Business glossary part 3

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BUSINESS GLOSSARY (O-R)

Business-glossary

 Oo

Objectivity - Emphasizing or expressing the nature of reality as it is apart from personal reflection or feelings; independence of mind.

Obligations - Any amount which may require payment by an entity at a future time.

OCBOA - See OTHER COMPREHENSIVE BASIS OF ACCOUNTING.

OPEB - See OTHER POST-RETIREMENT EMPLOYEE BENEFI

 Open-End Mutual Fund - MUTUAL FUND that does not have a fixed number of shares outstanding, offers new shares to the public, and buys back outstanding shares at market value.

Operating Agreement - Agreement, usually a written document, that sets out the rules by which a LIMITED LIABILITY COMPANY (LLC) is to be operated. It is the LLC equivalent of corporate BYLAWS or a PARTNERSHIP agreement.

Operating Cycle - Period of time between the acquisition of goods and services involved in the manufacturing process and the final cash realization resulting from sales and subsequent collections.

Option - Right to buy or sell something at a specified price during a specified time period.

Ordinary Income - One of two classes of income (the other being CAPITAL GAINS) taxed under

the INTERNAL REVENUE CODE. Historically, ordinary income is taxed at a higher rate than capital gains.

Organization Expenditures - The costs of organizing a trade or business or for profit activity before it begins active business. A taxpayer may elect to amortize such expenses for a tern no less than 60 months. If the election is not made then the expenses are not deductible and may only be recovered when the business ceases operation or is sold.

Other Comprehensive Basis of Accounting (OCBOA) - Consistent accounting basis other than GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) used for financial reporting. Examples include an INCOME TAX BASIS or a CASH BASIS.

Other Post-Retirement Employee Benefit (OPEB) - All post-retirement benefits other than

pensions, provided by employers to employees.

                                           Pp

Paid in Capital - Portion of the stockholders' EQUITY which was paid in by the stockholders, as opposed to CAPITAL arising from profitable operations.

Parent Company - Company that has a controlling interest in the COMMON STOCK of another.

Partnership - Relationship between two or more persons based on a written, oral, or implied agreement whereby they agree to carry on a trade or business for profit and share the resulting profits. Unlike a CORPORATION'S shareholders, the partnership's general partners are liable for the DEBTS of the partnership. (See GENERAL PARTNERSHIP, LIMITED LIABILITY PARTNERSHIP, LIMITED PARTNERSHIP.)

Par Value - Amount per share set in the ARTICLES OF INCORPORATION of a CORPORATION to be entered in the CAPITAL STOCKS account where it is left permanently and signifies a cushion of EQUITY capital for the protection of CREDITORS.

Passive Activity Loss - LOSS generated from activities involved in the conduct of a trade or

business in which the taxpayer does not materially participate.

Passive Income - Includes income derived from such sources as dividends, interest, royalties, rents, amounts received from personal service contracts, and income received as a beneficiary of an estate or trust.

Patronage Dividends - These dividends are amounts paid by a cooperative to its members and customers based on the quantity or value of business conducted with or for the members during the tax year.

PCAOB - Public Corporation Accounting Oversight Board, a private-sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002, to oversee the AUDITORs of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.

Peer Review - Process by which an accounting firm's practice is evaluated for compliance with professional standards. The objective is achieved through the performance of an independent review by one's peers.

Penalty - The various government codes contain numerous provisions which impose penalties on a taxpayer (any type of taxpayer) for failure to perform a specific act or omitting vital information on a return.

Pension - Retirement plan offered by an employer for the benefit of an employee, usually at retirement, through a TRUSTEE who controls the plan ASSETS. (See EMPLOYEE BENEFIT PLAN.)

Perpetual Inventory - System that requires a continuous record of all receipts and withdrawals of each item of INVENTORY.

Personal Financial Planning - Process for arriving at a comprehensive plan to solve an individual's personal, business, and financial problems and concerns.

Personal Financial Specialist (PFS) - CERTIFIED PUBLIC ACCOUNTANT who specializes in PERSONAL FINANCIAL PLANNING and completes a series of requirements that include education, experience, ethics and an exam.

Personal Financial Statements - FINANCIAL STATEMENTS prepared for an individual or family to show financial status.

Personal Property - Movable property that is not affixed to the land (REAL PROPERTY).  Personal property includes tangible items such as cash, cars and computers, as well as intangible items, such as royalties, patents and copyrights.

Phantom Income - Income reported on a TAX BASIS for which no cash or financial benefit is realized.

Pledged Asset - ASSET placed in a TRUST and used as COLLATERAL for a DEBT.

Pooling of Interest - Used to account for the acquisition of another company when the acquiring company exchanges its voting COMMON STOCK for the voting common stock of the acquired company when certain criteria are met.

Post-Retirement Benefits - PENSIONS, health care, life insurance and other benefits that are provided by an employer to retirees, their dependents, or survivors.

Preferred Stock - Type of CAPITAL STOCK that carries certain preferences over COMMON STOCK, such as a prior claim on DIVIDENDS and ASSETS.

Premium –

 (1) Excess amount paid for a bond over its face amount.

 (2) In insurance, the cost of

specified coverage for a designated period of time.

Prepaid Expense - Cost incurred to acquire economically useful goods or services that are expected to be consumed in the revenue-earning process within the operating cycle.

Present Value - CURRENT VALUE of a given future cash flow stream, discounted at a given rate.

Preventive Controls - These have the objective of preventing errors or fraud from occurring in the first place that could result in a misstatement of the financial statements.

Prime Rate - Rate of interest charged by major U.S. banks on loans made to their preferred customers.

Principal - Face amount of a SECURITY, exclusive of any PREMIUM or INTEREST. The basis for INTEREST computations.

Private Placement - Sales of SECURITIES not involving a PUBLIC OFFERING and exempt from registration pursuant to certain EXEMPTIONS.

Privilege - A right or immunity granted as a peculiar benefit advantage.

Privity - An interest in a transaction, contract or legal action to which one is not a party, arising out of a relationship to one of the parties.

Profit Sharing Plan - DEFINED CONTRIBUTION PLAN characterized by the setting aside of a portion of an entity's profits in participant's accounts. (See EMPLOYEE BENEFIT PLAN.)

Pro Forma - Presentation of financial information that gives effect to an assumed event (e.g., MERGER).

Projection - Prospective FINANCIAL STATEMENTS that include one or more hypothetical assumptions.

Promissory Note - Evidence of a DEBT with specific amount due and interest rate. The note may specify a maturity date or it may be payable on demand. The promissory note may or may not accompany other instruments such as a MORTGAGE providing security for the payment thereof. (See DEMAND LOAN.)

Proprietorship - Business owned by an individual without the limited liability protection of a CORPORATION or a LIMITED LIABILITY COMPANY (LLC). Also known as sole proprietorship.

Pro Rata - Distribution of an expense, fund, or DIVIDEND proportionate with ownership.

Prospective Financial Information (forecast and projection) - Forecast: Prospective financial statements that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations, and changes in financial position. A financial forecast is based on the responsible party's assumptions reflecting conditions it expects to exist and the course of action it expects to take. Projection: Prospective financial statements that present, to the best of the responsible party's knowledge and belief, given one or more

hypothetical assumptions, an entity's expected financial position, results of operations, and changes in financial position.

Prospectus - Major part of the registration statement filed with the SECURITIES AND EXCHANGE COMMISSION (SEC) for PUBLIC OFFERINGS. A prospectus generally describes SECURITIES or partnership interests to be issued and sold.

Proxy - Document authorizing someone other than the shareholder to exercise the right to vote the stock owned by the shareholder.

Public Offering - Offering shares to the public. Generally done through SEC filings.

Public Oversight Board (POB) - The POB is an independent oversight board, composed of public members, which monitors and evaluates peer reviews conducted by the SEC Practice Section (SECPS) of the AICPA's Division for CPA Firms as well as other activities of the SECPS.

 Purchase Method of Accounting - ACCOUNTING for a MERGER by adding the acquired company's ASSETS at the price paid for them to the acquiring company's assets.

 Push-Down Accounting - Method of ACCOUNTING in which the values that arise from an acquisition are transferred or "pushed down" to the accounts of an acquired company.

 Puts - A put is an option to sell a certain number of shares of stock at a stated price within a certain period. The gain or loss on a put is short or long term depending on the holding period of the stock involved.

Qq

Qualified Opinion - AUDIT opinion that states, except for the effect of a matter to which a qualification relates, the FINANCIAL STATEMENTS are fairly presented in accordance with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). The AUDITOR is required to qualify when there is a scope limitation.

Quasi-Reorganization - Type of reorganization in which, with shareholder approval, the management revalues ASSETS and eliminates the DEFICIT (increased by asset devaluations if any) by charging it to other EQUITY accounts without the creation of a new corporate entity or without court intervention.

Rr

R&D - See RESEARCH AND DEVELOPMENT.

Ratio Analysis - Comparison of actual or projected data for a particular company to other data for that company or industry in order to analyze trends or relationships.

Real Estate Investment Trust (REIT) - Investor-owned TRUST which invests in real estate and, instead of paying income tax on its income, reports to each of its owners his or her pro rata shareof its income for inclusion on their income tax returns. This unique trust arrangement is specifically provided for in the INTERNAL REVENUE CODE.

Real Estate Mortgage Investment Conduit (REMIC) - An entity that holds a fixed pool of mortgages and issues multiple classes of interest s in itself to investors. A qualified REMIC is generally taxed like a partnership, unless it takes contributions after its start up day or engages in a prohibited transaction.

Real Property - Land and improvements, including buildings and PERSONAL PROPERTY, that is permanently attached to the land or customarily transferred with the land.

 Reasonable Assurance - Management's assessment of the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance. It includes the understanding that there is a remote likelihood that material misstatements will not be prevented or detected on a timely basis. It is a high level of assurance.

Recapitalization - An internal reorganization of a corporation including a rearrangement of the capital structure by changing the kind of stock or the number of shares outstanding or issuing stock instead of bonds. It is distinguished from most other types of reorganization because it involves only one corporation and is usually accomplished by the surrender by shareholders of their securities for other stock or securities of a different type.

Receivables - Amounts of money due from customers or other DEBTORS.

 Reconciliation - Comparison of two numbers to demonstrate the basis for the difference between them.

Redemption Value - Price to be paid by an ENTITY to retire its bondS or PREFERRED STOCK.

Red Herring - "Pre-release" PROSPECTUS offering. An announcement of a future issuance of SECURITIES, given restricted circulation during the waiting period of 20 days or other specified period between the filing of a registration statement with the SEC and the effective date of the statement. A red herring is not an offer to sell or the solicitation of an offer to buy.

Refinancing Agreement - Arrangement to provide funding to replace existing financing, the most common being a refinance of a home MORTGAGE.

Regulated Investment Company (RIC) - Commonly called a MUTUAL FUND, this is a domestic corporation that acts as an investment agent for its shareholders by typically investing in government and corporate securities and distributing the DIVIDENDS and INTEREST income earned from such investments. In order to be considered a RIC a CORPORATION must make an irrevocable election tax election in order to be treated as one.

Reinsurance - Process by which an insurance company obtains insurance on its insurance claims with other insurers in order to spread the risk.

REIT - See REAL ESTATE INVESTMENT TRUST.

Related Party Transaction - Business or other transaction between persons who do not have an arm's-length relationship (e.g., a relationship with independent, competing interests). The most common is between family members or controlled entities. For tax purposes, these types of transactions are generally subject to a greater level of scrutiny.

Relevant Assertions - Assertions that have a meaningful bearing on whether the account is fairly stated.

Reorganization - This is a change in the businesses capital arrangements. If for a CORPORATION there are seven statutory options for reorganization that would cause the corporation and shareholders to not recognize any GAIN or LOSS on the exchange of stock.

Repairs - EXPENDITURES made in order to keep property in good condition but that do not appreciably prolong the life or increase the value of the property.

Replacements - EXPENDITURES for making good or whole the portions of property that have deteriorated through use or have been destroyed through accident.

Report Release Date - The date the company's financial statements are issued.

Repos - See REPURCHASE AGREEMENT.

Repurchase Agreement (Repos) - Agreement whereby an institution purchases SECURITIES under a stipulation that the seller will repurchase the securities within a certain time period at a certain price.

 Research and Development (R&D) - Research is a planned activity aimed at discovery of new knowledge with the hope of developing new or improved products and services. Development is the translation of research findings into a plan or design of new or improved products and services.

Reserve - ACCOUNT used to earmark a portion of EQUITY or fund balance to indicate that it is not available for expenditure. An obsolete term in the United States. More commonly used in

Europe.

Resident Alien - This is an individual that is not a citizen, but who has a residence in the United States. They are taxed on all of their INCOME worldwide in the same manner a citizen of the United States is.

Restricted Assets - Cash or other ASSETS whose use in whole or in part is restricted for specific purposes bound by virtue of contracted agreements.

Restricted Fund - Fund established to account for assets whose income must be used for purposes established by donors or grantors of such ASSETS. (See FUND ACCOUNTING and UNRESTRICTED FUNDS.)

Restructuring - Reorganization within an entity. Restructuring may occur in the form of changing the components of CAPITAL, renegotiating the terms of DEBT agreements, etc.

Retained Earnings - Accumulated undistributed earnings of a company retained for future needs or for future distribution to its owners.

Return on Investment (ROI) - Ratio measure of the profits achieved by a firm through its basic operations. An indicator of management's general effectiveness and efficiency. The simplest version is the ratio of NET INCOME to total ASSETS.

Revenue Recognition - Method of determining whether or not income has met the conditions of being earned and realized or is realizable.

Revenues - Sales of products, merchandise, and services; and earnings from INTEREST, DIVIDEND, rents.

Review - Accounting service that provides some assurance as to the reliability of financial information. In a review, a CERTIFIED PUBLIC ACCOUNTANT (CPA) does not conduct an examination under GENERALLY ACCEPTED AUDITING STANDARDS (GAAS).

Review Engagement - Agreement between a CERTIFIED PUBLIC ACCOUNTANT (CPA) and his or her client to perform a review. (See ACCOUNTANTS' REPORT.)

Review Report - See ACCOUNTANTS' REPORT.

Right to Setoff - DEBTOR'S legal right, to discharge all or a portion of the DEBT owed to another party by applying against the debt an amount that the other party owes to the debtor.

Risk Management - Process of identifying and monitoring business risks in a manner that offers  a risk/return relationship that is acceptable to an entity's operating philosophy.

ROI - See RETURN ON INVESTMENT.

Routine Transactions - Recurring financial activities reflected in the accounting records in the normal course of business.