJOINTRETURNfortheyearinwhichthedeathoccurred.Inadditionajointreturn
maybefiledforthetwosucceedingtaxyearsifduringthattimethesurvivingspouse:
1.Remainsunmarriedand
2.MaintainsashishomeahouseholdthatistheprincipalplaceofabodeduringtheentireTAXYEAR
forachildforwhomadependencyexemptionmaybeclaimed.
SwapFinancialcontractinwhichtwopartiesagreetoexchangenetstreamsofpaymentsovera
specifiedperiod.Thepaymentsareusuallydeterminedbyapplyingdifferentindices(e.g.,interest
rates,foreignexchangerates,equityindices)toaNOTIONALamount.Thetermnotionalisused
becauseswapcontractsgenerallydonotinvolveexchangesofPRINCIPAL.
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TangibleAssetASSETShavingaphysicalexistence,suchascash,land,buildings,machinery,or
claimsonproperty,investmentsorgoodsinprocess.(SeeINTANGIBLEASSETS.)

TaxChargeleviedbyagovernmentalunitonincome,consumption,wealth,orotherbasis.
TaxCourtTheU.S.TaxCourtisalegislativecourtfunctioningtoadjudicatecontroversiesbetween
taxpayersandtheIRSarisingoutofdeficienciesassessedbytheIRSforINCOME,GIFT,ESTATE,
windfallprofitandcertainEXCISETAXES.Ithasnojurisdictionoverothertaxessuchasemployment
taxes.Varioussalestaxesandcertainexcisetaxes.
TaxCreditfortheElderlyandDisabledTaxpayersage65orolderorthoseunder65whoare
retiredwithpermanentandtotaldisabilityareeligibletoclaimacredittoreducetheamountoftheirtax
liability.Itisdesignedprimarilytobenefitthoseindividualswhoreceivesmallamountsofretirement
INCOME.Eachtaxpayerisallocatedaninitialbaseamountbasedonhisorherfilingstatus
determiningthecredit.Thebaseamountisthenreducedbytheamountofnontaxableincome,oris
phasedoutfortaxpayerswhoseADJUSTEDGROSSINCOMEexceedscertainlevels.
TaxLienENCUMBRANCEplacedonpropertyassecurityforunpaidtaxes.
TaxShelterArrangementinwhichallowabletaxdeductionsorEXCLUSIONSresultinthedeferralof
taxonINCOMEthatwouldotherwisebepayablecurrently.
TaxYearTheperiodusedtocomputeataxpayer'sTAXABLEINCOMEistaxyear.Itisanannual
periodthatiseitheracalendaryear,FISCALYEARorfractionalpartofayearforwhichthereturnis
made.
TaxableIncomeTaxableincomeisgenerallyequaltoataxpayer'sADJUSTEDGROSSINCOME
duringtheTAXYEARlessanyallowableEXEMPTIONSanddeductions.
TaxpayerIdentificationNumber(TIN)Anyindividualorothertaxableentitythatisrequiredtofilea
return,statementoranyotherdocumentwiththeIRSmustindicatehis(orits)taxpayeridentification
number.Foranindividual,thesocialsecuritynumberisused,andifyoudonothaveasocialsecurity
number,theIRSwillassignyouaTIN.AfederaloremployerIDnumberisassignedtoothertypesof
entitiesandwillusethatastheirTIN.
TenancyinCommonCoownershipofproperty.Inavalidtenancyincommon,adeceasedco
owner'stitlepassestohisorherheirswithoutbeingincludedintheestateofthedeceasedcoowner.
TermLoanLoanforaspecifiedtimeperiod.
TimingofTestsofControlTheAUDITORmustperformtestsofcontrolsoveraperiodoftimethatis
adequatetodeterminewhether,asofthedatespecifiedinmanagement'sreport,thecontrols
necessaryforachievingtheobjectivesofthecontrolcriteriaareoperatingeffectively.
TotalGainExcessoftheproceedsrealizedonthesaleofeitherINVENTORYornoninventorygoods.
TradeDateDatewhenaSECURITYtransactionisenteredinto,tobesettledonatalaterdate.
Transactionsinvolvingfinancialinstrumentsaregenerallyaccountedforonthetradedate.
TransferredBasisAtransferredbasisisthebasisofpropertyinthehandsofatransferor,donoror
GRANTOR.Inthissenseapriorowner'sbasisinthepropertyistransferredtothetaxpayer.
Transferredbasisoccursinthefollowingtransactions:GIFTS,transfersintrusts,certaintransfersto
controlledCORPORATIONS,contributionstoPARTNERSHIPSandLIQUIDATINGdistributionsfroma
corporation.

TransfereeLiabilityApersonmaybeheldLIABLEforanothertaxpayer'sdelinquenttaxesif:
1.Thetransfereereceivedassetsofthetransferortaxpayerand
2.ThetransferorwasINSOLVENTatthetimeorwasrenderedinsolventbythattransferorrelated
seriesoftransfers.
HowevertheinsolvencyrequirementdoesnotapplytoGIFTtaxes.Thetransfereeisonlyliabletothe
extentofthevalueofthepropertyreceivedfromthetransferor.Thus,transfereeliabilitymerely
providesameansfortheIRStorecoveranyassetsthetransferortaxpayerattemptstotransferto
avoidpayingtaxes.
TreasuryBillShorttermobligationthatbearsnoINTERESTandissoldatadiscount.
TreasuryBondLongtermobligationthatmaturesmorethanfiveyearsfromissuanceandbears
INTEREST.
TreasuryInstrumentsDirectfinancialobligationsoftheUnitedStatesgovernment.(See
TREASURYBILLTREASURYBONDTREASURYNOTETREASURYSTOCK.)
TreasuryNoteIntermediatetermobligationthatmaturesonetofiveyearsfromissuanceandbears
INTEREST.
TreasuryStockStockreacquiredbytheissuingcompany.Itmaybeheldindefinitely,retired,issued
uponexerciseofSTOCKOPTIONSorresold.
TroubledDebtRestructuringAgreementbetweenDEBTORandCREDITORwhichamendsthe
termsofaDEBTthathaslittlechanceofbeingpaidinaccordancewithitscontractualterms.The
agreementmayinvolvethetransferofASSETSinfullorpartialsatisfactionofthedebt.
TrustAncientlegalpracticewhereoneperson(theGRANTOR)transfersthelegaltitletoanASSET,
calledtheprincipleorcorpus,toanotherperson(theTRUSTEE),withspecificinstructionsabouthow
thecorpusistobemanagedanddisposed.
TrusteePersonwhoisgivenlegaltitleto,andmanagementauthorityover,thepropertyplacedina
trust.
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UnauditedFinancialStatementsFINANCIALSTATEMENTSwhichhavenotundergoneadetailed
AUDITexaminationbyanindependentCERTIFIEDPUBLICACCOUNTANT(CPA).
UnearnedIncomePaymentsreceivedforserviceswhichhavenotyetbeenperformed.
UniformAccountancyAct(UAA)TheUAAistheproposalforanewregulatoryframeworkforthe
publicaccountingprofessionwhichwasdevelopedjointlybytheAmericanInstituteofCertifiedPublic
Accountants(AICPA)andtheNationalAssociationofStateBoardsofAccountancy(NASBA).Thenew
frameworkisintendedtoenhanceinterstatereciprocityandpracticeacrossstatelinesbyCPAs,meet
thefutureneedsoftheprofession,respondtothemarketplaceandprotectthepublicthatthe
professionserves.
UniformCapitalizationRulesTheseareasetofrulesintendedtobeasinglecomprehensivesetof

rulestogovernthecapitalization,orinclusioninINVENTORYofdirectandindirectcostofproducing,
acquiringandholdingproperty.Undertherules,taxpayersarerequiredtocapitalizethedirectcosts
andanallocableportionoftheindirectcostsattributabletorealandtangiblepersonalproperty
producedoracquiredforresale.Theobviouseffectoftheuniformcapitalizationrulesisthattaxpayers
maynottakecurrentdeductionsforthesecostsbutinsteadmustberecoveredthrough
DEPRECIATIONorAMORTIZATION.
UnqualifiedOpinionAUDITopinionnotqualifiedforanymaterialscoperestrictionsnordepartures
fromGENERALLYACCEPTEDACCOUNTINGPRINCIPLES(GAAP).TheAUDITORmayissuean
unqualifiedopiniononlywhentherearenoidentifiedmaterialweaknessesandwhentherehavebeen
norestrictionsonthescopeoftheauditor'swork.AlsoknownasCLEANOPINION.
UnrestrictedFundsResourcesofanotforprofitentitythathavenorestrictionsastouseor
purpose.(SeeFUNDACCOUNTINGandRESTRICTEDFUND.)
UseofProfessionalSkepticismwhenEvaluatingtheResultsofTestingTheAUDITORmust
conducttheauditofinternalcontroloverfinancialreportingandtheauditofthefinancialstatements
withprofessionalskepticism,whichisanattitudethatincludesaquestioningmindandacritical
assessmentofauditevidence.
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ValuationAllowanceMethodofloweringorraisinganobject'sCURRENTVALUEbyadjustingits
acquisitioncosttoreflectitsmarketvaluebyuseofaCONTRAACCOUNT.
VariableRateLoanLoanwhoseinterestratechangesoveritslifeinrelationtothelevelofanindex.
VarianceDeviationordifferencebetweenanestimatedvalueandtheactualvalue.
VentureCapitalInvestmentcompanywhoseprimaryobjectiveiscapitalgrowth.NewASSETS
investedlargelyincompaniesthataredevelopingnewideas,products,orprocesses.
VestingPointatwhichcertainbenefitsavailabletoanemployeearenolongercontingentonthe
employeecontinuingtoworkfortheemployer.
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WalkthroughsThemosteffectivemeansforanAUDITORtoconfirmhisunderstandinghowinternal
controloverfinancialreportingisdesignedandoperatestoevaluateandtestitseffectiveness.It
includesmakinginquiriesofandobservingthepersonnelwhoactuallyperformthecontrolsreviewing
documentsthatareusedin,andthatresultfrom,theapplicationofthecontrolsandcomparing
supportingdocumentationtotheaccountingrecords.Inawalkthrough,theauditortracesatransaction
fromoriginationthroughthecompany'sinformationsystemstothepointwhereitisreflectedinthe
company'sfinancialreports.
Walkthroughsprovidetheauditorwithevidenceto:
1.Confirmtheauditor'sunderstandingoftheprocessflowoftransactions.
2.Confirmtheauditor'sunderstandingofthedesignofcontrolsidentifiedforallfivecomponentsof
internalcontroloverfinancialreporting,includingthoserelatedtothepreventionordetectionoffraud.
3.Confirmthattheauditor'sunderstandingoftheprocessiscompletebydeterminingwhetherallpoints

intheprocessatwhichmisstatementsrelatedtoeachrelevantfinancialstatementassertionthatcould
occurhavebeenidentified.
4.Evaluatetheeffectivenessofthedesignofcontrols.
5.Confirmwhethercontrolshavebeenplacedinoperation.
WarrantOptiontopurchaseadditionalSECURITIESfromtheissuer.
WashSaleAwashsaleoccursifstockorsecuritiesaresoldataLOSSandtheselleracquires
substantiallyidenticalstockorSECURITIES30daysbeforeorafterthesale.Stockorsecuritiesforthis
purposeincludescontractsoroperationstoacquireorsellstockorsecurities.Lossesincurredina
washsalecannotbededucted.Itdoesnotmatterifthetotal60dayperiodbeginsinonetaxyearand
endsinanother.However,thedisallowedlossisnotpermanentlylost.Instead,thebasisinthenewly
acquiredstockorsecuritiesisthesamebasisasofthestockorsecuritiessold,adjustedbythe
differenceinpriceofthestockorsecurities.
WithholdingAmountwithheldordeductedfromemployeesalariesbytheemployerandpaidbythe
employer,fortheemployee,totheproperauthority.
WithholdingAllowanceEachtaxpayerisallowedtoclaimawithholdingallowance,whichexemptsa
certainamountofwagesfrombeingsubjecttoWITHHOLDING.Theallowanceisdesignedtoprevent
toomuchtaxesbeingwithheldfromataxpayerswagesandapersoncancomputethisbycompleting
formW4andsubmittingittotheiremployer.
WorkingCapitalExcessofCURRENTASSETSoverCURRENTLIABILITIES.
WorkingPapers(1)RecordskeptbytheAUDITORoftheproceduresapplied,thetestsperformed,
theinformationobtained,andthepertinentconclusionsreachedinthecourseoftheAUDIT.(2)Any
recordsdevelopedbyaCERTIFIEDPUBLICACCOUNTANT(CPA)duringanaudit.
WorkinProgressINVENTORYaccountconsistingofpartiallycompletedgoodsawaitingcompletion
andtransfertofinishedinventory.
WrapAroundMortgageSecondMORTGAGEwhichconvenientlyexpandsthetotalamountof
borrowingbythemortgagorwithoutdisturbingtheoriginalmortgage.
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YellowBook WrittenbytheGENERALACCOUNTABILITYOFFICE,theyellowbooksetsforth
standardstobefollowedinauditingtheFINANCIALSTATEMENTSofentitiesthatreceivefederal
financialassistance."YellowBook"isthenamegivento"GovernmentAuditingStandards"issuedby
theComptrollerGeneraloftheUnitedStateswhichcontainsstandardsforauditsofgovernment
organizations,programs,activitiesandfunctions,andofgovernmentassistancereceivedby
contractors,nonprofitorganizationsandothernongovernmentorganizations.
YieldReturnonanINVESTMENTaninvestorreceivesfromDIVIDENDSorINTERESTexpressedas
apercentageofthecostoftheSECURITY.
YieldtoMaturityRateofreturnonaSECURITYtoitsmaturity,givingeffecttothestatedinterest
rate,accrualofdiscount,orAMORTIZATIONofPREMIUM.
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ZeroCouponBondBONDonwhichtheholderreceivesonlyonepaymentatmaturitywhich
includesbothPRINCIPALandINTERESTfromissuancetomaturity.
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