Key accounting definitions

FIGURING IT OUT

A company's share of the total sales of a product, usually expressed as a percentage of the whole.

Operating profit
Revenues from operations minus all operating expenses, including cost of goods sold.

Out-of-date cheque
A cheque which has not been presented to the bank on which it is drawn for payment within a reasonable time of its date and which may therefore be dishonoured by the bank without any breach of the banker customer contract.

Outstanding capital stock
Outstanding capital stock is shares capital stock issued less shares held as treasury stock.

Pro rate
The term relates to the distribution of an expense, fund, dividend, or other item, the interference being that the distribution is made upon some equitable basis.

Quality cost variance
It refers to the verification of records by an auditor appointed by virtue of a provision.

Formula: (Number of units produced x standard allowance per unit) "� (Number of units rejected or returned x cost per unit + Rectification cost "� Disposal value)

Replacement cost accounting
(i) A family of techniques which seeks to show whether or not the value of physical assets of the business has been maintained in financial terms.

(ii) Methods of accounting which includes among others:

Showing freehold and leasehold property at current market values

Showing all fixed assets and depreciation at current replacement values in their present age and condition and for similar use.

Showing fixed assets and stock, with depreciation and cost of sales, at current replacement values.

Accounting period
The period of time covered by the accounting statements of an entity. There may be different time periods for different accounting statement, e.g. cost accounts may be for four or five week periods to coincide with a thirteen week financial accounting period.

Amortisation
A combination under a single head of all or a portion of the assets and liabilities of two or more business units by merger or consolidation. It also includes reduction in the book value of a fixed asset used in a generic way including depreciation, depletion, write down, or write off of a limited life asset or group of such assets, intangible assets or prepaid expenses.

Definition 2: The provision for the using up of a wasting asset, e.g., oil fields, mines or of a fixed asset which has a predetermined useful life, e.g., leases or intangible assets.

Bank rate
The standard rate at which the Central Bank of a country is prepared to buy or discount bills of exchange or other commercial papers eligible for purchase under the Central Banking Regulations

Source: ICWAI