A person who owns a BOND certificate issued by a government or CORPORATION. Application of an AUDIT procedure to less than 100% of the items within an account BALANCE or class of transactions for the purpose of evaluating some characteristic of the balance or class. An economic resource that is expected to be of benefit in the future. Probable future economic benefits obtained as a result of past transactions or events. Any owned tangible or intangible object having economic value useful to the owner.

1. A DEBT SECURITY that management intends to hold to its MATURITY or payment date and whose cash value is not needed until that date.
2. However, discounted options do not qualify as performance based compensation and therefore the deduction that the company would get may be partially or completely lost.
3. BOND with a long-term, high-premium, COMMON STOCK conversion feature and also offering a fairly competitive interest rate.
4. Activities that involve management judgments or assumptions in formulating account balances in the absence of a precise means of measurement.

It is the LLC equivalent of corporate BYLAWS or a PARTNERSHIP agreement. Written promise to pay a specified amount to a certain entity on demand or on a specified date. An incorporated organization which exists for educational or charitable purposes, and from which its shareholders or trustees do not benefit financially.

Any dramatic spikes in a company’s assets or dramatic decreases in a company’s expenses can be reason for alarm and further investigation. Public companies are required to adhere to GAAP accounting but oftentimes use non-GAAP measures, which should also be investigated and understood by investors. Shareholders’ equity consists of the value of stocks, any additional paid-in capital, and retained earnings-which is carried over from net income on the balance sheet. If a company overstates assets or understates liabilities it will result in an overstated net income, which carries over to the balance sheet as retained earnings and therefore inflates shareholders’ equity. Shareholders’ equity is used in several key ratios that may be assessed by financial stakeholders when evaluating a company as well as for maintaining current financing arrangements such as credit lines. To overstate is to exaggerate or place too much importance on something.For example,warrantyobligations or anticipated litigation losses may be considered contingent liabilities.

Forecasted Balance Sheet

Charge made by a local government for the cost of an improvement or service. This type of TRUST is required to distribute all its income currently, whether or not the TRUSTEE actually does so, and it has no provision in the trust instrument for charitable contributions. A trust understated meaning in accounting may be a  simple trust in one year and a complex trust in another year. In the year in which the trust distributes its corpus, it loses its classification as a simple trust. The temporary INVESTMENT of excess CASH, intended to be held until needed to pay current OBLIGATIONS.

What Are Some Examples of Accrued Expenses?

The allowance can accumulate across accounting periods and may be adjusted based on the balance in the account. Accounts payable form the largest portion of the current liability section on the company’s financial statements. One reason accounts receivables may be overstated can be inappropriate planning for doubtful accounts. Prudent companies typically take proactive measures for account receivable defaults. It is up to each company to analyze and estimate the percentage of accounts receivables that goes uncollected on a regular basis. If there is no allowance for doubtful accounts, accounts receivable will receive a temporary boost in the short term.

Cost Basis

Agreement whereby an institution purchases SECURITIES under a stipulation that the seller will repurchase the securities within a certain time period at a certain price. A CONTRA ACCOUNT used under the PERIODIC INVENTORY SYSTEM to accumulate CASH refunds, credits on ACCOUNT, and other allowances made by suppliers for unsatisfactory or incorrect MERCHANDISE that was originally purchased for resale. Discounts taken by merchants in return for prompt payment for MERCHANDISE purchased for resale. DEFINED CONTRIBUTION PLAN characterized by the setting aside of a portion of an entity’s profits in participant’s accounts.

If you understated beginning inventory, your cost of goods sold will be understated by the error amount. Then, since cost of goods sold is understated, your net income and gross profit are overstated. If you understated ending inventory, your cost of goods sold will be overstated by the error amount, https://business-accounting.net/ and net income and gross profit are understated. If you overstated beginning inventory, then cost of goods sold is overstated, and gross profit and net income are understated. Accrued expenses are recognized by debiting the appropriate expense account and crediting an accrued liability account.

Written communication issued by an independent CERTIFIED PUBLIC ACCOUNTANT (CPA) describing the character of his or her work and the degree of responsibility taken. A way of measuring how profitably and efficiently assets are being used to produce sales. National professional membership organization that represents practicing CERTIFIED PUBLIC ACCOUNTANTS (CPAs). The AICPA establishes ethical and auditing standards as well as standards for other services performed by its members. It participates with the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and the GOVERNMENT ACCOUNTING STANDARDS BOARD (GASB) in establishing accounting principles. The sequence of steps followed in the accounting process to measure business transactions and transform the measurements into FINANCIAL STATEMENTS for a specific period.

Form of doing business pursuant to a charter granted by a state or federal government. Corporations typically are characterized by the issuance of freely transferable CAPITAL STOCK, perpetual life, centralized MANAGEMENT, and limitation of owners’ LIABILITY to the amount they INVEST in the business. An exclusive right granted by the federal government to the possessor to publish and sell literary, musical, or other artistic materials for a period of the author’s life plus 50 years, including computer programs. A deduction from a LIABILITY, such as discounts on notes payable, which is a deduction from the balance of notes payable. A FINANCIAL STATEMENT for external reporting that presents only the major categories of information.

A put is an option to sell a certain number of shares of stock at a stated price within a certain period. The gain or loss on a put is short or long term depending on the holding period of the stock involved. These have the objective of preventing errors or fraud from occurring in the first place that could result in a misstatement of the financial statements. Used to account for the acquisition of another company when the acquiring company exchanges its voting COMMON STOCK for the voting common stock of the acquired company when certain criteria are met. A system for determining INVENTORY on hand by a physical count that is taken at the end of an accounting period. The various government codes contain numerous provisions which impose penalties on a taxpayer (any type of taxpayer) for failure to perform a specific act or omitting vital information on a return.

Receipts for shares of foreign company stock maintained by an intermediary indicating ownership. Profits that are not paid out as DIVIDENDS but are instead added to the company’s capital base. An approach to product costing that assigns a representative portion of all types of manufacturing costs–direct materials, direct labor, variable factory overhead, and fixed factory overhead–to individual products. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.

Understanding Accounting Fraud

When you make estimates, it can easily lead to overstated or understated revenues. If at any time your staff members start skipping basic precautions, there is also a potential for trouble. Your financial statements for any given period have to be accurate, so catching misstatements is a must. The sales method applies a flat percentage to the total dollar amount of sales for the period. For example, based on previous experience, a company may expect that 3% of net sales are not collectible.

EXPENDITURES for making good or whole the portions of property that have deteriorated through use or have been destroyed through accident. RATE OF RETURN resulting from the reinvestment of the INTEREST from a BOND or other fixed-income SECURITY. Process by which an insurance company obtains insurance on its insurance claims with other insurers in order to spread the risk. Agency responsible for keeping track of the owners of bonds and the issuance of stock.