Accounting, Business Studies and Economics Dictionary

Rate of exchange – Is the term used for the rate at which one currency (or commodity) can be exchanged for another.

Rate of inflation - The percentage increase in the level of prices over a 12-month period.

Rate of profit Total profit – Profit as a proportion of the capital employed

Rate of return – The ratio of net profits earned by a firm to total invested capital.  This gain or loss could consist of income or capital gain/loss. It is most often given as a percentage. The real rate of return means that the annual return which means received has been adjusted for the effects of inflation.

Rate of return on investment - The annual percentage return after taxes that actually occurs or is anticipated on an investment.

Ratio/s – Refer to relationship of one amount to another. Ratios give the relative or differing sizes,  often expressed as the number of times one variable is contained or related to another. The following is a table of some of the more common ratios used in most entry level business and accounting courses.

Ratio analysis - A numerical approach to investigating accounts by comparing two related figures. The process involves the process of converting of financial information for a entity into ratios. Ratio analysis allows comparison of an entity or time period to another entity or time period. Since the ratios look at specific relationships inside the entity, a entity of one specific size can be easily compared to a second entity. These firms may even be in  different industry.

Rational choices - Choices that involve weighing up the benefit of any activity against its oppor­tunity cost.

Rational consumer - A person who weighs up the costs and benefits to him or her of each addi­tional unit of a good purchased.

Rational consumer behaviour - The attempt to maximise total consumer surplus.

Rational decision making - This involves weighing up the marginal benefit and marginal cost of any activity. If the marginal benefit exceeds the marginal cost, it is rational to do the activity (or to do more of it). If the marginal cost

Rational economic behaviour - Doing more of activities whose marginal benefit exceeds their marginal cost and doing less of those activities whose marginal cost exceeds their marginal benefit.

Rational expectations - The theory that people understand how the economy works and learn quickly from their mistakes so that even though random errors may be made, systematic and persistent errors are not.

Rational producer behaviour - When a firm weighs up the costs and benefits of alternative courses of action and then seeks to maximise its net benefit

Rationalisation - The reorganising of production (often after a merger) so as to cut out waste and duplication and generally to reduce costs.

Rationing - Where the government restricts the amount of a good that people are allowed to buy.

Range - The difference between the highest and lowest values in a set of data.

Range of survey results - The highest and lowest results from market research surveys.

Raw materials - The material or components used by a manufacturer to make the finished goods they sell.

Reach – When used in relation to marketing or advertising refers to the total amount of individuals within a specific target market that will see or hear via the specific advertising campaign being undertaken.

Real - 1. in economics, refers to economic statistics which have been adjusted for for inflation so a comparison of actual purchasing power can be made.  may also be called 'constant prices' Or 2. may also mean the actual cost and not the nominal one.

Real accounts - Accounts in which property is recorded.  Examples are buildings, machinery, fixtures and invetory.

Real business cycle theory - The new classical the­ory that explains cyclical fluctuations in terms of shifts in aggregate supply, rather than aggregate demand.

Real capital - The physical assets that a firm uses to con­duct its business, composed of plant, equipment, and inventories. Also called physical capital.

Real disposable income - The income with which consumers are left after taxes (other than VAT) have been deducted and any state benefits added on. Any changes in the rate of inflation are also taken into account.

Real growth values - Values of the rate of growth of GDP or any other variable after taking inflation into account. The real value of the growth in a variable equals its growth in money (or ‘nominal’) value minus the rate of inflation

Real GNP - The output official goods and services valued at the prices of the base period.

Real income - Income expressed in terms of the purchasing power of money income, that is, the quantity of goods and services that can be purchased with the money in­come; it can be calculated as money income deflated by a price index.

Real interest rate - The nominal interest rate adjusted for inflation, e.g. if the market interest rate of interest is 10% and inflation is running at 5% the real interest rate is 5%.

Real national income - National income allowing for inflation: i.e. national income measured in constant prices: i.e. in terms of the prices ruling in some base year.

Real product wage - The proportion of each sales dollar ac­counted for by labour costs (including the pre-tax nominal wage rate, benefits, and payroll taxes).

Real value - Any value which takes into account the rate of inflation.

Real values - Money values corrected for inflation

Real wage unemployment – Disequilibrium employment caused by real wages being driven up above the market clearing level.

Realisation principle - An accounting principle where the assets value should only be determined when the asset is sold or disposed of in some other form.

Realised gain or loss – Is the difference between the amount received from the sale or disposal of an asset and its carrying value.

Reasonable certainty- The means that degree of certainty which could be expected to be found to be in existence by a hypothetical reasonable person.

Reasonableness test – Is a procedure to examine the logic of accounting information. It is where the expected value is going to be determined by  data at least in part independent of the entity's accounting system,  evidence that is obtained through the use  of this approach may be in some circumstances more reliable than evidence gathered using methods.

Reasonable person - A hypothetical individual who uses qualities of knowledge, attention,  intelligence, and judgment in making decisions. This individual is also considered to behave rationally.

Rebate - Is the term given when a service is paid for and then cancelled and some of the payers money is refunded.  It may also be given by an organisation/government agency that has reduced it charges.

Recapitalisation – Is the process of changing a firm's capital structure by altering the mix of debt and equity financing without changing the total amount of capital.

Receipt - A source document given when money (or some other form of payment) has been made to an organisation.

Receivables - Are claims held against customers and others for money, goods, or services.

Receiver - An individual  person appointed by the court who then takes the possession of, but does not take the title to, the assets and other affairs of a firm or estate that is in a legal form of bankruptcy that is called called receivership.

Receivership - The liquidation (selling) of a firm's assets by an independent body following its collapse.

Recession - 1. a contraction in the level of economic activity in which real GDP declines in two successive quarters. Or 2. when income and output begins to fall in an economy.

Recessionary gap - A positive output gap; that is, a situation in which actual national income is less than potential income. Also called a deflationary gap.

Recognition - 1. recording a business occurrence in the accounting records. An example is recognising an unrealized loss on an investment portfo­lio at year-end, when aggregate market value is below cost. In this case, the transaction is recognised even though realization (sale) has not occurred. Or 2. ascertaining the particulars of an item (i.e., amount, timing) before accepting and recording it.

Reconciling - This is the process of ensuring accounts are accurate by comparing a businesses records with documents sent by a third party i.e. a bank stataement.

Reconciliation – Refers to the changing, altering or adjusting of  difference that exist between two or more items so that the data agrees. e.g. a bank reconciliation is conducted to ensure a businesses records agree with the banks records of the business activities.

Record – 1. a collection of related data items. Or 2. To write something down.

Recourse – Refers to the right to demand or seek payment from the endorser or maker of a negotiable instrument such as a cheque.

Recovery - 1. can mean the absorption of the cost of an asset via the allocation of depreciation. Or 2. the residual cost or possibly the salvage value of a specific fixed asset after all the allowable depreciation has been expensed. Or 3.the collection of an accounts receivable that had at a previous time been written of as bad debts.

Recurring entry – Refers to a scheduled and repeetative entry in the accounts that occurs consistently in both date and amount. e.g. rent.

Redeemable - This means the item is cashable, i.e. able to be converted/changed into cash or its equivalent, e.g. cashable cheque.

Redemption - 1. right to call or redeem a firm's outstanding preferred stock by paying the preferred stockholders the par value of the stock plus a premium. Or 2. repayment of bonds by a CALL before maturity, usually involving a call premium. Or 3. repayment of mutual funds at net asset value when a shareholder's holdings are liquidated.

Red herring – Is a slang term for a preliminary prospectus that outlines the important features of a new issue. This prospectus contains no selling price information or offering date.

Rediscounting bills of exchange - Buyil1g bills before they reach maturity.

Reducing balance method - A method used to calculate the annual depreciation allowance which involves writing off the same percentage rate each year.

Redundancy - When an employee loses their job because they are no longer needed, rather than due to any aspect of their work being unsatisfactory. Also called retrenchment.

Reengineering - Redesigning business processes. such as product design, to improve efficiency in the organisation.

Referendum - When a piece of legislation is referred to the electorate for a popular vote prior to final approval.

Reflation  - The use of tax cuts and increased government and possibly easier monetary policy to increase aggregate demand and employment.

Reflationary policy - Fiscal or monetary policy designed to increase the rate of growth of aggreg­ate demand.

Refund - If you return some goods you have just bought (for whatever reason), the company you bought them from may give you your money back. This is called a 'refund'.

Refurbish - Means to renovate or clean up.

Regional multiplier effects - When a change in injections into or withdrawals from a particular region causes a multiplied change in income in that region.

Regional policy - Measures used by central and local government to attract businesses to 'depressed' areas.

Regional unemployment - Structural unemploy­ment occurring in specific regions of the country.

Register - The official or formal recording of an item within a specific book/register, e.g., the Fixed Asset Register.

Registration - 1. act or fact of making an entry of any class of transactions or state­ments for the purpose of documentation for future reference. Such documentation may be in the form of financial information noted in registers, such as a cash register. Or 2. process that requires publicly issued securities to be reviewed by the SEC. 3. recording of stocks or bonds in the owner's name as opposed to bearer's name.

Regression analysis - A statistical procedure for estimating the average relationship between the dependent variable (sales, for exam­ple) and one or more independent variables (price and advertising, for example).

Regressive income tax - An income tax where the portion of income paid in tax is lower for people on high incomes than for people on low incomes. The marginal rate of tax is lower than the average rate of tax.

Regressive tax - A tax that takes a lower percentage of income the higher the level of income.

Regulation – Refers to the act of controlling or directing according to rule  i.e. it is the act of bringing to uniformity.

Regulations – Refers to the authoritative body of rules specifying details of pro­cedure and conduct to be followed in accordance with such criteria as uniformity, efficiency, control, ethics, and legal considerations.

Reimbursement - Means to repay or pay back to an individual or entity, e.g. to pay an employee for items that were paid by that person's own personal funds.

Related party transaction – Refers to a transaction between different two parties, one of those parties can be considered to exercise control and/or significant levels of influence over the operating practices and policies of the other. A special relationship may be said to exist, e.g. a company and its largest shareholder.

Relationship marketing - An approach to marketing which seeks to strengthen a business's relationships with its customers.

Relative price - The price of one good compared. with another (e.g. good A is twice the price of good B).

Relative poverty - The minimum level of income needed to achieve an adequate standard of living.

Relevance - An item that is capable of making a difference in decision ­making. Information is available in a timely fashion before it loses its value in decision-making.

Relevance concept - This refers to the accounting information being considered or offered ability to make a material difference to the specific external decision makers who are using the information in the financial reports.  This is especially true in management accounting.

Relevant costs - Are expected future costs that differ from the alterna­tives being considered. Sunk costs are not relevant to the decision at hand, because they are historical costs.

Relevant range – Refers to the span of activity over which a certain cost behaviour holds true.

Reliability - 1. in auditing, confidence that the financial records have been properly prepared and that accounting procedures and internal controls are correctly functioning. Or 2. in financial accounting theory, term describing information that is reasonably free from error and bias and accurately presents the facts. Verifiability exists when a reconstruction of financial data, following acceptable accounting practices, results in the same actual results previously attained; further, two accountants working independently will come up with similar results. Or 3. probability that a product or process will perform satisfactorily over a period of time under specified operating conditions.

Reliability concept – This concept refers to the quality of the accounting information that allows the decision makers to be assured that the information being represented in the relevant financial records and associated financial statements truly captures the actual operating and other conditions and events of the reported business.

Remittance – When a national of one country that is working in another country sends their income (or portion of) back to their original country.  This is a very important source of foreign currency for many developing countries.

Remitting bank – Refers to the bank that has sent the draft to a bank overseas for collection.

Remuneration - The act of paying for an item or to recompense an individual or entity for losses (Example: receiving your pay).

Renewable resources - Productive resources that can be replaced as they are used up, as with physical capital; distinguished from non renewable resources, which are available in a fixed stock that can be depleted but not replaced.

Rent seeking - Behaviour whereby private firms and individuals try to use the powers of the government to enhance their own economic well being.

Replacement cost - 1. the current cost to replace the service potential of an existing asset. Or 2. the current cost to replace property in a particular geographic area.

Replacement cost accounting - The valuing assets and liabilities, at their cost to replace.

Replacement investment - The amount of investment that is needed to maintain the existing capital stock intact.

Reporting – The  periodically furnishing others with financial information to aid in control or decision making.

Repos / Repo - Sale and repurchase agreements. An agree­ment between two financial institutions whereby one in effect borrows from another by selling it assets, agreeing to buy them back (repurchase them) at a fixed price and on a fixed date.

Repositioning - An attempt to change the views of consumers about a product relative to its competitors.

Representative (union) - Person with responsibility to communicate union information between members and regional offices and to represent the union members to management.

Requisition – Refers to a written order or request to buy an item. Once approved, the requisition is then changed to a purchase order.

Required reserves - The reserves that a bank must, by law, keep either in currency or in deposits with the central bank.

Rescheduling - The renegotiating of debt conditions between borrower and lender, often the repayment period is lengthened. 

Research - An investigation involving the process of enquiry and discovery used to generate new business ideas.

Research and development (R&D) – Is the carrying out of research into a planned activity or experimentation aimed at discovering new knowledge with the goal being to develop new or improved products & services. Development is when the research is  then translated into the design of new or improved products and services.

Reserve -  1. the appropriation of retained earnings for a designated purpose, such as plant expansion or a bond sinking fund. The purpose of the reserve is to tell stockholders and creditors that part of retained earnings is unavailable for dividends. Or 2. the accrued liability, such as reserve for taxes (outdated usage). Or 3. contra account to the gross cost of an asset to arrive at the net amount, such as reserve for depreciation or reserve for bad debts. In this use, the term reserve is outdated; accumulated depreciation and allowance for bad debts are used instead.

Reserve accounts - Reserve accounts are usually set up to make a balance sheet clearer by reserving or apportioning some of a business's capital against future purchases or liabilities (such as the replacement of capital equipment or estimates of bad debts).  A typical example is a company where they are used to hold the residue of any profit after all the dividends have been paid. This balance is then carried forward to the following year to be considered, together with the profits for that year, for any further dividends.

Reserve ratio - The fraction of its deposits that a commer­cial bank holds as reserves in the form of cash or deposits with a central bank.

Residual - Something left after other parts have been taken away.

Residual income – Refers to the  income or monies that arise from earlier efforts which still continue to generate a revenue flow over time without requiring the need for any additional effort (e.g., a stream or flow of future royalty payments from a song).

Residual value - 1. value of leased property at the end of the lease term. Or 2. at any time, the actual or estimated value (that is, proceeds minus dis­posal costs) of an asset, also called scrap value or salvage value.  Or 3. value of a depreciable asset after all allowable depreciation has been taken.

Resource allocation - The assignment of resources to specific uses i.e. determining what will be produced, how it will be produced, and for whom it will be produced.

Resource costs – Are those costs of economic elements or inputs used to per­form activities. They include people's salaries, as well as the cost of materials, supplies, equipment, technologies, and facilities.

Resources - Inputs used in the production of the goods and services; the factors of production.

Responsibility - The duty to complete a task.

Responsibility accounting – Is used to refer to the accounting method of the collection, summarisation, and reporting of the financial information about different decision centres throughout an organisation.

Responsibility centre – Is that unit of the organisation that has control over costs, revenues, or investment funds. For accounting purposes, responsibility centres are classified as cost centres, profit centres, investment centres or revenue centres.

Restatement of financials – Is the reiteration or republication of a financial statement or document, such as a balance sheet or income statement, in a manner that incorporates revisions and changes based on accounting principles or policies.

Restricted – Refers to when something that is regulated, prohibited or curbed, e.g. restricted stock options.

Restricted assets – Refers to assets or resources which have been restricted by legal or other contractual requirements.

Restrictive practice - Where two or more firms agree to adopt common practices to restrict competition.

Restructuring - Restructuring is often implemented to realise cost savings.  It involves changes the business cost and revenue arrangements.

Retail - A term usually applied to a shop which re-sells other people's goods. This type of business will require a trading account as well as a profit and loss account.

Retail banks - 'High street banks'. Banks operating extensive branch networks and dealing directly with the general public, with published interest rates and charges:

Retail deposits and loans - Deposits and loans made through bank/building society branches at published interest rates.

Retailer - A retailer is an outlet selling goods direct to the customer (see also wholesaler). Some producers are also retailers, having their own retail branches as well as their own production sites.

Retail price index (RPI)  - Measures the average level of the prices of a basket of good sand services consumed by typical households in the UK.

Retail price index  X (RPIX)  - RPI minus the effect of change in home mortgage interest rates.

Retail price index - X (RPIX - X)  - The method used in the UK for regulatory bodies to calculate what price increases will be allowed for privatized monopolies.  The X is the efficiency gain the monopoly is obligated to make before it can increase its price.

Retained earnings - This is the amount of money held in a business after its owner(s) have taken their share of the profits.

Retainer - A sum of money paid in order to ensure a person or company is available when required.

Retention ratio - The proportion of the profits retained in a business after all the expenses (usually including tax and interest) are taken into account. The algorithm is retained profits divided by profits available for ordinary shareholders (or available for the proprietor/partners in the case of unincorporated companies).

Retirement - 1. the permanent withdrawal of an employee from employment normally due to age. Or 2. the repayment of a debt. Or 3. the removal of a fixed asset from operative service with the appropriate adjustments to the fixed asset and accumulated depreciation accounts. Retirement may be due to a variety of reasons such as the asset having reached the end of its useful life or it having been dis­posed of by sale. Or 4. the cancellation of reacquired shares of stock or bonds by a corporation.

Return on assets (ROA) – The  ratio that shows net income divided by average total assets. Used to measure the amount earned on each dollar of assets invested.

Return on capital employed (ROCE) - The profit of a business as a percentage of the total amount of money used to generate it.  ROCE is a measure of the effectiveness of the way a firm is using its capital. The formula: Profit before interest and tax (PBIT) divided by (total assets - current liabilities)

Return on equity (ROE) - Measures the return on shareholders investment by expressing the profit earned by ordinary shareholders as a percentage of total equity.  This gives a measures the overall level of efficiency of the business in managing its total range of different investments  and in generating the return for its stockholders. It is the main measure of how well the management is running the firm.

Return on investment (ROI) – This ratio is used to measure of the earning power of assets. The ratio reveals the firm's profitability on its business opera­tions and thus serves to measure management's effectiveness. It equals net income divided by average total assets.

Return on net assets - Expresses profit as a percentage of long term assets only.

Returns inwards (sales returns) – Refers to those are items sold on credit by a firm to a customer and then returned for to the firm because of a specifc reason and the customer needs to be refunded for.  In accounting these are considered a contra revenue account.

Returns outwards (purchase returns) – Refers to those items purchased on credit from a vendor and returned to that supplier for some specific reason for which a refund must be given. In accounting these are considered a contra expense account.

Returns to scale - Increases in output that result from increasing all the inputs by the same percentage.

Revaluation (accounting)- The reconsideration of the worth or value of an asset or property.

Revaluation (economics) -Where the government re-pegs the exchange rate at a higher level.

Revenue - The sales and any other taxable income of a business (e.g. interest earned from money on deposit).

Revenue centre – Is a unit within an organisation that is responsible for generating revenues.

Revenue expenditure - Spending on business resources which have already been consumed or will be very shortly

Revenue recognition – Refers to the process of the recording of revenue using one of the acceptable accounting methods for the accounting period.

Revenue sharing - The return of some of the revenue collected by the federal government to a state or local government for unrestricted expenditure; a non categorical or general grant-in-aid.

Reverse engineering - A method of analysing a product's design by taking apart the product.

Reverse repos - When gilts or other assets are pur­chased under a sale and repurchase agreement. They become an asset to the purchaser.

Reverse takeover -  Where a company takes over a larger company than itself.  IT can occur in different forms: 1. a smaller firm entity over a larger one.; 2. a private company purchases a public comapny.

Reversing entries (see adjusting entries) – These entries reverse the previous years adjusting entries.  This is easy, just the opposite debits and credits used for the adjusting entry (not depreciation).  For example

Dr – rent

            Cr – prepaid expense.

This removes the temporary account from your balance sheet and returns it to the expense account for the new financial year.

Revolving credit – Refers to a line of credit that has been extended to customers who may then use it as often as they desire up to a certain predetermined monetary amount. Common examples would be an overdraft facility with a bank or a credit card.

Revolving fund – Is a fund where the money that is used it is replaced  An example would be the petty cash fund under the imprest method.

Rework – Is used to refer to the process by which an item is changed in order to improve on it or in order to make it more suitable or useful for a particular purpose or job. e.g. to redesign or reengineer a poor product into one that does the job it was originally intended for.

Ricardian neutrality - The proposition that the financing of a government deficit has no current effect because private saving will just offset any government dissaving. Hence, if the government increases the national debt, private agents will save enough to cover the future taxes required to repay the in­creased debt, leaving national saving and AD unchanged.

Rising cost industry - An industry in which the minimum cost attainable by a firm rises as the scale of the industry expands.

Risk - Is used to refer to the measurable possibility of something losing or not increasing in value. Risk is not the same as uncertainty. Uncertainty is not considered to be measurable. Or, when an outcome may or may not occur, but its probability of occurring is known.  Peoples actions are influenced by their attitudes towards risk. Many decisions are taken under conditions of risk or uncertainty. Generally, the I the/probability of (or the more uncertain) the desired outcome of an ac the less likely it is that people will undertake the action.

Risk averse - Exhibiting a dislike of uncertainty.

Risk analysis – Refers to the process of measuring and analysing the risk associ­ated with financial and investment decisions.

Rivalry - The property of a good whereby one person's use diminishes other people's use.

ROI (Return on Investment) – This ratio can be calculated in various ways. The most common method is Net Income as a percentage of Net Book Value (total assets minus intangible assets and liabilities).

Rollover - 2. the movement of funds from one investment to another. For example, when a certificate of deposit or bond matures, the funds may be rolled over into another certificate of deposit or bond. Or 1. the renewal of a short-term obligation by mutual agreement of debtor and creditor. This short-term debt appears under current liabilities. Footnote disclosure of the arrangement is made along with major provisions.

Royalty – Refers to the monies paid to use property, such as the use of copyrighted materials and natural resource extractions.

Rule - 1. the directive, instruction, or order detailing something to be done. Requiring the cash receipts to be counted at the end of the day to assure that the physical cash received agrees with the recorded book amount is an example of rule. Or 2. the statement governing procedures, interpretations, or inferences belonging to sets of operations or decisions.

Rule of thumb – Refers to an approximation or useful method which is based on an individuals experience rather than the use of a precisely accurate measure.

Run rate - A forecast for the year based on the current year to date figures. If a company's 1st quarter profits were, say, $25m, they may announce that the run rate for the year is $100m.

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