REFERENCE CHANNELS

A,  E F G,  H I J K L M N,  O P Q R S T U V W X Y Z

B  C  D

B

Bad Debt:  An uncollectible Account Receivable. (Usually accompanied by a visit from two goons named Guido and Bruno.)

Balance sheet:  A balance sheet is an itemized statement which lists the total assets and the total liabilities of a given business to show its net worth at a given moment in time (like a snapshot).

Bank Reconciliation:  Verification that your bank statement and your checkbook balance.

Bankruptcy:  (Business Failure) This involves a discharge of the debtor's obligations through court order. The purpose of bankruptcy is to provide the debtor with a fresh start and to have an equitable distribution of the debtor's assets among the creditors. A major federal law concerning bankruptcy in the USA is the Bankruptcy Reform Act of 1978. Chapter 7 deals with corporate bankruptcy; Chapter 9 involves procedures for municipal bankruptcy; and Chapter 13 pertains to individual bankruptcy. Chapter 11 deals with reorganization (can be either voluntary or involuntary).

Board of Directors:  Individuals elected by the stockholders to govern a corporation.

Bond:  A contract between a borrower and a lender. The borrower promises to pay a specified rate of interest for each period the bond is outstanding and repay the principal at the maturity date.

Bookkeeping:  The act of systematically recording the financial transactions affecting a business.

Book Value:  The net amount (original value plus or minus any adjustments such as depreciation) shown in the accounts for an asset, liability, or owners' equity item.

Break-even point:  The volume point of sales at which revenues and costs are equal; a combination of sales and costs that will yield a no profit/no loss operation.

Budget:   A formal statement of management's expectations of sales, expenses, volume, and other financial transactions of an organization. A budget is a tool for planning and control. In the beginning it can act as a plan and in the end it can act as control to measure performance against so that future plans can be improved. (Also, a piece of paper that is quoted when one department wants another department's money, and is ignored when a department needs more money than is in the budget. See also: inter-department rivalry.)

Business:  An organization created with the objective of making a profit from the sale of goods or services.

Business Failure:  According to law, business failure can be either "technical insolvency" or "bankruptcy." In technical insolvency a business is unable to meet current obligations even if the total assets exceed total liabilities. In bankruptcy, liabilities exceed the market value of the assets and a negative net worth exists. (See accountant's equation).

C

Calendar Year:  An entity's reporting year, covering 12 months and ending on December 31. (See: Fiscal year)

Capital:  Property or money used and owned by a business and used to acquire future income or benefits. (No relation to Washington, D. C. -- Hmmm, on second thought, perhaps there IS a relation!)

Capital Account:  An account where an owner's or partners' interest in the business is recorded. It is increased by owner investment and net income and decreased by withdrawals and net losses. (When was the last time Washington was held accountable for anything?)

Capital Gain or Loss:  The difference between the market and book value at purchase or other acquisition realized at the sale or disposition of a capital asset. (Washington's gain is your loss.)

Capital Expense:  A capital expenditure is one that will benefit one year or more. It can increase the quantity or quality of services to be gained from the asset. It is charged to an asset account. (See also: Boondoggle, junket, Senate Investigatory Trip to Maui)

Capital Lease:  Although the lessee does not legally own rental property, the property is theoretically acquired and recorded as an asset with the related liability.

Capital Stock:  The ownership shares of a corporation authorized by its articles of incorporation, including preferred and common stock.

Cash Basis:  A bookkeeping method that recognizes revenue and expenses at the time of cash receipt or payment. (Opposite of Accrual Basis.) (This is the same as your personal checkbook.)

Cash Flow:  Generally refers to the difference between cash receipts and disbursements over a specific period of time. (We don't have a cash flow problem -- it flows REALLY WELL!)

CD Drive (or CD-ROM drive or CD-RW drive): A Compact Disc drive, used to read data CDs (also called CD-ROMs). A CD can store up to 650 Megabytes (millions of characters). These days, new programs and data are often distributed on CD-ROM, so a CD-Drive is almost mandatory. A CD-RW drive is able to write to special CD media (either CD-Recordable or CD-ReWritable). CD-Recordable media can be written only once, but can be read as often as you wish. CD-ReWritable media can be written multiple times (a minimum of 1000 times). Both types of media are available from office supply stores as well as computer stores. CD-R media is currently costing about $1.25 - $2.50 each, while CD-RW costs about $10 - $20 each. CD-RW drives are used both to backup data from your computer and to make data copies for transport to other computers. Be careful with CD-RW media - very few older CD-ROM drives can read these discs.

Certified Public Accountant:  A designation given to an accountant who has passed a uniform CPA examination and has met other certifying requirements. CPA certificates are issued and monitored by state boards of accountancy or similar agencies.

Chart of Accounts:  A listing (usually in account number order) of all accounts used by a company.

Charter:  Also known as Articles of Incorporation. A document issued by a state that gives legal status to a corporation and details its specific rights, including the authority to issue a certain maximum number of shares of stock.

Common Stock:  A class of stock issued by a corporation. It is the most frequently issued type of stock. It carries with it a voting right, however is secondary in priority to preferred stock in dividend and liquidation rights.

Compounding Period:  The period of time for which interest is computed.

Consignment:  In a consignment, the consignor (owner of the goods) transfers goods to the consignee. The consignor retains legal title and includes the goods in his inventory. The consignee is acting as an agent in an attempt to sell the goods. Although the consignee is temporarily holding the goods, the inventory is not an asset on his books. If a sale occurs, the consignee deducts from the selling price his commission and related expenses, remitting the balance to the consignor.

Corporation:  A type of business organization chartered by a state and given many of the legal rights as a separate entity. Ownership is represented by transferable shares of stock.

Cost of Good Sold:  COGS; The amount determined by subtracting the value of the ending merchandise inventory from the sum of the beginning merchandise inventory and the net purchases for the fiscal period.

Credit:  An entry on the right side of a ledger account.

Current Assets:  Current assets are those assets of a company that are expected to be converted to cash, sold, or consumed during the normal operating cycle of the business (usually one year). Examples are cash, accounts receivable, short-term investments, US government bonds, inventories, and prepaid expenses.

Current Liabilities:  Liabilities to be paid within one year of the balance sheet date.

Current Ratio:  Also known as Working Capital Ratio. A measure of liquidity of business. Equal to current assets divided by current liabilities.

D

Debit:  An entry on the left side of a ledger account.

Depreciation:  The expense recognized in writing off the cost of a plant or machine over its useful life, giving consideration to wear and tear, obsolescence, and salvage value. Methods vary. Examples are straight line (SL), accelerated methods such as sum-of-the-years digits (SYD), and double-declining balance (DDB) methods. Primarily accelerated depreciation is chosen for a business' tax expense but straight line is chosen for its financial reporting purposes.

Dividend:  That portion of a corporation's earnings that is paid to the stockholders.

Drawings:  Distribution to the owner(s) of a sole proprietorship or partnership.

Drawings Account:  The account used to show the withdrawals of earnings by the owner(s) of a sole proprietorship or partnership.