Business Glossary Part 2

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BUSINESS GLOSSARY (E-N)

Business-glossary

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Earned Income - Wages, salaries, professional fees, and other amounts received as compensation for services rendered.

Earned Income Credit - A refundable tax credit for eligible low income workers, subject to computations based on qualifying children and phase in and phase out income levels.

Earnings Per Share (EPS) - Measure of performance calculated by dividing the net earnings of a

company by the average number of shares outstanding during a period.

Earnings cap- A limit on the contributions that can be paid into and the benefits that can be paid out by tax-approved pension schemes

ECB-European Central Bank – the bank created to manage policies for the countries that have converted to the euro

Effective Tax Rate - Total income taxes expressed as a percentage of NET INCOME before taxes.

EITF - See EMERGING ISSUES TASK FORCE.

Emerging Issues Task Force (EITF) - Assists the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and provides guidance on early identification of emerging issues affecting financial reporting and problems in implementing authoritative pronouncements.

Employee Benefit Plan - Compensation arrangement, generally in writing, used by employers in addition to salary or wages. Some plans such as group term life insurance, medical insurance and qualified retirement plans are treated favorably under the tax law. Most common qualified retirement plans are:

(1) defined benefit plans - a promise to pay participants specified benefits that are determinable and based on such factors as age, years of service, and compensation; or

(2) defined contribution plans - provide an individual account for each participant and benefits based on items such as amounts contributed to the account by the employer and employee and investment experience. This type includes PROFIT-SHARING PLANS, EMPLOYEE STOCK OWNERSHIP PLANS and 401(k) PLANS.

Employee Stock Ownership Plan (ESOP) - Stock bonus plan of an employer that acquires SECURITIES issued by the plan sponsor.

 Encumbrance –

 (1) MORTGAGE or other lien on the entity's ASSETS;

 (2) Anticipated EXPENDITURE;

(3) Uncompleted or undelivered portion of a purchase commitment.

Endorsement- Writing on a document, for example the signature on a cheque

Endowment-A transfer of money or property to a charity for a specific purpose

Endowment policy- A savings plan that pays out a lump sum on a certain date in the future or when a person dies, whichever happens sooner, and is usually used to pay off a large loan, such as a mortgage

Engagement Completion Document - A document whereby the AUDITOR identifies all significant findings or issues. The document should be as specific as necessary in the circumstances for a reviewer to gain a thorough understanding of the significant findings or issues.

Equity - Residual INTEREST in the ASSETS of an entity that remains after deducting its LIABILITIES. Also, the amount of a business' total assets less total liabilities. Also, the third section of a BALANCE SHEET, the other two being assets and liabilities.

Equity Account - ACCOUNT in the EQUITY section of the BALANCE SHEET. Includes CAPITAL STOCK, ADDITIONAL PAID IN CAPITAL and RETAINED EARNINGS.

Equity Method of Accounting - Investors cost basis is adjusted up or down (in proportion to the % of stock ownership) as the investee's retained earnings fluctuation; used for long-term investments in equity securities of affiliate where holder can exert significant influence; 20% ownership or greater is arbitrarily presumed to have significant influence over the investee.

Equity Securities - CAPITAL STOCK and other SECURITIES that represent ownership shares, or the legal rights to purchase or acquire CAPITAL STOCK.

Error - Act that departs from what should be done; imprudent deviation, unintentional mistake oromission.

Escrow - Money or property put into the custody of a third party for delivery to a GRANTEE, only after fulfillment of specified conditions.

ESOP - See EMPLOYEE STOCK OWNERSHIP PLAN.

Estate Tax - Tax on the value of a DECENDENT'S taxable estate, typically defined as the decedent's ASSETS less LIABILITIES and certain expenses which may include funeral and administrative expenses.

Estimated Tax - Amount of tax LIABILITY a taxpayer may expect to pay for the current tax period. Usually paid through quarterly installments.

Estimation Transactions - Activities that involve management judgments or assumptions in formulating account balances in the absence of a precise means of measurement.

Ethical investment policy- A plan to make sure that money is invested in desirable activities

Euro- Official currency of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain (as at January 2009)

Evidential Matter - Underlying ACCOUNTING data and other corroborating information that support the FINANCIAL STATEMENTS.

Excess- The first sum of money that an insured person must pay for any loss, damage or injury before an insurance company will make any payments

Exchange rate- A changing rate at which a person can change one country’s currency for another’s, for example €1 for $1.20

Exchanges - Transfer of money, property or services in exchange for any combination of these items.

Excise Tax - Tax or duty on the manufacture, sale, or consumption of commodities.

Excluded Income - See EXCLUSIONS.

Exclusions - Income item which is excluded from a taxpayer's gross income by the INTERNAL REVENUE CODE or an administrative action. Common exclusions include gifts, inheritances, and death proceeds paid under a life insurance contract. Also known as excluded income.

Executor - Person appointed by a will to manage a DECENDENT'S estate.

Exempt Organization - Organization which is generally exempt from paying federal income tax. Exempt organizations include religious organizations, charitable organizations, social clubs, and others.

Exemption - Amount of a taxpayer's income that is not subject to tax. All individuals, TRUSTS,and estates qualify for an exemption unless they are claimed as a dependent on another individual's tax return. Exemptions also are granted to taxpayers for their dependents.

Expatriation Tax - Individuals that loose or terminate their residency within the 10 year period immediately preceding the close of a tax year, if the termination or loss is for the sole purpose of avoiding tax.

Expectation Gap - The difference in perception between the public and the CPA as a result of accounting and audit service.

Expenditure - Payment, either in cash, by assuming a LIABILITY, or by surrendering ASSET.

Experienced Auditor - An AUDITOR that has a reasonable understanding of audit activities and has studied the company's industry as well as the accounting and auditing issues relevant to the industry.

Exploration Expenditures - Unlimited deductions are allowed for a taxpayer's expenses incurred while searching for any ore or mineral deposit (except oil or gas).

Exposure Draft - Document issued by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA), FINANCIAL ACCOUNTING STANDARDS BOARD (FASB), GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB) or other standards setting authorities to invite public comment before a final pronouncement is issued.

Extension - Time granted by a taxing authority, such as the INTERNAL REVENUE SERVICE (IRS), a state or city, which allows the taxpayer to file tax returns later than the original due date.

Extent of Tests of Control - Each year the AUDITOR must obtain sufficient evidence about whether the company's internal control over financial reporting, including the controls for all internal control components, is operating effectively.

External Reporting - Reporting to stockholders and the public, as opposed to internal reporting for management's benefit.

Extinguishment of Debt - To get rid of the liability by payment; to bring to an end.

Extraordinary Items - Events and transactions distinguished by their unusual nature and by the infrequency of their occurrence. Extraordinary items are reported separately, less applicable income taxes, in the entity's statement of income or operations.

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401(k) Plan - EMPLOYEE BENEFIT PLAN authorized by INTERNAL REVENUE CODE section 401(k), whereby an employer establishes an account for each participating employee and each participant elects to deposit a portion of his or her salary into the account. The amount deposited is not subject to income tax. This is the most common type of salary reduction plan.

Face Value - Amount due at maturity from a bond or note.

Factoring - Selling a RECEIVABLE at a discounted value to a third party for cash.

FASB - See FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Fair Market Value - Price at which property would change hands between a buyer and a seller without any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts.

Favorable Variance - Excess of actual REVENUE over projected revenue, or actual costs over projected costs.

Fiduciary - Person who is responsible for the administration of property owned by others. Corporate management is a FIDUCIARY with respect to corporate ASSETS which are beneficially owned by the stockholders and CREDITORS. Similarly, a TRUSTEE is the fiduciary of a TRUST and partners owe fiduciary responsibility to each other and to their creditors.

FIFO - See FIRST IN, FIRST OUT.

Filing of Returns - Taxpayers meeting statutory requirements MUST file various returns on the prescribed forms. And they must be filed timely or the y may not be considered as filed.

Financial Accounting Standards - Official promulgations, known as STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS, by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) which are part of GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) in the United States.

Financial Accounting Standards Board (FASB) - Independent, private, non-governmental authority for the establishment of ACCOUNTING principles in the United States.

Financial Institution - Organization engaged in any of the many aspects of finance including commercial banks, thrift institutions, investment banks, securities brokers and dealers, credit unions, investment companies, insurance companies, and REAL ESTATE INVESTMENT TRUSTS.

Financial Statements - Presentation of financial data including BALANCE SHEETS, INCOME STATEMENTS and STATEMENTS OF CASH FLOW, or any supporting statement that is intended to communicate an entity's financial position at a point in time and its results of operations for a period then ended.

First in, First out (FIFO) - ACCOUNTING method of valuing INVENTORY under which the costs of the first goods acquired are the first costs charged to expense. Commonly known as FIFO.

Fiscal Year - Period of 12 consecutive months chosen by an entity as its ACCOUNTING period which may or may not be a calendar year. Fixed Asset - Any tangible ASSET with a life of more than one year used in an entity's operations.

Floor - Term used when discussing INVENTORIES. Inventory cannot be valued lower than the "floor" which is the net realizable value of the inventory less an allowance for a normal profit margin.

Forecast - Prospective FINANCIAL STATEMENTS that are an entity's expected financial position, results of operations, and cash flows.

Foreclosure - Seizure of COLLATERAL by a CREDITOR when DEFAULT under a loan agreement occurs.

Foreign Corporation - A corporation which is not organized under the laws of ones territories or states. Taxing of foreign corporations depends on whether the corporation has Nexus or effectively connected income in that state.

Foreign Currency Translation - Restating foreign currency in equivalent dollars; unrealized gains or losses are postponed and carried in Stockholder's Equity until the foreign operation is substantially liquidated.

Foreign Tax Credit - A U.S. taxpayer that pays or accrues income tax to a foreign country may elect to credit or deduct these taxes in a determinable us dollar amount. This is usually done on the annual individual tax return and there is s specific form provided for this.

 Form 8-K - SEC filing which is a filing that must be made on the occurrence of an event that is deemed to be of significant importance to SECURITY holders.

Form 10-K - SEC filing which is the ANNUAL REPORT due 90 days after the registrant's BALANCE SHEET date.

Form 10-Q - SEC filing which is the quarterly report due 45 days after each of the first three quarter.ends of each fiscal year.

Franchise - Legal arrangement whereby the owner of a trade name, franchisor, contracts with a party that wants to use the name on a non-exclusive basis to sell goods or services, franchisee. Frequently, the franchise agreement grants strict supervisory powers to the franchisor over the franchisee which, nevertheless, is an independent business.

 Fraud - Willful misrepresentation by one person of a fact inflicting damage on another person.

Fund Accounting - Method of ACCOUNTING and presentation whereby ASSETS and LIABILITIES are grouped according to the purpose for which they are to be used. Generally used by government entities and not-for-profits. (See RESTRICTED FUND and UNRESTRICTED FUND.)

Future Contract - Transferable agreement to deliver or receive during a specific future month a

standardized amount of a commodity.

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GAAP - See GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.

GAAS - See GENERALLY ACCEPTED AUDITING STANDARDS.

Gain - Excess of REVENUES received over costs relating to a specific transaction.

GAO - See GOVERNMENT ACCOUNTABILITY OFFICE.

GASB - See GOVERNMENTAL ACCOUNTING STANDARDS BOARD.

General Ledger - Collection of all ASSET, LIABILITY, owners EQUITY, REVENUE, and expense

accounts.

General Partnership - PARTNERSHIP with no limited partners. (See LIMITED LIABILITY

PARTNERSHIP and LIMITED PARTNERSHIP.)

Generally Accepted Accounting Principles (GAAP) - Conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. The highest level of such principles are set by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Generally Accepted Auditing Standards (GAAS) - Standards set by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) which concern the AUDITOR'S professional qualities and judgment in the performance of his or her AUDIT and in the actual report.

Gift - A valid transfer of property from one taxpayer to another without consideration or compensation. A gift may be subject to the unified estate and gift transfer tax.

Going Concern - Assumption that a business can remain in operation long enough for all of its current plans to be carried out.

Going Public - Activities that relate to offering a private company's shares to the general investing public including registering with the SEC.

Goodwill - Premium paid in the acquisition of an entity over the fair value of its identifiable tangible and intangible ASSETS less LIABILITIES assumed.

Governing Documents - Official legal documents that dictate how an entity is operated. The governing documents of a CORPORATION include ARTICLES OF INCORPORATION and BYLAWS; a PARTNERSHIP includes the partnership agreement; a TRUST includes the trust agreement or trust indenture; and an LLC includes the ARTICLES OF ORGANIZATION and OPERATING AGREEMENT.

Government Accountability Office (GAO) - Accounting and auditing office of the United States government. An independent agency that reviews federal financial transactions and reports directly to Congress.

Governmental Accounting Standards Board (GASB) - Group that has authority to establish standards of financial reporting for all units of state and local government.

Grantee - Person to whom property is transferred.

Grantor –

a.      Person who transfers property.

b.     Person who creates a trust.

Greenmail - Any amount a corporation pays to a shareholder to directly or indirectly buy back its stock.

Gross Income - The beginning point for the determination of income, including income from whatever sources derived. (Also see ADJUSTED GROSS INCOME.)

Guaranty - Legal arrangement involving a promise by one person to perform the obligations of a

second person to a third person, in the event the second person fails to perform.

Hh

Head of Household - An individual entitled to special tax rates that fall midway between single rates and married filing joint rates, if they fit the qualifying profile.

Hedge - A financial term for a specific type of commodities planning and trading.

Historical cost - Original cost of an asset to an entity.

Holding Period - The time in which a taxpayer acquires property and the date on which it is sold.

Hope Scholarship Credit - A maximum allowable credit of $1,500 per student for each of the first 2 years of post-secondary education. It is allowable after all additional requirements are met.

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Improvement - EXPENDITURE directed to a particular ASSET to improve its performance or useful life.

Imputed Interest - If no interest or an unrealistic amount of interest is charged in a salve involving certain kinds of deferred payments, then the transaction will be treated as if the realistic rate of interest had been used. The difference between the realistic interest and the interest actually used is referred to as imputed interest.

Income - Inflow of REVENUE during a period of time. (See NET INCOME.)

Income Statement - Summary of the effect of REVENUES and expenses over a period of time.

Income Tax Basis - (1) For tax purposes, the concept of basis determines the proper amount of gain to report when an ASSET is sold. Basis is generally the cost paid for an asset plus the amounts paid to improve the asset less deductions taken against the asset, such as DEPRECIATION and AMORTIZATION. (2) For accounting purposes, a consistent basis of accounting that uses income tax accounting rules while GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) does not. (See OTHER COMPREHENSIVE BASIS OF ACCOUNTING.)

Independence Standard Board (ISB) - This is the private sector standard-setting body governing the independence of AUDITORs from their public company clients. It came about from discussions between the AICPA, other accounting representatives and the SEC.

Individual Retirement Account (IRA) - An IRA is a personal savings plan that allows an individual to make cash contributions per year dependent on the individual's adjusted gross income and participation in an employer's retirement plan. Under a traditional IRA these earnings are not taxable until the time of withdrawal from the plan.

Inheritance - As distinguished from a BEQUEST or devise, an inheritance is property acquired through laws of descent and distribution from a person who dies without leaving a will. The value of property inherited id excluded from a taxpayers gross income, but if the property inherited produces income it is included in gross income. A taxpayer's basis in inherited property is the fair market value at the time of death.

Initial Public Offering (IPO) - When a private company goes public for the first time.

Inquiry - A procedure that consists of seeking information, both financial and non financial, of knowledgeable persons throughout the company. It is used extensively throughout the audit and often is complementary to performing other procedures. Inquiries may range from formal written inquiries to informal oral inquiries.

Insolvent - When an entity's LIABILITIES exceed its ASSETS.

Installment - Partial payment.

Installment Method - Tax ACCOUNTING method of reporting GAIN on the sale of an ASSET exchanged for a RECEIVABLE. In general, the gain is reported as the note is paid off.

Intangible Asset - Asset having no physical existence such as trademarks and patents. (See

TANGIBLE ASSET.)

Interest - Payment for the use or forbearance of money.

Interim Financial Statements - FINANCIAL STATEMENTS that report the operations of an entity for less than one year.

Internal Audit - AUDIT performed within an entity by its staff rather than an independent certified

public accountant.

Internal Control - Process designed to provide reasonable assurance regarding achievement of various management objectives such as the reliability of financial reports.

Internal Control Over Financial Reporting - A process designed by, or under the supervision of the company's principal executive and principal financial officers or persons performing similar functions and effected by the company's board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of

financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

                                                             i.      Pertain to the maintenance of records that accurately and fairly reflect the transactions and dispositions of the assets of the company.

                                                           ii.      Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company.

                                                        iii.      Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Internal Rate of Return - Method that determines the discount rate at which the present value of the future CASH FLOWS will exactly equal investment outlay.

Internal Revenue Code - Collection of tax rules of the federal government. Also referred to as Title 26 of the United States Code.

Internal Revenue Service (IRS) - Federal agency that administers the INTERNAL REVENUE CODE. The IRS is part of the United States Treasury Department.

International Accounting Standards Committee, the (IASC) - is an independent private sector

body, formed in 1973, with the objective of harmonizing the accounting principles which are used in businesses and other organizations for financial reporting around the world. Its members are 143 professional accounting bodies in 104 countries.

Internet/World Wide Net - The Internet is the unregulate wild west show of computer networks

connected together throughout the world. The World Wide Web or WWW, is part of the Internet.

Inventory - Tangible property held for sale, or materials used in a production process to make a product.

Investment - EXPENDITURE used to purchase goods or services that could produce a return to

the investor.

Investment Tax Credit - This is a component of the general business credit and consists of the following:

                                                             i.      The energy credit;

                                                           ii.      The rehabilitation credit; and

                                                        iii.      The reforestation credit.

Involuntary Conversions - This is a conversion of property where it is in whole or part destroyed, stolen, seized, requisitioned or condemned (or where there is a threat or imminence of requisition or condemnation).

IPO - See INITIAL PUBLIC OFFERING.

IRS - See INTERNAL REVENUE SERVICE.

Issuer - This term means an issuer, the securities of which are registered under Section 12 of the Securities Exchange Act of 1934, or that is required to file reports under Section 15(d) of that Act, or that files or has filed a registration statement with the SEC that has not yet become effective under the Securities Act of 1933 and that it has not withdrawn.

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Jeopardy - If the IRS believes that collection of tax appears to be in jeopardy (danger of being uncollected), it may immediately assess and collect such tax. The intermediate steps are bypassed.

Joint Return - A return filed by married taxpayers or surviving spouses.

Joint Venture - When two or more persons or organizations gather CAPITAL to provide a product or service. Often carried out as a PARTNERSHIP.

Journal - Any book containing original entries of daily financial transactions.

Junk bonds - DEBT SECURITIES issued by companies with higher than normal credit risk. Considered "non-investment grade" bonds, these SECURITIES ordinarily yield a higher rate of interest to compensate for the additional risk.

Kk

Keogh Plan - Also known as an HR 10, this is a qualified retirement plan for self employed who do not incorporate their business. If qualifications are met the taxpayer may receive a deduction for contributions made.

Key Employee - For purposes of rules that apply to top heavy plans, a key employee:

                                                             i.      An officer of the employer earning more than $130,000;

                                                           ii.      An individual who owns more than 5 percent of the employer;

                                                        iii.      An individual who owns more than 1 percent of the employer and compensation greater than $150,000.

Key Person Insurance - Business-owned life insurance contract typically on the lives of principal officers that normally provides for guaranteed death benefits to the company and the accumulation of a cash surrender value.

Kiting - Writing checks against a bank account with insufficient funds to cover them, hoping that

the bank will receive deposits before the checks arrive for clearance.

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Last in, First out (LIFO) - ACCOUNTING method of valuing inventory under which the costs of the last goods acquired are the first costs charged to expense. Commonly known as LIFO.

Lease - Conveyance of land, buildings, equipment or other ASSETS from one person (LESSOR) to another (LESSEE) for a specific period of time for monetary or other consideration, usually in the form of rent.

Leasehold - Property INTEREST a LESSEE owns in the leased property.

Ledger - Any book of accounts containing the summaries of debit and credit entries.

Lessee - Person or entity that has the right to use property under the terms of a LEASE.

Lessor - Owner of property, the temporary use of which is transferred to another (LESSEE) under the terms of a LEASE.

Letter of Credit - Conditional bank commitment issued on behalf of a customer to pay a third

party in accordance with certain terms and conditions. The two primary types are commercial letters of credit and standby letters of credit.

Leveraged Buy Out - Acquisition of a controlling INTEREST in a company in a transaction financed by the issuance of DEBT instruments by the acquired entity.

Leveraged Lease - Transaction under which the LESSOR borrows funds to acquire property  which is leased to a third party. The property and lease rentals are security for the LESSOR'S indebtedness.

Liability - DEBTS or obligations owed by one entity (DEBTOR) to another entity (CREDITOR) payable in money, goods, or services.

Lifetime Learning Credit - This allows a credit for 20 percent of qualified tuition and fees paid by

the taxpayer with respect to one or more students for any year that the HOPE SHCOLARSHIP CREDIT is not claimed.

LIFO - See LAST IN, FIRST OUT.

Limited Liability Company (LLC) - Form of doing business combining limited liability for all owners (called members) with taxation as a PARTNERSHIP. An LLC is formed by filing ARTICLES OF ORGANIZATION with an appropriate state official. Rules governing LLCs vary significantly from state to state.

Limited Liability Partnership (LLP) - GENERAL PARTNERSHIP which, via registration with an appropriate state authority, is able to enshroud all its partners in limited liability. Rules governing LLPs vary significantly from state to state.

Limited Partnership - PARTNERSHIP in which one or more partners, but not all, have limited liability to creditors of the partnership.

Liquid Assets - Cash, cash equivalents, and marketable SECURITIES.

Liquidation - Winding up an activity by distributing its ASSETS to the appropriate parties and

settling its DEBTS.

Listed Property - Limits are imposed on the DEPRECIATION deduction a taxpayer may claim on

certain listed property as follows:

                                                             i.      A passenger car;

                                                           ii.      Other property used as transportation;

                                                        iii.      Property used for purposes of entertainment, recreation, or amusement;

                                                         iv.      A computer and peripheral equipment; and

                                                           v.      Cellular telephone.

Litigation Support/Dispute Resolution - A service that CPAs often provide to attorneys - e.g., expert testimony about the value of a business or other asset, forensic accounting (a partner stealing from his other partners, or a spouse understating his income in a matrimonial action). The lawyer hires the CPA to do the investigation and determine the amount of money stolen or understated.

LLC - See LIMITED LIABILITY COMPANY.

LLP - See LIMITED LIABILITY PARTNERSHIP.

Long-Term Debt - DEBT with a maturity of more than one year from the current date.

Loss - Excess of EXPENDITURES over REVENUE for a period or activity. Also, for tax

purposes, an excess of basis over the amount realized in a transaction. (See NET INCOME.)

Lower of Cost or Market - Valuing ASSETS for financial reporting purposes. Ordinarily, "cost" is

the purchase price of the asset and "market" refers to its current replacement cost. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) requires that certain assets (e.g., INVENTORIES) be carried at the lower of cost or market.

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 Management Accounting - Reporting designed to assist management in decision-making, planning, and control. Also known as Managerial Accounting.

Management Discussion and Analysis (MD&A) - SEC requirement in financial reporting for an explanation by management of significant changes in operations, ASSETS, and LIQUIDITY.

Management's Report - Management is required to include in its annual report its assessment of the effectiveness of the company's internal control over financial reporting in addition to its audited financial statements as of the end of the most recent fiscal year.

Managerial Accounting - See MANAGEMENT ACCOUNTING.

Margin - Excess of selling price over the unit cost.

Mark-to-Market - Method of valuing ASSETS that results in adjustment of an asset's carrying amount to its market value.

Marketable Securities - Stocks and other negotiable instruments which can be easily bought and sold on either listed exchanges or over-the-counter markets.

Married Taxpayers - Taxpayers that are married may file a JOINT RETURN, therefore combining their INCOME and expenses. Individuals will be considered married if:

1. They are living as husband and wife;

2. They are recognized living as common law marriage; or

3. Legally married but separated and living apart but not legally divorced.

Marriage is determined as of the last day of the tax year.

Matching Principle - A fundamental concept of basic accounting. In any one given accounting period, you should try to match the revenue you are reporting with the expenses it took to generate that revenue in the same time period, or over the periods in which you will be receiving  benefits from that expenditure. A simple example is depreciation expense. If you buy a building that will last for many years, you don't write off the cost of that building all at once. Instead, you take depreciation deductions over the building's estimated useful life. Thus, you've "matched" the

expense, or cost, of the building with the benefits it produces, over the course of the years it will be in service.

Material Weakness - A significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Materiality - Magnitude of an omission or misstatements of ACCOUNTING information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would change or be influenced.

MD&A - See MANAGEMENT DISCUSSION AND ANALYSIS.

Merger - BUSINESS COMBINATION that occurs when one entity directly acquires the ASSETS and LIABILITIES of one or more entities and no new corporation or entity is created. (SeeCONSOLIDATION.)

Monetary Items - Definite fixed amounts stated in terms of dollars, either by law or by contract agreement.

Mortgage - Legal instrument evidencing a security interest in ASSETS, usually real estate.Mortgages serve as COLLATERAL for PROMISSORY NOTES.

Municipal bond - bond issued by a government or public body, the INTEREST on which is typically exempt from federal taxation.

Matching Principle - A fundamental rule f basic accounting. In any one given accounting period,

you should try to match the revenue you are reporting with the expenses it took.

Mutual Fund - Investment company which generally offers its shares to the general public and invests the proceeds in a diversified portfolio of SECURITIES. (See CLOSED-END MUTUAL FUND and OPEN-END MUTUAL FUND.)

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NASBA - See NATIONAL ASSOCIATION OF STATE BOARDS OF ACCOUNTANCY.

National Association of State Boards of Accountancy - serves as a forum for the 54 State Boards of Accountancy, which administer the uniform CPA examination, license Certified Public Accountants and regulate the practice of public accountancy in the United States.

Negative Assurance - Report issued by an ACCOUNTANT based on limited procedures that states that nothing has come to the accountant's attention to indicate that the financial information is not fairly presented.

Negligence - The omission to do something which a reasonable man, guided by those ordinary considerations which ordinarily regulate human affairs, would do, or the doing of something which a reasonable and prudent man would not do. Negligence is the failure to use such care as a reasonably prudent and careful person would use under similar circumstances; it is the doing of some act which a person of ordinary prudence would not have done under similar circumstances or failure to do what a person of ordinary prudence would have done under similar circumstances. The term refers only to that legal delinquency which results whenever a man fails to exhibit the care which he ought to exhibit, whether it be slight, ordinary, or great. It is characterized chiefly by inadvertence, thoughtlessness, inattention, and the like, while "wantonness" or "recklessness" is characterized by willfulness. The law of negligence is founded on reasonable conduct or reasonable care under all circumstances of particular care. Doctrine of negligence rests on duty of every person to exercise due care in his conduct toward others from which injury may result.

Net Assets - Excess of the value of SECURITIES owned, cash, receivables, and other ASSETS over the LIABILITIES of the company.

Net Income - Excess or DEFICIT of total REVENUES and GAINS compared with total expenses

and losses for an ACCOUNTING period. (See INCOME and LOSS.)

Net Lease - In addition to the rental payment, the LESSEE assumes all property charges such as

taxes, insurance, and maintenance.

Net Sales - Sales at gross invoice amounts less any adjustments for returns, allowances, or

discounts taken.

Net Worth - Similar to EQUITY, the excess of ASSETS over LIABILITIES.

Non-for-Profit Organization/Tax-Exempt Organization - An incorporated organization which exists for educational or charitable purposes, and from which its shareholders or trustees do not benefit financially. Also called not-for-profit organization.

Nonresident Alien - Any citizen that is not a resident or citizen of the United States. Income of such individuals is subject to taxation if it is effectively connected with a United States trade or business.

Non Routine Transactions - Activities that occur only periodically, the data involved are generally not part of the routine flow of transactions.

 No-Par Stock - Stock authorized to be issued but for which no PAR VALUE is set in the ARTICLES OF INCORPORATION. A STATED VALUE is set by the BOARD OF DIRECTORS on the issuance of this type of stock.

No-Par Value - Stock or bond that does not have a specific value indicated. (See STATED

VALUE.)

Notional - Value assigned to ASSETS or LIABILITIES that is not based on cost or market (e.g., the value of a service not yet rendered).