A New Glossary of Accounting Terms

IMGCAP(1)]Over the course of more than 40 years in practice and teaching both undergraduate and graduate accounting students, I have encountered some interesting, sometimes humorous definitions of some basic accounting terms.

I have been a CPA for over four decades and have taught at different colleges in New York. During my time in accounting it often happens that a discussion concerning a basic accounting or auditing concept or convention arises.

Many times that discussion would center on revenue recognition but other times the discussion shifts to another topic. The conversations that I have had often involve either CEOs, COOs or other C-suite members who initially seem to have an understanding of the particular accounting topic.

I came to learn that "chapter-heading" knowledge is no substitute for the real in-depth understanding required. In teaching I have found it advantageous to assess the understanding of students as it relates to some basic terms or concepts. In this regard I will ask them early on in class to define some terms. The "glossary" below is the result of both my professional practice and teaching experiences, but in no way is it all-inclusive.

The conclusion I reached many years ago is at the outset of an engagement or class, make sure you and your counterpart understand the basic definitions of the terms you are using. One of my favorite examples occurred during a graduate accounting course for MBA non-accounting majors at a top-flight Manhattan based university. The exam question asked the students to name and define three methods of depreciation. Almost all of the students named straight-line, units of production/activity and the sum of the years’ digits method. One student, however, in his definition of the sum of the years’ digits method described it this way: "You add up SOME of the years, but not all, and I don’t know which ones."

You cannot make this stuff up. Enjoy!

Charles J. Pendola, CPA, ESQ, FHFMA, FACHE, CMC, CFE, CFF, CGMA, is director of Graduate Management Studies Programs at St. Joseph's College in Patchogue, N.Y.

Term

How Some Define It

Actual Definition

Accounting

How to count

Recording, classifying, summarizing, interpreting  financial data

Aging schedule

Listing of a firm’s “old folks”

Listing of accounts payable or receivables based on date of transaction

Asset

Personality/good looks

Something of value that is owned

Balloon payment

Payment of debt with balloons being the currency

Large payment at end of loan that satisfies obligation

Breakeven point

A gambler whose winnings have finally had winnings to offset losses

Level of activity or sales where income equals fixed plus variable costs

Collusion

Misspelling of collision

Secret agreement by two or more to undertake an illegal or deceitful transaction

Committed costs

 

Costs incurred as result of crime committed

Costs that arise out of ownership or principal activity of the organization

Compensated absence

Getting paid for not working

Employee’s right to receive future reimbursement attributable to services previously rendered

Conservatism

Party opposed to liberals

Selection of alternative that yields least benefit

Eleemosynary

What?

Organization that both accepts and gives donations/charity

EPS

A misspelling of either ESP or ESPN

Earnings per share

Fixed asset

A formerly broken asset

A long-term tangible property that a firm owns and uses in the generation of revenue that is not anticipated to be converted into cash in less than one year

Hypothecation

Speaking hypothetically

Practice whereby a borrower pledges collateral to secure a debt

Isoresource

Isotope

A business metric that is predictive

Joint product

What the business produces

Output of one or more products from the same process

Kiting

Flying your kite

Purposeful writing of a check drawn on one bank in excess of the account balance with a check from a second bank

Lapping

To get ahead of another competitor in a race by one or more circuits/laps of the course

Involves using the cash received in payment of an account receivable intended for another account receivable to cover a theft

Matching

One’s tie does not clash with their shirt or suit

Process of matching revenues with the expenses incurred to generate those revenues

Materiality

Paper and other supplies

Relates to the significance of transactions from which financial information becomes relevant to decision makers

Qualified opinion

Opinion rendered by qualified person

Opinion provided by CPA stating that the financial statements of a client are fairly presented except for a specified issue

Relevant range

Range that we are cooking on

Period of time over which certain costs remain fixed

Turnover

Apple or prune

An accounting ratio that indicates how many times a item is turned-over or replaced

Unqualified opinion

Opinion rendered by unqualified person

Opinion provided by CPA stating that the financial statements of a client are fairly and appropriately presented in conformity with GAAP

Vested

One part of a three-piece suit

Benefit that no longer is contingent upon further action by the benefit holder

Watered down

What you do after a workout

Asset that is significantly overvalued

Zero-based budgeting

Nothing of value/no increases/zero-sum

Requires that each period be re-evaluated from the start (zero) without specific increases or decreases from prior period

 

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