Financial Terms
Internal Revenue Code

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Definition of Internal Revenue Code

Internal Revenue Code Image 1

Internal Revenue Code

Refers to all federal tax laws as a group.

Related Terms:

Nonqualified Stock Option

A stock option not given any favorable tax treatment
under the internal revenue code. The option is taxed when it is exercised,
based on the difference between the option price and the fair market
value of the stock on that day.

Tax deferral option

The feature of the U.S. internal revenue code that the capital gains tax on an asset is
payable only when the gain is realized by selling the asset.

True lease

A contract that qualifies as a valid lease agreement under the internal revenue code.

bar code

a group of lines and spaces arranged in a special
machine-readable pattern by which a scanner measures the
intensity of the light reflections of the white spaces between
the lines and converts the signal back into the original data

Bar code

Information encoded into a series of bar and spaces of varying widths,
which can be automatically read and converted to text by a scanning device.

Fictitious Revenue

revenue recognized on a nonexistent sale or service transaction.

Incremental internal rate of return

IRR on the incremental investment from choosing a large project
instead of a smaller project.

Internal Revenue Code Image 2

incremental revenue

the revenue resulting from an additional contemplated sale

Industrial revenue bond (IRB)

Bond issued by local government agencies on behalf of corporations.

internal accounting controls

Refers to forms used and procedures
established by a business—beyond what would be required for the
record-keeping function of accounting—that are designed to prevent
errors and fraud. Two examples of internal controls are (1) requiring a
second signature by someone higher in the organization to approve a
transaction in excess of a certain dollar amount and (2) giving customers
printed receipts as proof of sale. Other examples of internal
control procedures are restricting entry and exit routes of employees,
requiring all employees to take their vacations and assigning another
person to do their jobs while they are away, surveillance cameras, surprise
counts of cash and inventory, and rotation of duties. internal controls
should be cost-effective; the cost of a control should be less than
the potential loss that is prevented. The guiding principle for designing
internal accounting controls is to deter and detect errors and dishonesty.
The best internal controls in the world cannot prevent most fraud
by high-level managers who take advantage of their positions of trust
and authority.

internal control

any measure used by management to protect
assets, promote the accuracy of records, ensure adherence
to company policies, or promote operational efficiency;
the totality of all internal controls represents the
internal control system

Internal finance

Finance generated within a firm by retained earnings and depreciation.

Internal growth rate

Maximum rate a firm can expand without outside source of funding. Growth generated
by cash flows retained by company.

internal growth rate

Maximum rate of growth without external financing.

Internal market

The mechanisms for issuing and trading securities within a nation, including its domestic
market and foreign market.
Compare: external market.

Internal measure

The number of days that a firm can finance operations without additional cash income.

Internal rate of return

Dollar-weighted rate of return. Discount rate at which net present value (NPV)
investment is zero. The rate at which a bond's future cash flows, discounted back to today, equals its price.

Internal rate of return

a. The average annual yield earned by an investment during the period held.
b. The effective rate of interest on a loan.
c. The discount rate in discounted cash flow analysis.
d. The rate that adjusts the value of future cash receipts earned by an investment so that interest earned equals the original cost.
See Yield to maturity.

Internal rate of return

The rate of return at which the present value of a series of future
cash flows equals the present value of all associated costs. This measure is most
commonly used in capital budgeting.

Internal rate of return (IRR)

A discounted cash flow technique used for investment appraisal that calculates the effective cost of capital that produces a net present value of zero from a series of future cash flows and an
initial capital investment.

internal rate of return (IRR)

The precise discount rate that makes the
present value (PV) of the future cash returns from a capital investment
exactly equal to the initial amount of capital invested. If IRR is higher
than the company’s cost-of-capital rate, the investment is an attractive
opportunity; if less, the investment is substandard from the cost-ofcapital
point of view.

Internal Rate of Return (IRR)

The discount rate that equates the present value of the net cash
inflows with the present value of the net cash outflows
(investments). The IRR measures the profitability (rate of return) of
an investment in a project or security.

internal rate of return (IRR)

the expected or actual rate of
return from a project based on, respectively, the assumed
or actual cash flows; the discount rate at which the net
present value of the cash flows equals zero

internal rate of return (IRR)

Discount rate at which project NPV = 0.

Internal Revenue Service

A federal agency empowered by Congress to interpret and enforce tax-related laws.

Internally efficient market

Operationally efficient market.

internally generated funds

Cash reinvested in the firm; depreciation plus earnings not paid out as dividends.

NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)

Portfolio internal rate of return

The rate of return computed by first determining the cash flows for all the
bonds in the portfolio and then finding the interest rate that will make the present value of the cash flows
equal to the market value of the portfolio.

Premature Revenue

revenue recognized for a confirmed sale or service transaction in a period
prior to that called for by generally accepted accounting principles.

Realizable Revenue A revenue transaction where assets received in exchange for goods and

services are readily convertible into known amounts of cash or claims to cash.

Realized Revenue

A revenue transaction where goods and services are exchanged for cash or
claims to cash.


Income earned from the sale of goods and services.


Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term sales.


An inflow of cash, accounts receivable, or barter from a customer in exchange
for the provision of a service or product to that customer by a company.

Revenue bond

A bond issued by a municipality to finance either a project or an enterprise where the issuer
pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital
revenue bonds and sewer revenue bonds.

revenue center

a responsibility center for which a manager is accountable only for the generation of revenues and has no control over setting selling prices, or budgeting or incurring costs

revenue-driven expenses

Operating expenses that vary in proportion to
changes in total sales revenue (total dollars of sales). Examples are sales
commissions based on sales revenue, credit card discount expenses, and
rents and franchise fees based on sales revenue. These expenses are one
of the key variables in a profit model. Segregating these expenses from
other types of expenses that behave differently is essential for management
decision-making analysis. (These expenses are not disclosed separately
in externally reported income statements.)

Revenue fund

A fund accounting for all revenues from an enterprise financed by a municipal revenue bond.

Revenue Recognition

The act of recording revenue in the financial statements. revenue should
be recognized when it is earned and realized or realizable.

Sales Revenue Revenue recognized from the sales of products as opposed to the provision of


Service Revenue

revenue recognized from the provision of services as opposed to the sale of

Total revenue

Total sales and other revenue for the period shown. Known as "turnover" in the UK.

Unearned revenue

Money that has been paid by customers for work yet to be done or goods yet to be provided.

Unearned revenue

A payment from a customer that cannot yet be recognized as earned
revenue, because the offsetting service or product for which the money was paid has
not yet been delivered.

Cafeteria Plan

A flexible benefits plan authorized under the internal revenue
code allowing employees to pay for a selection of benefits with pay deductions,
some of which may be pretax.







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