Definition of engineering change order (ECO)

engineering change order (ECO)

a business mandate that changes the way in which a product is manufactured or a
service is performed by modifying the design, parts,
process, or even quality of the product or service

Accelerated cost recovery system (ACRS)

Schedule of depreciation rates allowed for tax purposes.

Accounting change

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.

American Stock Exchange (AMEX)

The second-largest stock exchange in the United States. It trades
mostly in small-to medium-sized companies.

Bank reconciliation

The process of taking the balances from the bank statement and the general ledger and making adjustments so that they agree.

Bank reconciliation

A comparison between the cash position recorded on a company’s
books and the position noted on the records of its bank, usually resulting in some
changes to the book balance to account for transactions that are recorded on the
bank’s records but not the company’s.

Bill of exchange

General term for a document demanding payment.

business process reengineering (BPR)

the process of combining information technology to create new and more effective
business processes to lower costs, eliminate unnecessary
work, upgrade customer service, and increase
speed to market

Buy limit order

A conditional trading order that indicates a security may be purchased only at the designated
price or lower.
Related: Sell limit order.

capital recovery

Refers to recouping, or regaining, invested capital over
the life of an investment. The pattern of period-by-period capital recovery
is very important. In brief, capital recovery is the return of capital—
not the return on capital, which refers to the rate of earnings on the
amount of capital invested during the period. The returns from an
investment have to be sufficient to provide for both recovery of capital
and an adequate rate of earnings on unrecovered capital period by
period. Sorting out how much capital is recovered each period is relatively
easy if you use a spreadsheet model for capital investment analysis.
In contrast, using a mathematical method of analysis does not
provide this period-by-period capital recovery information, which is a
major disadvantage.

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.

Change in Reporting Entity

A change in the scope of the entities included in a set of, typically, consolidated financial statements.

Changes in Financial Position

Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.

Chicago Mercantile Exchange (CME)

A not-for-profit corporation owned by its members. Its primary
functions are to provide a location for trading futures and options, collect and disseminate market information,
maintain a clearing mechanism and enforce trading rules.

Classical Macroeconomics

The school of macroeconomic thought prior to the rise of Keynesianism.

Closed Economy

An economy in which imports and exports are very small relative to GDP and so are ignored in macroeconomic analysis. Contrast with open economy.

Commodities Exchange Center (CEC)

The location of five New York futures exchanges: Commodity
Exchange, Inc. (COMEX), the New York Mercantile exchange (NYMEX), the New York Cotton Exchange,
the Coffee, Sugar and Cocoa exchange (CSC), and the New York futures exchange (NYFE). common size
statement A statement in which all items are expressed as a percentage of a base figure, useful for purposes of
analyzing trends and the changing relationship between financial statement items. For example, all items in
each year's income statement could be presented as a percentage of net sales.

concurrent engineering

see simultaneous engineering

Consolidated Omnibus Budget Reconciliation Act (COBRA)

A federal Act
containing the requirements for offering insurance to departed employees.

Convertible exchangeable preferred stock

Convertible preferred stock that may be exchanged, at the
issuer's option, into convertible bonds that have the same conversion features as the convertible preferred
stock.

Cross-border risk

Refers to the volatility of returns on international investments caused by events associated
with a particular country as opposed to events associated solely with a particular economic or financial agent.

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.

Date of record

Date on which holders of record in a firm's stock ledger are designated as the recipients of
either dividends or stock rights.

Day order

An order to buy or sell stock that automatically expires if it can't be executed on the day it is entered.

Discrete order picking

A picking method requiring the sequential completion of
each order before one begins picking the next order.

Economic assumptions

economic environment in which the firm expects to reside over the life of the
financial plan.

economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.

Economic defeasance

See: in-substance defeasance.

Economic dependence

Exists when the costs and/or revenues of one project depend on those of another.

Economic earnings

The real flow of cash that a firm could pay out forever in the absence of any change in
the firm's productive capacity.

Economic exposure

The extent to which the value of the firm will change because of an exchange rate change.

Economic income

Cash flow plus change in present value.

economic integration

the creation of multi-country markets
by developing transnational rules that reduce the fiscal and
physical barriers to trade as well as encourage greater economic
cooperation among countries

Economic life

The period over which a company expects to be able to use an asset.

economic order quantity

order size that minimizes total inventory costs.

Economic order quantity (EOQ)

The order quantity that minimizes total inventory costs.

economic order quantity (EOQ)

an estimate of the number
of units per order that will be the least costly and provide
the optimal balance between the costs of ordering
and the costs of carrying inventory

economic production run (EPR)

an estimate of the number
of units to produce at one time that minimizes the total
costs of setting up production runs and carrying inventory

Economic rents

Profits in excess of the competitive level.

Economic risk

In project financing, the risk that the project's output will not be salable at a price that will
cover the project's operating and maintenance costs and its debt service requirements.

Economic surplus

For any entity, the difference between the market value of all its assets and the market
value of its liabilities.

Economic union

An agreement between two or more countries that allows the free movement of capital,
labor, all goods and services, and involves the harmonization and unification of social, fiscal, and monetary
policies.

Economic Value Added (EVA)

Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge
to cover the cost of capital invested in the business.

economic value added (EVA)

a measure of the extent to which income exceeds the dollar cost of capital; calculated
as income minus (invested capital times the cost of capital percentage)

economic value added (EVA)

Term used by the consulting firm Stern Stewart for profit remaining after deduction of the cost
of the capital employed.

economically reworked

when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework

Economics

The study of the allocation and distribution of scare resources among competing wants.

Economies of scale

The decrease in the marginal cost of production as a plant's scale of operations increases.

Economies of scope

Scope economies exist whenever the same investment can support multiple profitable
activities less expensively in combination than separately.

Effective Exchange Rate

The weighted average of several exchange rates, where the weights are determined by the extent of our trade done with each country.

Electronic data interchange (EDI)

The exchange of information electronically, directly from one firm's
computer to another firm's computer, in a structured format.

electronic data interchange (EDI)

the computer-to-computer transfer of information in virtual real time using standardized formats developed by the American National Standards Institute

Embodied Technical Change

Technical change that can be used only when new capital embodying this technical change is produced.

Engineering change

A change to a product’s specifications as issued by the engineering
department.

Equation of Exchange

The quantity theory equation Mv = PQ.

Exchange

The marketplace in which shares, options and futures on stocks, bonds, commodities and indices
are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange
(AMEX) and the National Association of Securities Dealers (NASDAQ)

Exchange controls

Governmental restrictions on the purchase of foreign currencies by domestic citizens or
on the purchase of the local domestic currency by foreigners.

Exchange of assets

Acquisition of another company by purchase of its assets in exchange for cash or stock.

Exchange of stock

Acquisition of another company by purchase of its stock in exchange for cash or shares.

Exchange offer

An offer by the firm to give one security, such as a bond or preferred stock, in exchange for
another security, such as shares of common stock.

Exchange rate

The price of one country's currency expressed in another country's currency.

exchange rate

Amount of one currency needed to purchase one unit of another.

Exchange Rate Mechanism (ERM)

The methodology by which members of the EMS maintain their
currency exchange rates within an agreed upon range with respect to other member countries.

Exchange Rate, Nominal

The price of one currency in terms of another, in this book defined as number of units of foreign currency per dollar.

Exchange Rate, Real

The nominal exchange rate corrected for price level differences.

Exchange rate risk

Also called currency risk, the risk of an investment's value changing because of currency
exchange rates.

Exchange risk

The variability of a firm's value that results from unexpected exchange rate changes or the
extent to which the present value of a firm is expected to change as a result of a given currency's appreciation
or depreciation.

Exchangeable Security

Security that grants the security holder the right to exchange the security for the
common stock of a firm other than the issuer of the security.

expectations theory of exchange rates

Theory that expected spot exchange rate equals the forward rate.

Fill or kill order

A trading order that is canceled unless executed within a designated time period.
Related: open order.

Financial engineering

Combining or dividing existing instruments to create new financial products.

Fixed-exchange rate

A country's decision to tie the value of its currency to another country's currency, gold
(or another commodity), or a basket of currencies.

Fixed Exchange Rate

An exchange rate held constant by a government promise to buy or sell dollars at the fixed rate on the foreign exchange market.

Flexible Exchange Rate

An exchange rate whose value is determined by the forces of supply and demand on the foreign exchange market.

Floating exchange rate

A country's decision to allow its currency value to freely change. The currency is not
constrained by central bank intervention and does not have to maintain its relationship with another currency
in a narrow band. The currency value is determined by trading in the foreign exchange market.

Floating Exchange Rate

See flexible exchange rate.

Foreign exchange

Currency from another country.

Foreign Exchange

The currency of a foreign country.

Foreign exchange controls

Various forms of controls imposed by a government on the purchase/sale of
foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

Foreign exchange dealer

A firm or individual that buys foreign exchange from one party and then sells it to
another party. The dealer makes the difference between the buying and selling prices, or spread.

Foreign Exchange Market

A worldwide market in which one country's currency is bought or sold in exchange for another country's currency.

Foreign Exchange Reserves

A fund containing the central bank's holdings of foreign currency or claims thereon.

Foreign exchange risk

The risk that a long or short position in a foreign currency might have to be closed out
at a loss due to an adverse movement in the currency rates.

Foreign exchange swap

An agreement to exchange stipulated amounts of one currency for another currency
at one or more future dates.

Forward Exchange Market

A market in which foreign exchange can be bought or sold for delivery (and payment) at some specified future date but at a price agreed upon now.

Forward exchange rate

Exchange rate fixed today for exchanging currency at some future date.

forward rate of exchange

Exchange rate for a forward transaction.

global economy

an economy characterized by the international
trade of goods and services, the international movement
of labor, and the international flows of capital and information

Gold exchange standard

A system of fixing exchange rates adopted in the Bretton Woods agreement. It
involved the U.S. pegging the dollar to gold and other countries pegging their currencies to the dollar.

Historical exchange rate

An accounting term that refers to the exchange rate in effect when an asset or
liability was acquired.

Holder-of-record date

The date on which holders of record in a firm's stock ledger are designated as the
recipients of either dividends or stock rights. Also called date of record.

International Bank for Reconstruction and Development - IBRD or World Bank

International Bank for Reconstruction and Development makes loans at nearly conventional terms to countries for projects of high
economic priority.

job cost record

see job order cost sheet

job order cost sheet

a source document that provides virtually
all the financial information about a particular job;
the set of all job order cost sheets for uncompleted jobs
composes the Work in Process Inventory subsidiary ledger

job order costing system

a system of product costing used
by an entity that provides limited quantities of products or
services unique to a customer’s needs; focus of recordkeeping
is on individual jobs

Leading economic indicators

economic series that tend to rise or fall in advance of the rest of the economy.

Limit order

An order to buy a stock at or below a specified price or to sell a stock at or above a specified
price. For instance, you could tell a broker "Buy me 100 shares of XYZ Corp at $8 or less" or to "sell 100
shares of XYZ at $10 or better." The customer specifies a price and the order can be executed only if the
market reaches or betters that price. A conditional trading order designed to avoid the danger of adverse
unexpected price changes.

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