Deferred income : a liability that arises when a company is paid in advance for goods or services that will be provided later. For example, when a magazine subscription is paid in advance, the magazine publisher is liable to provide magazines for the life of the subscription. The amount in deferred income is reduced as the magazines are delivered.
Depreciation : an expense that is supposed to reflect the loss in value of a fixed asset. For example, if a machine will completely wear out after ten year’s use, the cost of the machine is charged as an expense over the ten?year life rather than all at once, when the machine is purchased. Straight line depreciation charges the same amount to expense each year. Accelerated depreciation charges more to expense in early years, less in later years. Depreciation is an accounting expense. In real life, the fixed asset may grow in value or it maybecome worthless long before the depreciation period ends. Discounted cash flow??a system for evaluating investment opportunities that discounts or reduces the value of future cash flow. (See present value.)
Dividend : a portion of the after?tax profits paid out to the owners of a business as a return on their investment.
Double entry : a system of accounting in which every transaction is recorded twice : as a debit and as a credit.
Earnings per share : a company’s net profit after taxes for an accounting period, divided by the average number of shares of stock outstanding during the period
80 – 20 rule : a general rule of thumb in business that says that 20% of the items produce
80% of the action : 20% of the product line produces 80% of the sales, 20 percent of the customers generate 80% of the complaints, and so on. In evaluating any business situation, look for the small group which produces the major portion of the transactions you are concerned with. This rule is not exactly accurate, but it reflects a general truth, nothing is evenly distributed. Date of auditors’/ Accountants’ Report Last day the auditors perform fieldwork and the last day of responsibility relating to significant events subsequent to the financial statement date.
Death Benefit – Amounts received under a life insurance contract and paid by reason of the death of the insured. (Although most death benefits are paid at termination of life, certain plansnow pay accelerated death benefits while the insured is still alive, i.e.: an AIDS patient mightpossibly receive accelerated death benefit)
Debit – Entry on the left side of a Double-Entry Book keeping system that represents theaddition of an Asset or expense or the reduction to a Liability or Revenue.
Debit Balance – balance remaining after one or a series of bookkeeping entries. This amountrepresents an Asset or an expense of the entity.
Debt – General name for money, notes, BONDS, goods or services which represent amountsowed.
Debt Security – Document which is evidence of an obligation or Liability. Debt Service Fund- Fund whose Interest is set aside and accumulated toretire Debit
Debtor – Party owing money or other Assets to a Creditors.
Defalcation – To misuse or embezzle funds
Default – Failure to meet any financial obligation. Default triggers a Creditor’s rights and remedies identified in the agreement and under the law
Defeasance – Annulment of a contract or deed; a clause within a contract or deed that providesfor annulment.
Deferred Charge – Cost incurred for subsequent periods which are reflected as Assets
Deferred Income – Income received but not earned until all events have occurred. Deferred income is reflected as a Liability.
Deferred Income Taxes – Assets or Liability that arise from timing or measurement differences between tax and accounting principles.
Deficiency in Design – This exists when a control necessary to meet the control objective is missing or an existing control is not properly designed so that even if the control operates as designed, the control objective is not always met
Deficiency in Operation – This exists when a properly designed control does not operate as designed, or when the person performing the control does not possess the necessary authority orqualifications to perform the control effectively.
Deficit – Financial shortage that occurs when Liabilities exceed Assets.
Defined Benefit Plan – Employee Benefit Plan
Demand Loan – Loan repayable on demand. Also known as a Call Loan. Dependent Care Expenses- Qualified child care expenses will allow a taxpayer this computedcredit against tax. The amounts can be found on the individual forms as the limitations andcomputation may change each tax year
Depletion – Method of computing a deduction to Account for a reduction in value of extractable natural resources.
Deposit Method – Related to the sales of real estate, under this method the seller does not recognize any profits, does not record a note Receivable, and continues to reflect the propertyand related Debit in the seller’s Financial Statements, recording the buyer’s initialinvestment and subsequent payments as a deposit
Depreciation – Expense allowance made for wear and tear on an Asset over its estimated useful life.
Derivatives – Financial instruments whose value varies with the value of an underlying asset (such as a stock, BOND, commodity or currency) or index such as interest rates. Financial instruments whose characteristics and value depend on the characterization of an underlying instrument or asset.
Detection Risk – Risk that the Auditor will not detect a material misstatement
Detective Controls – These have the objective of detecting errors or fraud that have already occurred that could result in a misstatement of the financial statements.
Dual Dating – Dating of the Accounts’ or Auditors’ report when a subsequent event disclosed in the Financial Statements occurs after completion of the field work but before issuance of the report
Due Date – Each governing agency and its forms scheduled reporting and most importantly payments have a required due date. It is this date that if most files timely may result in a penalty,fine, and commence interest charges.
Due Diligence –
(1) Procedures performed by underwriters in connection with the issuance of aSecurities Exchange Commission (SEC) registration statement. These proceduresinvolve questions concerning the company and its business, products, competitive position,recent financial and other developments and prospects. Also performed by others in connectionwith acquisitions and other transactions.
(2) Requirement found in ethical codes that the persongoverned by the ethical rules exercise professional care in conducting his or her activities.
Disbursement – Payment by cash or check
Disclaimer of Opinion – Statement by an Auditor indicating inability to express an opinion onthe fairness of the Financial Statements provided and the reason for the inability. Theauditor is required to disclaim depending on the limitation in scope.
Disclosure – Process of divulging accounting information so that the content of Financial Statements are understood.
Discontinued Operations – Portion of a business that is planned to be or is discontinued.
Discount – Reduction from the full amount of a price or Debit.
Discount Rate – Rate at which interest is deducted in advance of the issuance, purchasing,selling, or lending of a financial instrument. Also, the rate used to determine the current value, or present value, of an Asset or income stream.
Discounted Cash Flow – Present value of future cash estimated to be generated. Discretionary Trust- Arrangement in which the Trustee has the authority to make investment decisions and has control over investments within the framework of the Trustinstrument.
Dissolution – Termination of a Corporation.
Distribution Expense – Expense of selling, advertising, and delivery of goods and services.
Distributions – Payment by a business entity to its owners of items such as cash Assets, stocks, or earnings.
Dividends – Distribution of earnings to owners of a Corporation in cash, other Assets ofthe corporation, or the corporation’s Capital Stock.
Documentation Completion Date – A complete and final set of audit documentation should beassembled for retention as of a date not more than 45 days after the report release date.
Double – Entry Bookkeeping- Me thod of recording financial transactions in which each transaction is entered in two or more accounts and involves two-way, self-balancing posting. Total Debits must equal total Credits
Earned Income – Wages, salaries, professional fees, and other amounts received as compensation for services rendered. Earned Income Credit- A refundable tax credit for eligible low income workers, subject to computations based on qualifying children and phase in and phase out income levels
Earnings Per Share (EPS) – Measure of performance calculated by dividing the net earnings of acompany by the average number of shares outstanding during a period
Effective Tax Rate – Total income taxes expressed as a percentage of Net Income before taxes
Emerging Issues Task Force (EITF) –Assists the Financial Accounting Standards Board (FASB) and provides guidance on early identification of emerging issues affecting financial reporting and problems in implementing authoritative pronouncements
Employee Benefit Plan – Compensation arrangement, generally in writing, used by employers inaddition to salary or wages. Some plans such as group term life insurance, medical insuranceand qualified retirement plans are treated favourably under the tax law. Most common qualified retirement plans are:
Benefit Plans – a promise to pay participants specified benefitsthat are determinable and based on such factors as age, years of service, and compensation.
Contribution Plans – provide an individual account for each participant and benefitsbased on items such as amounts contributed to the account by the employer and employee andinvestment experience. Employee Stock Ownership Plan (ESOP)- Stock bonus plan of an employer that acquires securities issued by the plan sponsor
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