Appendix ACCOUNTING TERMINOLOGY Applicants have been asked to define the following accounting terms in the examinations given in the various states since the first law was passed in New York in 1896 recognizing accountancy as a profession. The definitions presented here are, in part, those prepared by the Committee on Terminology appointed by the American Association of Public Accountants. This Committee was made up of the following members, all of whom are Certified Public Accountants: J. Lee Nicholson, Chairman John R. Wildman. Terms not defined by the above Committee, but which have been used in the examinations are herein defined, and the definitions given are those sanctioned by the best accounting authorities. Abeyance. Held in suspense for future settlement or adjustment. Abstract of Postings. A list of ledger postings such as one drawn off for the purpose of proving the postings in the ledger with the books of original entry or for special information. Acceptance. (1) An agreement to pay a bill of exchange, draft, order or kindred instrument on the terms stated therein. (2) The document itself when bearing on its face the evidence of its acceptance. Accommodation. A loan of money or endorsement of another person's paper as a favor. Accommodation Paper. Instruments which a maker, drawer, acceptor or indorser, having no interest in the transaction, signs merely as an accommodation to another. Account. An entry or group of entries, either debits or credits or a combination of both, under a specific or descriptive heading, exhibiting the history and results of the transactions pertaining thereto. Account Current. A running record of current financial transactions between two parties who may, through the growth of their account, become debtor or creditor alternately. Account Sales. A statement giving an accounting of goods sold, rendered by a consignee to the consignor. Account Receivable. An account showing a debit balance to be presently received in cash or its equivalent. Account Payable. An account showing a credit balance to be presently paid in cash or its equivalent. Accountability. That relation which exists between two parties by virtue of which one is required to account to the other for money or property. Accountancy is a profession having to do with the recording, verification and presentation of facts involving the acquisition, production, conservation and transfer of values. Accountant. One skilled in the science of accounting. Accounting. Accounting is the science which treats of the systematic record, compilation and presentation in a comprehensive manner of the financial operations of a business. Accrual. (1) The act of accruing. (2) That portion of an accruing account not yet due applicable to the accounts of the period under consideration. Accrue. (1) To accumulate automatically through lapse of time. (2) To set up or record a debit or credit automatically accumulating through lapse of time. Accrued interest receivable or payable is the amount of accruals of interest on various classes of assets or liabilities. Accrued taxes is the amount of accruals of taxes. Accrued dividends (or accumulated dividend) is the amount of accruals of dividends receivable or payable on guaranteed or cumulative stocks owned, issued or guaranteed. Active Account. An account in which the entries are frequent; as distinguished from an "inactive" account. Active Partner. A partner who is subject to full partnership liability as distinguished from a "silent" or "special" partner, whose liability is limited. Additional Capital. New capital; i. e., an amount supplied as capital increasing that previously provided. The term "additional capital" refers to the amount coming into the business as distinguished from the expenditures made in increasing capital investments. (See Additions to Capital.) Additions to Capital. (A contraction of "additions to capital investments.") Expenditures for capital account; "capital expenditure.' The amounts expended for additional capital assets, such as structures, machinery or permanent equipment. Adjustment Account. A temporary account set up to show a record of the items of a transaction or series of transactions subject to and pending its clearance by definite classification or by adjustment between the respective interests therein. Adjustment Mortgage Bonds. Mortgage bonds issued under a modification of the terms of a previous issue, the conditions of which the debtors have been unable to fulfill. Administration Expenses. Expenses incurred in connection with the administration of a business, usually the salary and expenses of the executives and other expenses not directly chargeable to specific operating or selling expenses. Administrator. A person named by the probate court, or other proper authority, to take charge of the property and administer the estate of one dying without leaving a will or an estate for which no competent executor is named in the will. Advance Bill. A commercial "bill of exchange" drawn against goods subsequently to be shipped instead of against a shipment already made. Advertising Expense. The expense of attracting the attention of the public to a business, product, proposition or fact. Affiliated Company (or Corporation.) A company (or corporation) related to another through stock or bond ownership, operating agreement or other mutuality of interest. Agency. (a) The relationship between principal and agent. (b) The place of business of an agent. Agent. A person duly authorized to act on behalf of another, or one whose unauthorized act has been duly ratified. Allocate. (a) To assign items to their appropriate captions in a classification of accounts. (b) To classify. Allonge. A slip of paper attached to a negotiable instrument to receive endorsement for which there is no space on the instrument itself. Allowance. (1) A concession or abatement. Specifically in accounting usage, a concession made to customers because of faults existing or claimed in goods or service. (2) A definite amount granted or determined upon for a specific purpose; as an allowance for depreciation, an allowance in lieu of actual expenses, etc. Amortization. The gradual extinguishment of the amount of an asset, liability, profit or loss by pro-rating it over the period during which it will exist or during which its benefit will be realized. Specifically, (1) The gradual extinction of a debt, as, for instance, by means of a sinking fund. (2) The gradual reduction in the valuation of an asset, thus anticipating the time when it shall eventually become worthless; as distinguished from provision for depreciation or replacements because of physical loss or damage. (3) The absorption in the Income or Profit and Loss accounts, during the pendency of the debt, of a discount incurred or of a premium realized in the sale of an obligation, which discount or premium may be carried in the meantime in a debit or in a credit Suspense account. Annuity. A fixed sum of money granted or bequeathed, payable yearly or at certain regular periods. Appraisal. The result of a valuation of property or other assets, used mostly in connection with the valuation of fixed assets of a corporation. Appreciation. Increase in value through improvement in condition or market value, applied in respect of real estate, plant, machinery, securities, etc. Assigned Accounts. Accounts originally due to one person who has by agreement made them payable to some other person, usually his creditor. Auditor. An accountant who examines, criticizes and passes upon the accuracy of accounts. Balance Sheet. A statement showing the financial condition of a business at a specific date. Balance Sheet Audit. A verification of the assets and liabilities and a sufficiently exhaustive analysis of the Profit and Loss accounts enabling the auditor to certify that the surplus appearing in the Balance Sheet is reasonably correct. Bank of Discount. A bank authorized by law to lend money on personal notes. The term bank, as used here, means any moneyed corporation authorized by law to issue bills, notes, or other evidences of debt for circulation as money, or to receive deposits of money and commercial paper and to make loans |