Intermediate Accounting vol 1 Theory TB Sample PDF

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Key TermsBank draft – it is a written order addressed to the bank to pay an amount of money to the order of the maker.Bank overdraft – this represents a credit balance in cash in bank account resulting from checks being written for more than the cash amount on deposit.Bank service charge – monthly f...

Description

Key Terms Bank draft – it is a written order addressed to the bank to pay an amount of money to the order of the maker. Bank overdraft – this represents a credit balance in cash in bank account resulting from checks being written for more than the cash amount on deposit. Bank service charge – monthly fee charged by a bank to service the depositor’s account. Bank reconciliation – a report that explains the difference between the book company balance of cash and cash balance reported on the bank statement. Bank statement – a bank’s report on the depositors beginning and ending cash balance and a listing of its charges, for a period. Canceled checks – checks that the bank has paid and deducted from the depositor’s account. This may also term as checks drawn. Cash – includes currency, coins, and amounts on deposit in bank checking or savings accounts, an item acceptable for deposit in bank value by a bank or other financial institution. In a limited sense, it includes currency and coins and demand credit instruments that are unrestricted and are immediately available for use in current operations. Cash equivalents – short term, highly liquid investments assets that are readily convertible into a known cash amount or sufficiently close to their maturity date

(usually within 90 days) so that the market value is not sensitive to interest rate changes. Cash over and short – income statement account used to record cash overages and cash shortages arising from errors in cash receipts or payments. Check – document signed by a depositor instructing the bank to pay a specified amount to a designated recipient or payee. Compensating balances – minimum amounts that a company agrees to maintain in a bank checking account as support for a loan by the depositor. Credit memos – deposits or credits made directly by the bank to the depositors account such as notes collected by bank in favor of the depositors, proceeds of bank loan and interest earned on the depositors’ account. Debit memos – charges to the company’s or depositors account made directly by the bank such as returned checks, bank service charge, charge for the cost of check booklets and payment o bank loans. Demand deposits – funds deposited in a bank that can be withdrawn upon demand. Deposit in transit – deposit made near the end of the month and recorded on the depositors’ books but is not received by the bank in time to be reflected on the bank statement. Drawn against insufficient fund (DAIF) check – a check drawn by a depositor but is subsequently returned by the bank to the payee because the amount of

the deposit is not enough to cover the amount of the check. Financial asset – any asset that is cash, an equity instrument of another entity, or a contractual right to receive cash or another financial asset or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity.

Petty cash – small amount of cash maintained in a fund to pay minor and immediate expenses. Post-dated check – a check, which at the date of issuance, bears a future date. The check will be honored by the bank only on or after the date indicated in the face of the check.

Financial Instrument – any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Proof of cash – a four-column bank reconciliation showing a reconciliation of beginning and ending balances of cash as well as of cash receipts and disbursement during the period.

Imprest system – a method to account for petty cash fund. Under this system, a constant balance is maintained in the fund, which equals cash plus petty cash receipts. When used in relation to general cash control, it means a system of depositing cash collections intact to the bank and making payments through checks.

Voucher system – a system that provides for the control of purchases and cash disbursements. Business documents are used to prepare vouchers in support of all payments of check. The voucher identifies the person authorizing the expenditure, explains the nature of the transaction and names the affected accounts.

Internal controls – all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies.

12-month expected credit loss – the portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date.

Money order – a demand credit instrument issued and payable by a post office. Not sufficient fund (NSF) check – see DAIF definition. Outstanding checks – checks written by the company and issued to payees but have note cleared or presented to the bank for payment. Payroll bank account – a bank account used solely for paying employees’ salaries.

Accounts receivable – trade receivable that are not evidenced by a formal agreement or note. Accounts receivable are usually unsecured open accounts. Aging of receivables – method of establishing an allowance for uncollectible accounts based on outstanding receivables. This involves analyzing individual accounts to determine those not yet due and those past due. Past due accounts are

classified in terms of length of the period past due. Amortized cost – the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount and the maturity amount, and minus any reduction for impairment or uncollectibility. Assignment of accounts receivable – a formal borrowing arrangement in which specific accounts receivable are used as security for a promissory note. Cash discount – an incentive for early payment of amounts owing on credit transactions, normally quoted as a percentage. This is also called settlement discount. Credit loss – the difference between contractual cash flows that are due to the entity in accordance with the contract and all the cash flows that the entity expects to receive discounted at the original effective interest rate. Credit risk – the risk that the payee of the debt instrument will not be able to comply with the obligations in accordance with the agreed terms. Disclosure – information reported either o the face or in the notes to the financial statements. Discount – the amount of interest earned by the bank computed as maturity value x bank discount rate x discount period. Discounting of note receivable – receiving cash from a financial

institution in exchange of a note receivable endorsed before maturity date. Discount rate – the rate of interest used by a bank in computing discount. Discount period – the period of time remaining on the term of the note. It is the period from the date of discounting to maturity date. Effective interest method – an amortization method that provides for recognition of an equal rate of amortization premium or discount each period. It uses a constant interest rate times a changing investment balance. Factoring – sale of receivables without recourse for cash to a third party, usually a bank or other financial institution. General assignment of accounts receivable – the borrowing of money with receivables pledged as security on the loan. It is practically the same as pledging of accounts receivable. Impairment loss – this is the amount by which the carrying amount of the asset exceeds its recoverable amount. Interest – this represents an amount paid on the note over and above the principal. It is computed as principal x interest rate x term. Interest-bearing note – it is a note that provides for the payment of interest for the period between the issuance date and the due date. Lifetime expected credit losses – the expected credit losses that result from all possible default events over the expected life of a financial instrument.

Maturity date – the date when the note is due and payable. Maturity value – the total amount due on the note at maturity date. It is the sum of the principal and interest. Non-trade receivables – any receivables arising from transactions that are not directly associated with the normal operating activities of a business. Non-interest-bearing note – a note that makes no provision for interest on its face; also called zero-interest bearing note. Normal operating cycle – it is the time period the acquisition of materials entering into a process and its realization in cash or an instrument that is readily convertible in cash. Notes receivable – formal claims against another that is evidenced by a written promise called the promissory note.

customer. Generally, trade discounts are dependent on the volume of business or size of order from the customer. Trade receivables – receivables associated with the normal operating activities of a business such as credit sales of good or services. Cash surrender value – the amount expected to be collected from the insurance company in the event of surrender of life insurance policy, Change fund – a fund composed of small amount of bills and coins set aside to facilitate collection from customers. Debt securities – financial instruments issued by a company that typically have the following characteristics: (1) a maturity value, (2) an interest rate, and a (3) maturity date.

Proceeds – the discounted value of the note received by the endorser of the note from the bank, computed as maturity value less discount.

Effective interest rate – the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument, or when appropriate, a shorter period to the net carrying amount of the financial asset. The calculation of the effective interest rate includes all fees and points paid to the contact, transactions costs, and all other premiums and discounts.

Promissory note – an unconditional written agreement to pay a certain sum of money on a specific or determinable date of order of the payee or to bearer.

Equity instrument – any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Receivables – claims against third parties that will be settled by the receipt of cash.

Equity securities – financial instruments that represent ownership in a company. These shares typically carry with them the right to collect dividends and to vote on corporate matters.

Principal – the amount sated on the face of the note. This is also called face value.

Trade discount – a reduction in the list price of an item to determine the amount actually chargeable to the

Expected credit losses – the weighted average of credit losses with the respective risks of a default occurring as the weights. Fair value – the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Loans and receivables – non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Nominal interest – the rate of interest printed on the face of a debt instrument, the interest rate paid on the debt, based on the face value. Plant expansion fund – a fund in the form of cash and securities intended for acquisition of land and building in the future. Sinking fund – a fund accumulated by an entity intended to pay long-term indebtedness.

Bonus issue – also termed as share dividends or stock dividends. This refers to the proportionate distribution of earnings in the form of the issuing company’s share capital. Consolidated financial statements – these are the financial statements of a group in which assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity. Control – the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Convertible securities – securities such as bonds and preference shares, whose terms permit the holder to convert the investment into ordinary shares of the issuing company. Derivative – a financial instrument or a contact that meets all the following three characteristics: (1) its value changes in response to the change in specified interest rate, (2) it requires no initial net investment.

Trading securities – also called as financial assets at fair value through profit or loss. These securities are acquired or incurred principally for the purpose of selling or repurchasing them in the near term to generate profits from changes in market prices.

Joint control – a contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Transaction costs – cost incurred relating to purchase of securities such as commissions paid to underwriter and transfer tax.

Joint venture – a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

Associate – an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

Parent company – a company that exercises control over another company, known as the subsidiary, through majority ownership (more then 50%) of the subsidiary’s voting shares.

Share split – a reduction in the par or stated value of share capital accompanied by a proportionate increase in the number of shares outstanding. Reverse share split – increases the par or stated value of share capital accompanied by a proportionate decrease in the number of shares outstanding. Share warrants – rights to purchase share capital. Warrants are generally issued in conjunction with the issuance of another security. Significant influence – the power to participate in the financial and operating policies of the investee without having control or joint control over those policies. Stock rights – rights issued to existing shareholders to buy share capital in order to maintain their proportionate ownership interests. Also called share rights. Subsidiary company – a company that is owned or controlled by another company known as the parent company. Asset swap – a debt restructuring scheme where the debtor transfers its non-cash assets to the creditor to settle its obligation. Accounts payable – also termed as trade accounts payable. These are liabilities arising from the purchase of goods, materials, supplies, or services on an open charge-amount basis. Bearer bond – also called as coupon bond. This is not recorded in the name

of the owner. The periodic interest is paid to whoever holds the bonds since each bond is accompanied by coupons representing period interest payments covering the life of the issue. Bond certificates – these are evidence of indebtedness issued by a company or government agency guaranteeing payment of a principal at a specified future date plus periodic interest. Bond discount – it is the difference between the face value and the sales price when bonds are sold below their face value. Bond indenture – it is a contract between the issuing entity and the bondholders specifying the terms, rights, and obligations of the contracting parties. Bond issuance costs – these are expenditures incurred by the issuer for legal services, printing, and engraving, taxes and underwriting in connection with the sale of a bond. Bond premium – it is the difference between the face value and the sales price when bonds are sold above their face value. Bonds payable – a liability account initially recognized upon actual issuance of bonds, the amount of which is equal to the bond’s dace value. Callable fund – a kind of bond that gives the issuing company the right to call or retire the debt before the maturing date, usually specified on the bond indenture. Chattel mortgage bond – a bod secured y an lien against movable property like motor vehicles.

Collateral trust bond – a bond secured by shares of stocks or bonds held by the issuing company as investments. Compound financial instrument – a financial instrument that contains both a liability component and an equity component. Constructive obligation – an obligation that derives from an entity’s actions where: (1) by an established pattern of past practice, (2) as a result, the entity created a valid expectation of those other parties. Convertible bond – a financial instrument that gives the holder thereof the right to convert its bondholding into ordinary shares or other securities of the issuing company within a specified period of time. Current liability – a liability that satisfies any of the following criteria: (1) it is expected to be settled in the normal course of business, (2) is due or expected to be settled within 12 months, (3) is held primarily for the purpose of being traded, (4) does not have unconditional right to defer settlement. Debenture bond – unsecured bond that is not protected by the pledge of any specific asset and is generally issued based on the credit rating of the company since this is backed only by the issuers favorable credit standing. Debt restructuring – the granting of a concession by the creditor to the debtor that it would not otherwise grand under normal conditions. Equity swap – a debt restructuring scheme where the debtor issues its

share capital to the creditor in settlement of its obligation. Face value – the amount that will be paid on a bond at the maturity date also called par value or maturity value. Financial liability – a contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another under conditions. Legal obligation – obligation derived from (a) a contract, (b) legislation, (c) other operation of law. Liability – a present obligation of an entity to transfer an economic resource as a result of past events. Nominal interest rate – also termed as contract rate or stated rate. This is the rate stated on the face of the bond that generally depends on the financial condition and earnings of the issuing corporation. Non-current liabilities – obligations which fail to meet any one of the criteria for classification as current liabilities and it not expected to be paid within 12 months. Notes payable – obligation evidenced by a promissory note to pay a certain sum of money to the bearer at a designated future time. Obligating event – an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling the obligation. Obligation – a duty or responsibility that the entity has no practical ability to avoid.

Operating cycle – the average length of time necessary for an entity to convert cash to inventory, inventory to receivables, and receivables back to cash. Probable loss – a contingent loss based on the occurrence of a future event or events that are likely to occur. Provision – a liability of uncertain timing or amount. Real estate mortgage bond – a bond secured by a lien against real property of the issuing company. Registered bond – bond whose owners name is registered in the books of the issuing corporation. When sold, the original certificate is cancelled and new certificate is issued and registered in the name of the new bondholder. Restructuring – it is a program that is planned and controlled by the management, and materially changes either (a) the undertaken, (b) and the conducted. Secured bond – bond that provide security and protection to investors in the from of specific assets of the issuer. Serial bond – it is a kind of bond that matures in installments. Term bond – it is a kind of bond that matures on a single date. Zero interest bond – also called deepdiscount bond. This is issued at ...