Accounting, Business Studies and Economics Dictionary

Callable bond - Bond issue with a call (buy back) provision.

Call centre - The section of an organisation that handles phone communications with the firms customers or clients.

Called-up Share capital - The value of unpaid (but issued shares) which a company has requested payment for. See Paid-up Share capital .

Call premium - Amount in excess of par value that a company must pay when it calls a security. It is the difference between the CALL PRICE and the matu­rity value. The issuer pays the premium to the security holder in order to acquire the outstanding security before the specified maturity date. The call premium is generally equal to one year's interest if the bond is called in the first year, and it declines at a constant rate each year thereafter.

Calorie supply per capita daily – The calories available to the people of a country.  This is based on the total food supply produced and imported, divided by the population and the number of days in a year.

Capacity - The level of output that corresponds to the firm's minimum short-run average total cost.

Capital (economics) - Factors of production that themselves have been produced by man e.g. machines, factories, ships.

Capital (Accounting) - 1. the money invested into a business by the owners. Or 2. an amount of money put into the business (often by way of a loan) as opposed to money earned by the business.

Capital account - A term usually applied to the owners equity in the business.

Capital account of the balance of payments - A section of a balance of payments accounts that records payments and receipts arising from the import and export of long-term and short­term financial capital.

Capital asset - Asset purchased for use in production over long periods of time rather than for resale. It includes (a) land, buildings, plant and equipment, mineral deposits, and timber reserves; (b) patents, good­will, trademarks, and leaseholds; and (c) investments in affiliated companies.

Capital asset pricing model (CAPM) -Theory of asset pric­ing used to analyze the relationship between risk and rates of return in securities. The return of an asset or security is the risk-free return plus a risk premium based on the excess of the return on the market over the risk-free rate multiplied by the asset's systematic risk (which can­not be eliminated by diversification).

Capital budget  - Plan of proposed acquisitions and replacements of long-term assets and their financing. A capital budget is developed using a variety of capital budgeting techniques such as the payback method, the net present value (NPV) method, or the internal rate of return (IRR) method.

Capital charge - Is an amount of  money that is normally arrived at by the calculation of the money the firm has invested in capital multiplied by the (WACC) weighted average cost of the capital. The capital charge is normally subtracted from a firms net operating profit minus tax to arrive at the economic profit figure.

Capital consumption  - See depreciation another name for the same concept.

Capital employed (CE) - Gross CE=Total assets, Net CE=Fixed assets plus (current assets less current liabilities).

Capital expenditure - Money spent on fixed assets which will last for more than one year.

Capital flight - The movement of financial capital overseas following domestic problems. Capital flight has significantly deepened the problems of  Third World debt.

Capital gain - The profit made by selling a share/asset for more it was bought for.

Capital gains tax - When a fixed asset is sold at a profit, the profit may be liable to a tax called Capital Gains Tax. Calculating the tax can be a complicated affair (capital gains allowances, adjustments for inflation and different computations depending on the age of the asset are all considerations you will need to take on board).

Capital goods - Goods that are use of other goods. Examples include and tractors. Consumers do not directly consume capital goods.

Capital intensive - Refers to production processes that require predominately man made resources i.e. machines.  This is often contrasted with labour intensive production (mainly labour is used).

Capital-labour ratio - A measure of the amount of capital per worker in an economy.

Capital stock - The aggregate quantity of capital goods.

Capitalisation - 1. total amount of the various securities issued by a corporation. Capitalisation may include bonds, preferred and common stock. Or 2. a technique used by real estate appraisers to convert the income of a property into a value estimate for that property.

Capitalisation rate (CAP RATE) - A tool used by real estate people to determine a value of an investment. It is calculated by divid­ing a property's net operating income by its purchase price.

Capitalise - To charge an expenditure to an asset account because it benefits a period in excess of one year. For example, a betterment to a machine would be capitalised to the machinery account.

Capitalised costs - Are those business costs or expenses that are deducted or written off over a period of time via depreciation ond amortisation schedules.

Capitalised earnings - The value of a company determined by multiplying the P/E  ratio by maintainable earnings.

Capital intensive - Production methods which employ a large amount of machinery relative to labour.

Capital lease -  One in which the lessee obtains significant property rights.

Capital loss -  Refers to the higher purchase price above the sale price when the fixed are sold. The loss often given different or a special different treatment for tax purposes.

Capital maintenance - Principle in accounting stat­ing that earnings can be realized only after an organization's capital has been maintained at a predetermined level..

Capitalism - An economic system individuals privately own the productive resources of land and capital.

Capital market - The market of debt or equity securities.

Capital movements - The flow of international boundaries, for investment in plant and machinery, or in response to interest rate changes or expectations of interest rate changes.

Capital rationing - Selecting the mix of acceptable projects that provides the highest overall net present value (NPV) when a company has a limit on the budget for capital spending. The probability index is used widely in ranking projects competing for limited funds

Capital reduction - The reducing of a company's declared or stated capital base.

Capital replacement (economic depreciation) - This refers to repair and maintenance of machinery used in production. Capital replacement is often regarded as an expense which may be  discretionary in any given year. Ultimately this money must be spent in order to keep the capital stock of an entity working so that over a period of time or in the longer term, the firm operations can continue.

Capital reserve - Refers to fund that are set aside for a specific identified purposes, thereby these funds  cannot normally be used for other reasons.

Capital stock - Equity shares in a corporation that is authorised by its Articles of Incorporation and issued to stockholders. The two basic types of capital stock are common stock and preferred stock.

Capital structure - The way in which funds are raised by a business.

Carry forward (CF) -  Refers to items of data that are carry forward into the subsequent transactions.

Carrying value - Amount shown on an entity's books for assets, lia­bilities, or owner's equity, net of reductions or offsets such as for accu­mulated depreciation, allowance for bad debts, and bond discount; also called BOOK VALUE. It may refer to the entire firm's excess of total assets over total liabilities.

Cartel  - A group of producers who enter into a collusive agreement to restrict output in order to raise prices and profits.

Cash - Money deposited in a bank and items that a bank will accept for immediate deposit (e.g., paper money, coins, checks, money orders). Items not included in the definition of cash are post-dated checks, IOUs, and notes receivable. The cash on hand and cash on deposit in the bank are shown in the balance sheet as one figure. Cash is the most liquid of the current assets and is listed first. Note that restricted cash in a bank account is not considered a current asset. An example is cash held in a foreign country where remission restrictions exist.

Cash accounting - This term describes an accounting method whereby only invoices and bills which have been paid are accounted for

Cash book - A journal where a business's cash sales and purchases are entered. A cash book can also be used to record the transactions of a bank account. The side of the cash book which refers to the cash or bank account can be used as a part of the nominal ledger (rather than posting the entries to cash or bank accounts held directly in the General Ledger - see 'Three column cash book').

Cash and cash equivalents -  Means any near cash items including marketable securities and cash.

Cash budget - Budget for cash planning and control that presents expected cash inflow and outflow for a designated time period. The cash budget helps management keep cash balances in reasonable rela­tionship to its needs. It aids in avoiding idle cash and possible cash shortages. The cash budget typically consists of four major sections: (I) receipts section, which is the beginning cash balance, cash collec­tions from customers, and other receipts; (2) disbursement section comprised of all cash payments made by purpose; (3) cash surplus or deficit section showing the difference between cash receipts and cash payments; and (4) financing section providing a detailed account of the borrowings and repayments expected during the period.

Cash cow - A business or the segment of the business that generates tons of money.

Cash cycle - Refers to the period of time, often given days, in between the purchasing of the raw materials and the receipt of payment from accounts receivable which was generated from the final sale of the finished item.

Cash payments/disbursements journal - The journal that records all payments or disbursements.

Cash discount - A reduction of some portion of the amount to be paid because the buyer is willing to pay in cash, as compared buying on credit.  many individuals like cash payments as it can be used as a way of evading tax.

Cash dividend - The payment of a share of earnings to the individual shareholders.

Cash earnings - Refers to the excess of cash revenues over cash expenses. This is different from other earnings as it doesn't include non-cash expenses like depreciation or amortisation.

Cash flow - Cash inflows and outflows over a period of time.

Cash flow analysis - This is a  analysis that considers the amount and timing of cash in to a entity with the timing and amount of cash out. A firm’s cash flow position (or liquidity) can have a large effect on the firms ability to keep running. This position is not necessarily shown in a cost-benefit analysis.

Cash flow cycle -  Means of showing the stages between paying out cash for labour, materials, etc. And receiving cash from the sale of good.

Cash flow forecast - An estimate of future- cash inflows and outflows of a business, usually on a monthly basis.

Cash flow forecast statement - A prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of each

Cash flow statement – A financial statement which shows sources and uses of cash in a trading period.

Cash at bank -  Means notes, coin and currency items deposited with the bank.  If this is negative it is called overdraft.

Cash inflows - The sums of money received by a business during a period of time.

Cash on hand - Means notes ,coin and currency items on hand. A firm cannot have a negative balance of cash on hand.

Cash outflows - The sums of money, paid out by a business during a period of time.

Cash ratio - A like the quick ratio but it only considers the ratio of cash and other marketable securities as compared to a firms current liabilities. This ratio  is indicative of  extent or degree to which liabilities of a firm could be turned into cash immediately. This ratio is also called the liquidity ratio.

Cash receipts journal - Is the journal which records cash receipts.

Cash reserve ratio (CRR) -  This is the ratio which individual banks need to keep on hand in the form of cash reserves with the Reserve  Central) Bank. The CRR  is calculated as a percentage of the banks demand and time deposits from customers. The CRR  is to ensure both the liquidity and safety of the depositors money with the banks.  This ratio will directly affect the size of the credit multiplier

Cash shortage and overage - Situation in which the physical amount of cash on hand differs from the book recorded amount of cash. When a business is involved with over-the-counter cash receipts, occasional errors may occur in making change. The cash shortage or overage is revealed when the physical cash count at the end of the day does not agree with the cash register tape. Assuming that the count is $600 and the cash register reading shows $620, the cash shortage and overage account would be charged for $20. It is shown in the income statement.

Catchline - A memorable phrase which seeks to strengthen a product's brand identity.

Catch-up effect - The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.

Caveat - Refers to a warning or prohibition against certain activities; under the law.  It may also be  a formal document filed with the court  to suspend/stop a proceeding for a period of time.

Cellular manufacturing - Involves producing a 'family of products' in a small self-contained unit (a cell) within a factory.

Centering - A method used in the calculation of a moving average where the average is plotted or calculated in relation to the central figure.

Central bank - A bank that acts as banker to the commer­cial banking system and often to the government as well. In the modern world, usually a government ­owned-and-operated institution that controls the banking system and is the sole money-issuing authority.

Centralised - A management structure in which most decisions are taken at the centre, or at higher levels of management.

Centrally planned or command economy - An economy where all economic decisions are taken by the central authorities.

Central tendency - A measure of the most likely or common result from a set of data (the average).

CEO - Chief Executive Officer. The CEO is the principle person responsible for day to day running of a company.

Certainty - Situation in which there is absolutely no doubt about which event will occur, and there is only one state of nature with 100% probability attached.

Certificates of deposit (CDs) - Certificates issued by banks for fixed-term interest-bearing deposits. They can be resold by the owner to another party.

Certificate of origin -  Refers to a document that tells the place where the items were originally made. The certificate of origin document is often a legal requirement for countries if they wish to import sensitive merchandise i.e. military equipment.

Certified accountant - Title given by the Association of Certified Accountants in the United Kingdom, Canada, Australia, India, and other British Commonwealth countries. They use the initials ACA (for member of the Association of Certified Accountants) or FCCA, which identifies a Fellow of the Association, one who has passed additional requirements. The accountant is authorized to provide an audit opinion on the propriety of a company's financial statements.

Certified financial statements - Refers to financial statements which have had a formal audit carried out by by a CPA and contain a statements of certification given by the certified public accountant.

Certified public accountant (CPA) - Refers to an accountant who is licensed and therefore allowed to practice public accounting.  The requirements differ in different countries.

Ceteris paribus - Literally, "other things being equal"; usually used in economics to indicate that all variables except the ones specified are assumed not to change.

Chain of command - The structure within an organisation which allows instructions to be passed down from senior management to the lower levels of management.

Chair person of the board - Is the head or in charge of the board of directors of a company, and generally is considered to be the boss of the corporation.

Change in demand - An increase or decrease in the quantity demanded at each possible price of the product, repre­sented by a shift in the whole demand curve.

Change in supply - An increase or decrease in the quantity supplied at each possible price of the commodity, represented by a shift in the whole supply curve.

Change in the quantity demanded - An increase or decrease in the specific quantity bought, represented by a change from one point on a demand curve to another point, either on the original demand curve or on a new one.

Change in the quantity supplied - An increase or decrease in the specific quantity supplied, represented by a change from one point on a supply curve to another point, either on the original supply curve or on a new one..

Changes in demand or supply – These changes cause markets to adjust. Whenever such changes occur, the resulting 'disequilibrium' will bring an automatic change in prices, thereby restoring equilibrium (Le. a balance of demand and supply)

Channel costing - The fulfilment cost information pertaining to distribution channels.

Channel of communication - The route by which a message is communicated from sender to receiver.

Channel of distribution - The means by which the product is passed from the place of production to the customer or retailer.

Charge back - Refers to a credit card order which has been processed and is subsequently cancelled by the cardholder contacting the credit card company directly (rather than through the seller). This results in the amount being 'charged back' to the seller (often incurs a small penalty or administration fee to the seller).

Charted accountant (CA) - A British accountant who is a member of the Institute of Chartered Accountants.

Chart of accounts -  A list showing all the accounts held in the nominal ledger. The Chart of Accounts normally consist of and are arranged normally in this following way: Assets, Liabilities, Owners' Equity or Stockholders Equity, Revenue, and Expenses.

Chattel mortgage –  Mortgage on personal (as opposed to real) property.

Cheque (check) - A draft or demand drawn or presented against a specific bank, that is payable upon the demand (when presented to)  to the bank by the person or entity who is named on the draft.

Cheque (check) book - The journal or source document that records payments by cheque

Churn rate -  The proportion of clients/customers (e.g., cable TV subscribers) who cancels the subscription they have each month on average.

Circular flow model - A model of the flows resources, goods, and services, as well as money,  receipts, and payments for them in the economy.

Circular flow of income - The flow of money around the economy.

Circulating assets - The opposite to Fixed assets . Circulating assets describe those assets that turn from cash to goods and back again (hence the term circulating). Typically, you buy some raw materials, start to manufacture a product (the asset is called work in progress at this point), produce a product (it is now stock ), sell it (it is now back to cash again).

Claimant unemployment  - Those in receipt of unemployment-related benefits.

Classical dichotomy - The theoretical separation of nominal and real variables.

Classical unemployment - See real-wage unemployment.

Classification - The process of separating and distributing items into classes/categories of the same or similar type. In accounting information is often classified as: assets, liabilities or equity and there may be subsets to these three classifications.

Clearance letter (document) –  Documented certification or a letter from a recognised authority that the person or business cleared has met certain specific requirements, actions, payments and such forth.

Clearing account - Usually a temporary account containing costs or amounts that are to be transferred to another account. An example is the income summary account containing revenue and expense amounts to be transferred to retained earnings at the close of a fiscal period.

Clearinghouse - An institution where interbank indebtedness, arising from the transfer of cheques between banks, is computed and offset and net amounts owing are calculated.

Client (customer) – A person or company who purchases goods and/or services from a firm.

Closed economy - An economy that has no foreign trade.

Closed shop - A practice which prevents workers being employed in a business unless they belong to a trade union.

Closing cash (or bank) balance - The amount of cash held by the business at the end of each month. This becomes next month's opening cash balance.

Closely held corporation - Firm that has only a few stock­holders. It contrasts with a privately held corporation in that a closely held corporation is public although few of the shares are traded. The so­ called "corporate pocket-books" may become subject to the additional personal holding company tax on income not distributed. For example, deductions and losses in transactions between a major stockholder and the corporation may be disallowed under certain circumstances.

Closing account - is the process of determining the final balance of an account and then the posting of the entry in order to offset this balance.

Closing-down point - The level of output in the short run where a firm should cease its operations. i.e. where marginal cost is equal to average variable cost.

Closing entry - is a Journal entry used at the end of a particular financial period with the intention of transferring the net of revenue minus expense items from the income (profit and loss) statements to the owners' equity. Entries are for nominal accounts and not real accounts. At the end of the year, expenses are credited so that zero bal­ances are left in them, and the total is debited to the income summary account. Revenue accounts are debited to arrive at zero balances, and the total is credited to the income summary account. The net income or loss that now exists in the income summary account is then transferred to retained earnings. After the closing entries, the new year will start fresh in that no income statement account balances will exist.

Closing the books - A term used to describe the journal entries necessary to close the sales and expense accounts of a business at year end by posting their balances to the profit and loss account, and ultimately to close the profit & loss account too by posting its balance to a capital or other account.

Cluster sampling - Method of selecting groups of units. The first unit of each group is selected with the use of a random number table. This allows selection of more than one item at a time. In cluster sam­pling, the population is broken into groups of items, and a RANDOM SAMPLE is selected from all the clusters. Each cluster becomes a sam­pling unit.

Coase theorem - The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own.

COD - Cash On Delivery; which is exactly what it means.

Coding of accounts - Assignment of an identification number to each account in the financial statements. A CHART Of ACCOUNTS lists the account titles and account numbers being used by a business. For example, the numbers I to 29 may be used exclusively for asset accounts; numbers from 30 to 49 may be reserved for liabilities; num­bers in the 50s may signify OWNERS' EQUITY accounts; numbers in the 60s may represent revenue accounts; and numbers from 70 to 99 may designate expense accounts. In large or complex businesses with many more accounts, a more elaborate coding system would be needed. Some companies use a four-digit coding system. The coding system is especially necessary for computerised accounting.

COGS - Cost of goods sold

COGS (Cost of good sold) ratio = COGS / Total Sales.

Collateral - Assets used as security for the extension of a loan.

Collateralise - To pledge assets to secure a debt. These assets will be given up if the borrower defaults on the terms and conditions spec­ified in the debt agreement. An example is pledging inventory to col­lateralize a bank loan.

Collectables - Art, stamps, coins, antiques, and other related items. They offer capital gains potential, inflation protection, and aesthetic enjoyment. Collectibles are acquired through dealers, at auctions, or directly from previous owners. Among the drawbacks are high security and insurance cost, poor liquidity, lack of income, and possi­ble forgeries. Information about collectibles sometimes appears in magazines like Money and Creditor/Investor, and major categories of collectibles have magazines and newsletters devoted exclusively to them

Collection period - Number of days it takes to collect accounts receivable. The collection period should be or can be compared to the terms of sale. A long collection period may indicate higher risk in col­lecting the account; it ties up funds that could be invested elsewhere or used to make timely payments. It equals the number of days in a year divided by the Accounts receivable turnover. Assume a 360-day year and turnover rate of 10 times. The collection period is 36 days.

Collective agreements - The agreements reached through the process of collective bargaining.

Collective bargaining - A method of determining conditions of work and terms of employment through negotiations between employers and employee representatives.

Collective consumption goods - Goods or services that, if they provide benefits to anyone, can, at little or no ad­ditional cost, provide benefits to a large group of peo­ple. Also called public goods.

Collusion - Price determination by oligopolists which is coordinated and aims to avoid the danger of price wars breaking out or agreements between businesses designed to reduce competition.

Collusive oligopoly - Where oligopolists agree, (formally or informally) to limit competition between themselves. They may set output quotas, fix prices, limit product promotion or development, or agree not to 'poach' each other's markets.

Collusive tendering - Where two or more firms secretly agree on the prices they will tender for a contract. These prices Would be above those which would be put in under a genuinely competitive tendering process.

Combined financial statements - 1. presentation in which the balance sheet accounts or income statement accounts of a related group of entities have been added together so they are considered as one reporting entity. Inter-company transactions are eliminated in a combined statement. Or 2. in governmental accounting, statement in which the balance sheets of all fund and account groups are shown without inter-fund trans­fers being eliminated

Comfort letters - Term used when underwriters request "comfort" from an auditor about financial information in SEC registration state­ments not covered by the auditor's opinion and on subsequent events after the opinion date.

Command-and-control (CAC) systems - The use of laws or regulations backed up by inspections and penalties (such as fines) for non-compliance.

Command economy - An economy in which the decisions of the government (as distinct from households and firms) exert the major influence over the allocation of resources.

Commercial bank - A financial institution that provides commercial banking services. A commercial bank accepts deposits, gives business loans and provides other services to businesses.

Commercial bills - Bills of exchange issued by firms. .

Commercial loan -  Short-term business loan usually issued for a term of up to six months.

Commercial paper - Short-term unsecured loan of a financially strong company having a maturity up to 270 days. It is typically issued on a discount basis meaning that the interest is subtracted immediately from the face of the debt to obtain the cash proceeds.

Commercial policy - A government's policy involving re­strictions placed on international trade. Also called trade policy.

Commission - A payment system where employees are paid a percentage of the value of each good or service that is sold.

Commitment - Expected expenditure backed by an agreement. A commitment may be disclosed in a footnote but generally is not given accounting recognition. Disclosure includes its nature and amount. However, a commitment can be recorded in the case of a loss commitment on a purchase contract where the market price has significantly declined below the agreed-upon delivery contract price. The entry for the dif­ference is to debit loss on purchase commitment and credit esti­mated liability. But a gain on a purchase contract is not recognized because it violates conservatism.

Committed costs -  Costs, usually fixed costs, which the management of an organization has a long-term responsibility to pay. Examples include rent on a long-term lease and depreciation on an asset with an extended life.

Commodity - An article of commerce or product that can be used for commerce. In a narrower sense, commodity is product traded on an authorised commodity exchange. Some types of commodities: agricultural products, metals, petroleum, foreign currencies, financial instruments and indices, etc.