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 |