Definition of Cumulative Translation Adjustment (CTA) account
Cumulative Translation Adjustment (CTA) account
An entry in a translated balance sheet in which gains
and/or losses from translation have been accumulated over a period of years. The cta account is required
under the FASB No. 52 rule.
An explanation or report in financial terms about the transactions of an organization.
The sum of all the interest options in your policy, including interest.
The process of satisfying stakeholders in the organization that managers have acted in the best interests of the stakeholders, a result of the stewardship function of managers, which takes place through accounting.
A collection of systems and processes used to record, report and interpret business transactions.
A broad, all-inclusive term that refers to the methods and procedures
of financial record keeping by a business (or any entity); it also
refers to the main functions and purposes of record keeping, which are
to assist in the operations of the entity, to provide necessary information
to managers for making decisions and exercising control, to measure
profit, to comply with income and other tax laws, and to prepare financial
Administrative proceedings or litigation releases that entail an accounting or auditing-related violation of the securities laws.
An alteration in the accounting methodology or estimates used in
the reporting of financial statements, usually requiring discussion in a footnote
attached to the financial statements.
Earnings of a firm as reported on its income statement.
A business for which a separate set of accounting records is being
The representation of the double-entry system of accounting such that assets are equal to liabilities plus capital.
The formula Assets = Liabilities + Equity.
An equation that reflects the two-sided nature of a
business entity, assets on the one side and the sources of assets on the
other side (assets = liabilities + owners’ equity). The assets of a business
entity are subject to two types of claims that arise from its two basic
sources of capital—liabilities and owners’ equity. The accounting equation
is the foundation for double-entry bookkeeping, which uses a
scheme for recording changes in these basic types of accounts as either
debits or credits such that the total of accounts with debit balances
equals the total of accounts with credit balances. The accounting equation
also serves as the framework for the statement of financial condition,
or balance sheet, which is one of the three fundamental financial
statements reported by a business.
Unintentional mistakes in financial statements. accounted for by restating
the prior-year financial statements that are in error.
The change in the value of a firm's foreign currency denominated accounts due to a
change in exchange rates.
Total liabilities exceed total assets. A firm with a negative net worth is insolvent on
Intentional misstatements or omissions of amounts or disclosures in
financial statements done to deceive financial statement users. The term is used interchangeably with fraudulent financial reporting.
The ease and quickness with which assets can be converted to cash.
The period of time for which financial statements are produced – see also financial year.
The principles, bases, conventions, rules and procedures adopted by management in preparing and presenting financial statements.
Accounting rate of return (ARR)
A method of investment appraisal that measures
the profit generated as a percentage of the
investment – see return on investment.
accounting rate of return (ARR)
the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow
A set of accounts that summarize the transactions of a business that have been recorded on source documents.
‘Buckets’ within the ledger, part of the accounting system. Each account contains similar transactions (line items) that are used for the production of financial statements. Or commonly used as an abbreviation for financial statements.
Money owed to suppliers.
Amounts a company owes to creditors.
Amounts owed by the company for goods and services that have been received, but have not yet been paid for. Usually accounts payable involves the receipt of an invoice from the company providing the services or goods.
Short-term, non-interest-bearing liabilities of a business
that arise in the course of its activities and operations from purchases on
credit. A business buys many things on credit, whereby the purchase
cost of goods and services are not paid for immediately. This liability
account records the amounts owed for credit purchases that will be paid
in the short run, which generally means about one month.
Acurrent liability on the balance sheet, representing short-term obligations
to pay suppliers.
Amounts due to vendors for purchases on open account, that is, not evidenced
by a signed note.
Accounts Payable Days (A/P Days)
The number of days it would take to pay the ending balance
in accounts payable at the average rate of cost of goods sold per day. Calculated by dividing
accounts payable by cost of goods sold per day, which is cost of goods sold divided by 365.
Money owed by customers.
Amounts owed to a company by customers that it sold to on credit. Total accounts receivable are usually reduced by an allowance for doubtful accounts.
Amounts owed to the company, generally for sales that it has made.
Short-term, non-interest-bearing debts owed to a
business by its customers who bought goods and services from the business
on credit. Generally, these debts should be collected within a month
or so. In a balance sheet, this asset is listed immediately after cash.
(Actually the amount of short-term marketable investments, if the business
has any, is listed after cash and before accounts receivable.)
accounts receivable are viewed as a near-cash type of asset that will be
turned into cash in the short run. A business may not collect all of its
accounts receivable. See also bad debts.
A current asset on the balance sheet, representing short-term
amounts due from customers who have purchased on account.
Amounts due from customers for sales on open account, not evidenced
by a signed note.
Money owed to a business for merchandise or services sold on open account.
Accounts Receivable Days (A/R Days)
The number of days it would take to collect the ending
balance in accounts receivable at the year's average rate of revenue per day. Calculated as
accounts receivable divided by revenue per day (revenue divided by 365).
Accounts receivable turnover
The ratio of net credit sales to average accounts receivable, a measure of how
quickly customers pay their bills.
accounts receivable turnover ratio
A ratio computed by dividing annual
sales revenue by the year-end balance of accounts receivable. Technically
speaking, to calculate this ratio the amount of annual credit sales should
be divided by the average accounts receivable balance, but this information
is not readily available from external financial statements. For
reporting internally to managers, this ratio should be refined and finetuned
to be as accurate as possible.
The recording of revenue when earned and expenses when
incurred, irrespective of the dates on which the associated cash flows occur.
Well, frankly, accrual is not a good descriptive
term. Perhaps the best way to begin is to mention that accrual-basis
accounting is much more than cash-basis accounting. Recording only the
cash receipts and cash disbursement of a business would be grossly
inadequate. A business has many assets other than cash, as well as
many liabilities, that must be recorded. Measuring profit for a period as
the difference between cash inflows from sales and cash outflows for
expenses would be wrong, and in fact is not allowed for most businesses
by the income tax law. For management, income tax, and financial
reporting purposes, a business needs a comprehensive record-keeping
system—one that recognizes, records, and reports all the assets and liabilities
of a business. This all-inclusive scope of financial record keeping
is referred to as accrual-basis accounting. Accrual-basis accounting
records sales revenue when sales are made (though cash is received
before or after the sales) and records expenses when costs are incurred
(though cash is paid before or after expenses are recorded). Established
financial reporting standards require that profit for a period
must be recorded using accrual-basis accounting methods. Also, these
authoritative standards require that in reporting its financial condition a
business must use accrual-basis accounting.
A method of accounting in which profit is calculated as the difference between income when it is earned and expenses when they are incurred.
A forceful and intentional choice and application of accounting principles
done in an effort to achieve desired results, typically higher current earnings, whether the practices followed are in accordance with generally accepted accounting principles or not. Aggressive
accounting practices are not alleged to be fraudulent until an administrative, civil, or criminal proceeding takes that step and alleges, in particular, that an intentional, material misstatement
has taken place in an effort to deceive financial statement readers.
Allowance for doubtful accounts
A contra account related to accounts receivable that represents the amounts that the company expects will not be collected.
Allowance for Doubtful Accounts
An estimate of the uncollectible portion of accounts receivable
that is subtracted from the gross amount of accounts receivable to arrive at the estimated collectible
Average accounting return
The average project earnings after taxes and depreciation divided by the average
book value of the investment during its life.
Average age of accounts receivable
The weighted-average age of all of the firm's outstanding invoices.
Balance of Payments Accounts
A statement of a country's transactions with other countries.
Biased expectations theories
Related: pure expectations theory.
Net result of public and private international investment and lending activities.
That part of the balance of payments accounts that records demands for and supplies of a currency arising from purchases or sales of assets.
CARs (cumulative abnormal returns)
a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
This is typically used in control and takeover studies, where stockholders are paid a premium for being taken over. Starting some time period before the takeover (often five days before the first announced bid, but sometimes a longer period), the researchers calculate the actual daily stock returns for the target firm and subtract out the expected market returns (usually calculated using the firm’s beta and applying it to overall market movements during the time period under observation).
The excess actual return over the capital asset pricing model-determined expected return market is called an ‘‘abnormal return.’’ The cumulation of the daily abnormal returns over the time period under observation is the CAR. The term CAR(-5, 0) means the CAR calculated from five days before the
announcement to the day of announcement. The CAR(-1, 0) is a control premium, although Mergerstat generally uses the stock price five days before announcement rather than one day before announcement as the denominator in its control premium calculation. However, the CAR for any period other than (-1, 0) is not mathematically equivalent to a control premium.
A method of accounting in which profit is calculated as the difference between income
when it is received and expenses when they are paid.
Certified Management Accountant (CMA)
a professional designation in the area of management accounting that
recognizes the successful completion of an examination,
acceptable work experience, and continuing education requirements
Change in Accounting Estimate
A change in accounting that occurs as the result of new information
or as additional experience is acquired—for example, a change in the residual values
or useful lives of fixed assets. A change in accounting estimate is accounted for prospectively,
over the current and future accounting periods affected by the change.
Change in Accounting Estimate
A change in the implementation of an existing accounting
policy. A common example would be extending the useful life or changing the expected residual
value of a fixed asset. Another would be making any necessary adjustments to allowances for
uncollectible accounts, warranty obligations, and reserves for inventory obsolescense.
Change in Accounting Principle
A change from one generally accepted accounting principle to another generally accepted accounting principle—for example, a change from capitalizing expenditures
to expensing them. A change in accounting principle is accounted for in most instances
as a cumulative-effect–type adjustment.
Chart of accounts
A listing of all accounts used in the general ledger, usually sorted in
order of account number.
A single centralized account into which funds collected at regional locations
(lockboxes) are transferred.
Constant dollar accounting
A method for restating financial statements by reducing or
increasing reported revenues and expenses by changes in the consumer price index,
thereby achieving greater comparability between accounting periods.
An offset to an asset account that reduces the balance of the asset account.
An account that reduces an equity account. An example is Treasury stock.
Method of accounting for sales or service agreements where completion
requires an extended period.
An account maintained in the general ledger that holds the balance without the detail. The detail is maintained in a subsidiary ledger.
a discipline that focuses on techniques or
methods for determining the cost of a project, process, or
thing through direct measurement, arbitrary assignment, or
systematic and rational allocation
Cost Accounting Standards Board (CASB)
a body established by Congress in 1970 to promulgate cost accounting
standards for defense contractors and federal agencies; disbanded
in 1980 and reestablished in 1988; it previously issued
pronouncements still carry the weight of law for those
organizations within its jurisdiction
Creative Accounting Practices
Any and all steps used to play the financial numbers game, including
the aggressive choice and application of accounting principles, both within and beyond
the boundaries of generally accepted accounting principles, and fraudulent financial reporting.
Also included are steps taken toward earnings management and income smoothing. See Financial
Creative Acquisition Accounting
The allocation to expense of a greater portion of the price
paid for another company in an acquisition in an effort to reduce acquisition-year earnings and
boost future-year earnings. Acquisition-year expense charges include purchased in-process research
and development and an overly aggressive accrual of costs required to effect the acquisition.
Cumulative abnormal return (CAR)
Sum of the differences between the expected return on a stock and the
actual return that comes from the release of news to the market.
Cumulative dividend feature
A requirement that any missed preferred or preference stock dividends be paid
in full before any common dividend payment is made.
The cumulative, after-tax, prior-year effect of a change in accounting
principle. It is reported as a single line item on the income statement in the year of the
change in accounting principle. The cumulative-effect-type adjustment is the most common accounting
treatment afforded changes in accounting principle.
Cumulative Effect of a Change in Accounting Principle
The change in earnings of previous years
based on the assumption that a newly adopted accounting principle had previously been in use.
Cumulative Effect of Accounting Change
The change in earnings of previous years assuming
that the newly adopted accounting principle had previously been in use.
Cumulative preferred stock
Preferred stock whose dividends accrue, should the issuer not make timely
dividend payments. Related: non-cumulative preferred stock.
Cumulative probability distribution
A function that shows the probability that the random variable will
attain a value less than or equal to each value that the random variable can take on.
A system of voting for directors of a corporation in which shareholder's total number of
votes is equal to his number of shares held times the number of candidates.
Voting system in which all the votes one shareholder is allowed to cast can be cast for one candidate for the board of directors.
Net flow of goods, services, and unilateral transactions (gifts) between countries.
That part of the balance of payments accounts that records demands for and supplies of a currency arising from activities that affect current income, namely imports, exports, investment income payments such as interest and dividends, and transfers such as gifts, pensions, and foreign aid.
Discounting of Accounts Receivable
Short-term financing in which accounts receivable are used as collateral to secure a loan. The lender does not buy the accounts receivable but simply uses them as collateral for the loan. Also called pledging of accounts receivable.
accounts over which an individual or organization, other than the person in whose
name the account is carried, exercises trading authority or control.
See accrual-basis accounting.
Expectations hypothesis theories
Theories of the term structure of interest rates which include the pure
expectations theory, the liquidity theory of the term structure, and the preferred habitat theory. These theories
hold that each forward rate equals the expected future interest rate for the relevant period. These three theories
differ, however, on whether other factors also affect forward rates, and how.
Expectations theory of forward exchange rates A theory of foreign exchange rates that holds that the
expected future spot foreign exchange rate t periods in the future equals the current t-period forward exchange
expectations theory of exchange rates
Theory that expected spot exchange rate equals the forward rate.
The production of financial statements, primarily for those interested parties who are external to the business.
a discipline in which historical, monetary
transactions are analyzed and recorded for use in the
preparation of the financial statements (balance sheet, income
statement, statement of owners’/stockholders’ equity,
and statement of cash flows); it focuses primarily on the
needs of external users (stockholders, creditors, and regulatory
Flexible Spending Account
A form of cafeteria plan allowing employees to pay
for some medical or dependent care expenses with pretax pay deductions.
Foreign currency translation
The process of restating foreign currency accounts of subsidiaries into the
reporting currency of the parent company in order to prepare consolidated financial statements.
Up-front gain recognized from the securitization and sale of a pool
of loans. Profit is recorded for the excess of the sales price and the present value of the estimated
interest income that is expected to be received on the loans above the amounts funded on the loans
and the present value of the interest agreed to be paid to the buyers of the loan-backed securities.
Generally Accepted Accounting Principals (GAAP)
A technical accounting term that encompasses the
conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.
Generally accepted accounting principles
The rules that accountants follow when processing accounting transactions and creating financial reports. The rules are primarily
derived from regulations promulgated by the various branches of the AICPA Council.
generally accepted accounting principles (GAAP)
This important term
refers to the body of authoritative rules for measuring profit and preparing
financial statements that are included in financial reports by a business
to its outside shareowners and lenders. The development of these
guidelines has been evolving for more than 70 years. Congress passed a
law in 1934 that bestowed primary jurisdiction over financial reporting
by publicly owned businesses to the Securities and Exchange Commission
(SEC). But the SEC has largely left the development of GAAP to the
private sector. Presently, the Financial accounting Standards Board is
the primary (but not the only) authoritative body that makes pronouncements
on GAAP. One caution: GAAP are like a movable feast. New rules
are issued fairly frequently, old rules are amended from time to time,
and some rules established years ago are discarded on occasion. Professional
accountants have a heck of time keeping up with GAAP, that’s for
sure. Also, new GAAP rules sometimes have the effect of closing the barn
door after the horse has left. accounting abuses occur, and only then,
after the damage has been done, are new rules issued to prevent such
abuses in the future.
generally accepted accounting principles (GAAP)
Procedures for preparing financial statements.
Generally Accepted Accounting Principles (GAAP)
A common set of standards and procedures
for the preparation of general-purpose financial statements that either have been established
by an authoritative accounting rule-making body, such as the Financial accounting
Standards Board (FASB), or over time have become accepted practice because of their universal
Generally Accepted Accounting Principles (GAAP)
GAAP is the term used to describe the underlying rules basis on which financial statements are normally prepared. This is codified in the Handbook of The Canadian Institute of Chartered accountants.
Health Insurance Portability and Accountability Act of 1996 (HIPAA)
A federal Act expanding upon many of the insurance reforms created by
COBRA. In particular, it ensures that small businesses will have access to
health insurance, despite the special health status of any employees.
Homogenous expectations assumption
An assumption of Markowitz portfolio construction that investors
have the same expectations with respect to the inputs that are used to derive efficient portfolios: asset returns,
variances, and covariances.
Individual Retirement Account
A personal savings account into which a defined
maximum amount may be contributed, and for which any resulting interest
is tax deferred.
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