Accounting, Business Studies and Economics Dictionary

E.C. (European community) now EU (European Union) - Is a trading block of European countries that have agreed on common tariff barriers and the free flow of labour and capital between themselves.  Currently there are 25 member states.  The is the highest degree of economic integration a common market.

e-commerce - The use of the internet and electronic communications to carry out business transactions.

Econometrics - The branch of economics that uses the application of statistical tools and methods to the study of economic relationships and theories. It is a combination of statistics, mathematical economics, economic theory and economic statistics .

Economically feasible - The benefit of doing the activity is greater than the cost of doing it.

Economic book value - A book value analysis where the assets are adjusted to their market value.

Economic efficiency  - The use of resources that generate the highest possible value of output as determined in the market economy by consumers.  Economic efficiency is achieved when each good is produced at the minimum cost and where consumers get maximum benefit from their income

Economic entity - Accounting concept that provides a “point of view”  or context for different economic events that have been recorded by the financial records.

Economic goods - Any good or service that is scarce.

Economic growth - The increase in an economy's real level of output over time.

Economic life - Estimated period that a fixed asset will provide ben­efits to the company.

Economic model - A formal presentation of an economic theory.

Economic order quantity (EOQ) - The level of stock order which minimises ordering and stock holding costs.

Economic problem - The fact that there are unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity.

Economic profits or losses - The difference between the revenues received from the sale of output and the op­portunity cost of the inputs used to make the output. Negative economic profits are economic losses. Also called pure profits or pure losses, or simply profits or losses.

Economic structure - The classification of a country according to the proportion of output produced by the primary, secondary and tertiary sectors.

Economic substance - Relates to income tax laws application, i.e., the substance of the transaction is what is considered to be important not its form, when determining the tax implications.

Economic system - The institutional means through which resources are used to satisfy human wants.

Economic theory - A rule or principle that enables us to understand and predict economic choices.

Economic value (EV) - The asset valued according to its ability to generate revenue.

Economics - The study of how people use their limited resources to try to satisfy unlimited wants.

Economies of scale - Reduction of costs per unit output re­sulting from an expansion in the scale of a firm's oper­ations so that more of all inputs are being used.

Economies of scope - Economies achieved by a firm that is large enough to engage efficiently in multi-product production and associated large-scale distribution, ad­vertising, and purchasing.

Economy - A system which attempts to solve the basic economic problem. A set of interrelated production and consumption activities.

ECU (European Currency Unit) - The predecessor to the euro a weighted average of EU currencies. It was used as a reserve currency and for the operation of the exchange rate mechanism (ERM).

Effective interest rate - Real rate of interest on a loan equal to the nominal interest divided by the proceeds of the loan.

Effective rate of tariff - The tax charged on any imported commodity expressed as a percentage of the value added by the exporting industry.

Effective tax rate - Equals the tax divided by taxable income. For example, if the tax is $20,000 on taxable income of $80,000, the effective tax rate of the business is 25% ($20,000/$80,000).

Efficiency - How well inputs, such as raw materials, labour or capital can be changed into outputs, such as goods or services.

Efficiency variance - Difference between inputs (materials and labor) that were actually used (i.e., actual quantity of inputs used) and inputs that should have been used (i.e., standard quantity of inputs allowed for actual production), multiplied by the standard price per unit. Efficiency (quantity, usage) variance = (actual quantity - stan­dard quantity) x standard price per unit of input.

Efficiency wage rate - The profit-maximising wage rate for the firm after taking into account the effects of wage rates on worker motivation, turn­over and recruitment.

Efficiency wages - Above-equilibrium wages paid by firms in order to increase worker productivity.

Efficient markets hypothesis - The the­ory that asset prices reflect all publicly available information about the value of an asset.

Efficient market theory – The theory that market mechanism via prices does reflect the expectations and knowledge of all the different investors. Investors who subscribe to this theory believe it is unlikely the market can be predicted by using technical analysis.

Elastic demand - The situation in which, for a given per­centage change in price, there is a greater percentage change in quantity demanded; elasticity greater than unity.

Elasticity - A measure of the responsiveness of one variable to a change in another. Thus price elasticity of demand is the responsiveness of quantity demanded of a good to a change in its price. Income elasticity of demand is the responsiveness of quantity demanded of a good to a change in incomes.  Elasticity. The responsiveness of one variable (e.g. demand) to a change another (e.g. price). This concept is fundamental to understanding how markets work. The more elastic variables are, the more responsive is the mad changing circumstances.

Elasticity of demand - A measure of the responsiveness of quantity of a product demanded to a change in market price.

Elasticity of supply - A measure of the responsiveness of the quantity of a product supplied to a change in the market price.

Electronic funds transfer (EFS) - A payment executed through computers.

Electronic mail (e-mail) - Document transmitted electronically from the user's computer or terminal to an information service. Accountants and their clients can take advantage of electronic mail to transmit essential messages. With electronic mail, each user in the sys­tem has a "mailbox," which receives, holds, and sends information to others. The information sent may be spreadsheets, reports, memos, and so forth.

Eliminations - Accounting entries used when preparing consolidated financial statements between parent company and a subsidiary. Examples of eliminations are the elimination of inter-company profit, receivables, payables, sales, and purchases. Thus the consolidated entity reports financial statement figures applicable to outsider transactions.

Embezzlement - Theft of money or property from a business by an individual in whose custody it has been placed. An example is a book­keeper who steals from the petty cash fund.

Embodied technical change - Technical change that is in­trinsic to the particular capital goods in use and hence can be used only when new capital, embodying the new techniques, is built.

Employee - A worker for whom an employer provides and controls work, supplies equipment and pays tax and National Insurance contributions.

Employers' association - A group of employers join together to give benefits to their members. Also called employer federations and trade associations.

Employment - The number of adult workers (16 years of age and older) who hold full-time jobs.

Empowerment - To give official authority to employees to make decisions and control their own activities.

Encumbered - This refers to a situation where an asset which is owned by one individual or entity has a legal claim on it by another.  For example a mortgage.

Encumbrance - A liability (e.g.. a mortgage is an encumbrance on a property). Also, any money set aside (i.e.. reserved) for any purpose.

Ending inventory - The value of the inventory at the end of the period often calculated by conducting a stocktake.

Endogenous expenditure - See induced expenditure.

Endogenous variable - A variable that is explained within a theory.

Endogenous money supply - Money supply that is determined (at least in part) by the demand for money

Endorsement - Signature on a draft or cheque by a payee before trans­fer to a third party.

Endowment - A  fund where amounts given to the  fund will be held in perpetuity and that the earnings from the fund are used in accordance with the donor’s of the fund's specified instructions.

Energy consumed per capita - The amount of energy consumed divided by the population. This takes account of all sources of energy, oil, gas, coal, hydro etc. (except firewood).

Entrepreneurship - The initiating and organising of the production of new goods, or the introduc­tion of new techniques, and the risk taking asso­ciated with it.

Enterprise (Accounting) - is an organization created for business ventures.

Enterprise / Entrepreneur (Economics) - The factor of production involving human resources that perform the functions of raising capital, organizing, managing, assembling other factors of production, and making basic business policy-decisions. The risk taker.

Enterprise value (EV) - Is a measure of a company's worth or value. It is normally calculated by the following method EV = market capitalisation + debt and preferred shares - (cash + cash equivalents).

Enterprise zones - Small inner city areas designated by the government which qualify for financial assistance.

Entity – 1. Accounting: separate economic unit subject to financial measurement for accounting purposes. Examples are a corporation, partnership, sole-proprietor, and trust. Or 2. Legal: individual, partnership, corporation, and so on, permitted by law to own property and engage in business. Affiliated legal entities such as those consolidated for financial reporting may exist. Here, two or more companies operate under common control.

Entity assumption / concept- That the firm or business is separate from the owner in preparing financial statements.

Entity theory - View in which a business or other organization has a separate accountability of its own. It is based on the equation: Assets = Liabilities + Stockholders' Equity.  The entity theory considers liabilities as equities with different rights and legal standing in the business. Under the theory, assets, obligations, revenues, and expenses and other financial aspects of the business entity are accounted for separately from its owners. In other words, the company has an identity distinct from its owners or man­agers. The firm is viewed as an economic and legal unit

Entrepreneur – 1. Accounting is the individual who takes the financial risk of the management and operation of a business or venture.  Or 2. Economics an economic agent who perceives market opportunities and assembles factors of production to exploit them in a firm.

Entry - Part of a transaction recorded in a journal or posted to a ledger.

Entry barrier - Any natural barrier to the entry of new firms into an industry, such as a large minimum effi­cient scale for firms, or any firm-created barrier, such as a patent.

Envelope curve -  Any curve that encloses, by being tangent to, a series of other curves. In particular, the envelope cost curve is the LRAC curve, which encloses the SRAC curves by being tangent to each without cutting any of them.

Environmental charges - Charges for using natural resources (e.g. water or national parks), or for using the environment as a dump for waste (e. factory emissions or sewage).

Equal opportunities - Where everyone has the same chance in business.  This can mean the same chance of promotion etc.

Equation of exchange - The number of monetary units multiplied by the number of times each unit is spent on final goods and services is identical to the prices multiplied by output (or national income). Formally written as M x V = P x Q.

Equilibrium - A situation in which the plans of buyers and sellers exactly coincide so that there is neither excess supply nor excess demand.  Equilibrium is the point where conflicting interests are balanced. Only at this point is the amount that demanders are willing to purchase the same as the amount that suppliers are willing to supply. It is a point that will be automatically reached in a free market through the operation of the price mechanism.

Equilibrium differential - A difference in factor prices that would persist in equilibrium, without any tendency for it to be removed.

Equilibrium price -The price where the quantity demanded equals the quantity supplied - the price where there is no shortage or surplus.      

Equilibrium unemployment ('natural') unemployment - The difference between those who would like employment at the current wage rate and those willing and able to take a job.

Equipment loan - A loan used for the buying of capital equipment.

Equities – Another name for an ordinary share.

Equities company shares - Holders of equities, owners of the company and share in its profits by receiving dividends.

Equity – (Accounting) The value of the business to the owner of the business (which is the difference between the business's assets and liabilities).

Equity – (Economics)  Is where income is distributed in a way that is considered to be fair or just. Note that an equitable distribution is not the same as a totally equal dis­tribution and that different people have different views on what is equitable.

Equity capital - Funds provided by the owners of a firm, the return on which depends on the firm's profits.

Equity financing - Method of a firm raising funds by issuing either/or common and preferred stock

Equity method - Accounting method used to record  investments in associated companies.

Equity share capital - When the capital is raised by a firm via the issue of common shares.

Equity to asset ratio - The percentage of total assets financed through the owner’s equity capital. This is the reciprocal of the debt:asset ratio.

Equivalent unit of production (EPU) - number of fully completed units considered to b equivalent to a greater number of partially completed units i.e. if 1000 units are all 60% complete, then 600 whole units could be considered to be equivalently completed.

Eurocurrency - Currency deposits held in banks outside their country of origin, e.g. eurodollars are US dollar deposits held in banks outside the US, though not necessarily in Europe.

European monetary system (EMS) - An agreement under which EU countries attempt to promote exchange rate stability within the European Union.

Ergonomics - the study of people in their working environment and the adaptation of machines and conditions to improve efficiency.

ERM (the exchange rate mechanism) - A system of semi-fixed exchange rates used by most of the ED countries prior to adoption of the euro. Members' currencies were allowed to fluctuate against each other only within agreed bands. Collectively they floated against all other currencies.

Error of commission - A double-entry term which means that one or both sides of a double-entry has been posted to the wrong account (but is within the same class of account). Example: Petrol expense posted to Vehicle maintenance expense.

Error of omission - A double-entry term which means that a transaction has been omitted from the accounts entirely.

Error of original entry - A double-entry term which means that a transaction has been entered with the wrong amount.

Error of principle - A double-entry term which means that one or possibly both sides of a double-entry has been posted to the wrong account (which is also a different class of account). Example: Petrol expense posted to Fixtures and Fittings.

Estate - Is the entire group or value of the assets owned by a person at the time of their or her death.

Estate taxes - Levy paid to the federal government or state on a deceased person's assets that have been left to heirs.

Ethical standards - A statement or document which contains the basic principles and  procedures together with any related and relevant guidance in the form of explanatory notes and other documents.

Ethics - The values and beliefs of individuals or groups.

Ethical behaviour - Behaviour which is viewed as correct.

EV (economic value) - The worth of an asset which is calculated by its ability to generate revenue.

Excess burden - The value to taxpayers of the changes in behaviour that are induced by taxes; the amount that taxpayers would be willing to pay, over and above the direct burden of taxes, to abolish the taxes.

Excess capacity - The amount by which actual output falls short of capacity output (which is the output that cor­responds to the minimum short-run average total cost).

Excess capacity (under monopolistic competition) - The property of long-run equi­librium in monopolistic competition that firms pro­duce on the falling portion of their average total cost curves so that they have excess capacity measured by the gap between present output and the output that coincides with minimum average total cost.

Excess demand - A situation in which, at the given price, quantity demanded exceeds quantity supplied. Also called a shortage.

Excess reserves - Reserves held by a commercial bank in excess of the legally required minimum.

Excess supply - A situation in which, at the given price, quantity supplied exceeds quantity demanded. Also called a surplus.

Exchange - The act of trading, usually done on a voluntary basis, in which both parties to the trade are better off.

Exchange rate - The price in terms of one currency at which another currency, or claims on it, can be bought and sold. The rate is expressed as the amount of one currency that is necessary to purchase one unit of another cur­rency (e.g. $1.60 = £1).

Exchange rate appreciation - When the value of a country's currency rises compared to other currencies.

Exchange rate band - Where a currency is allowed to float between an upper and lower exchange rate, but is not allowed to move outside this.

Exchange rate depreciation - When the value of a country's currency falls compared with other currencies.

Exchange rate index - A weighted aver exchange rate expressed as an index where value of the index is 100 in a given base year. The weights of the different currencies in index add up to 1.

Exchange rate overshooting - Where a fall (or rise) in the long-run equilibrium exchange rate causes the actual exchange rate to fall (or rise) by greater amount before eventually moving back to the new long-run equilibrium level.

Exchange rate regime - The system under which the government allows the exchange rate to be determined.

Exchange rate risk - In foreign exchange, refers to the position of a firm in relation to changes in the exchange rates.

Excise duties (taxes) -  A tax on the sale of a particular product; may be a specific tax (fixed tax per unit of product) or an ad valorem tax (fixed percentage of the value of the product). Normally taxes levied on fuel, alcohol, tobacco and betting.

Excludability - The property of a good whereby a person can be prevented from using it.

Execution lag - The time that it takes to put policies in place after a decision has been made.

Exempt - Not being subject to an obligation or liability of something. For example exempt from a specific  tax.

Exogenous money supply - Money supply that does not depend on the demand for money but is set by the authorities.

Exogenous variable - A variable that influences endogenous variables but is itself determined by factors outside the theory.

Expansionary gap - When the equilibrium level of real national income exceeds the full-capacity level of real national income; the positive difference between total desired spending and the full-capacity level of real national income.

Expectational inflation - Inflation that occurs because decision makers raise prices (so as to keep their relative prices constant) in the expectation that the price level is going to rise.

Expectations – Beliefs about what will happen in the future.  People's actions are influenced by their expectations. People respond just to what is happening now (such as a change in price), but to what anticipate will happen in the future.

Expectations-augmented Phillips curve - (short-run) The relationship be­tween unemployment and the rate of increase of money wages or between national income and the rate of increase of money prices that arises when the demand and expectations components of inflation are combined.

Expected inflation rate - The rate at which people, on average, believe that the price level will rise.

Expected value - Weighted average using the probabilities as weights. For decisions involving uncertainty, the concept of expected value provides a rational means for selecting the best course of action.

Expendable - An item that when used it can be discarded and will not hurt the firm's operations

Expenditure – Accounting, The costs which are incurred from normal business activates aimed at helping to generate revenues.

Expenditure-reducing policies - Concretionary macro-economic policies designed to reduce incomes and so reduce spending on imports and on goods which could be exported

Expenditure-switching policies - Policies which lead to a fall in spending on imports and a rise in spending on domestically produced goods in both export and domestic markets.

Expense - This refers to when a service or asset is used in the operation of business activities.

Expenses - Goods or services purchased directly for the running of the business. This does not include goods bought for re-sale or any items of a capital nature (see Stock and Fixed Assets ).

Explicit costs - The payments to outside suppliers of inputs.

Export license - A legal permit or license to export merchandise issued by the government.  Can be used as a form of protection.

Exports - Goods and services sold by people in one country to people in other countries.

Exposure – 1. is the extent to which an item or product is kept in the public domain through advertising. Or 2. in finance, exposure normally means the amount that an individual or business can lose from there position or investment.

Expropriation - The taking of property or some other thing by governmental authority.

External audit - Audit conducted by an independent public accoun­tant. It refers to the type of audit and not the place of the audit.

External auditor - Independent public accountant who examines a business entity's books. The external auditor is not an employee of the company.

External debt - The total value of all private and public debt owed by a country to other countries.

External communication - Messages between one organisation and another organisation or individuals not employed in the business.

External economies of scale - Scale economies that cause the firm's costs to fall as industry output rises but are external to the firm and so cannot be obtained by the firm's increasing its own output..

Externality -  An effect of consumption or production which is not taken into account by the consumer or the producer and which affects the utility or costs of other consumers or producers.

External benefits - Benefits from production (or consumption) experienced by people other than the producer (or consumer).

External costs - Costs of production (or consump­tion) borne by people other than the producer (or consumer).

External diseconomies of scale - Where a firm's costs per unit of output increase as the size of the whole industry increases.

External economies of scale - Where a firm's costs per unit of output decrease as the size of the whole industry grows.

External environment – The factors outside a business that influence its decisions.

External growth - Occurs when a business takes over or merges with another business. Often called integration (see vertical integration and horizontal integration) as one firm is integrated into another one.

External recruitment - The vacancy is filled by someone who is not an existing employee and will be new to the business.

External sources - Sources of information outside the company used to compile market research as a basis for marketing decisions.

External value of the dollar - The value of the dollar ex­pressed in terms of foreign currencies; changes in the dollar's external value are measured by changes in the exchange rate.

Externalities - Costs or benefits of production or consumption experienced by society but not by the producers or consumers themselves. Sometimes referred to as 'spillover' or 'third-party' costs or benefits.

Extraordinary items - One that is both unusual in nature and infrequent in occurrence.

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