Dictionary of...Accounting Terms
|
|
days' sales in accounts receivable
- This indicates (on average) how many days of credit sales have not yet been collected. If the credit terms are net 30 days, you would expect this to be at least 30 days. To learn more, see Explanation of Financial Ratios.
days' sales in inventory
- This indicates (on average) how many days of merchandise sales are in inventory. To learn more, see Explanation of Financial Ratios.
DCF
- See discounted cash flow model.
debenture bond
- An unsecured bond. For example, a bond not secured by a lien on the issuer's property.
debit
- The accounting term that means an entry will be made on the left side of an account. To learn more, see Explanation of Debits & Credits.
debit balance
- A balance on the left side of an account in the general ledger. Typically expenses, losses, and assets have debit balances.
debit memorandum
- A form used at a bank to inform its customer that the customer's account is being reduced for a fee or other charge.
debt extinguishment
- To eliminate debt such as a company's repurchase or retirement of its outstanding bonds.
debt service
- The total of interest and principal payments required to be paid on loans payable.
debt to equity ratio
- The ratio of total liabilities to stockholders' equity. The higher the proportion of debt to equity, the more risky the company appears to be. An indicator of the amount of financial leverage at a company. It indicates the proportion of the company's assets provided by creditors versus owners. To learn more, see Explanation of Financial Ratios.
debt to total asset ratio
- Total liabilities divided by total assets. This indicates how much of a corporation's assets are financed by lenders/creditors as opposed to purchased with owners' or stockholders' funds. If a high proportion of the assets are financed by creditors, the corporation is considered to be leveraged.
debtor
- The person that owes money. If a bank lent you money, the bank is the creditor and you are the debtor.
declaration date
- The date on which the board of directors of a corporation declares a dividend on the corporation's stock. On this date an accounting entry is made to debit Retained Earnings and to credit Dividends Payable.
declining-balance method of depreciation
- A depreciation technique where a constant percentage (such as 200%, 150%, or 125%) is applied to the book value of an asset. (As an asset is depreciated its book value declines.) This technique results in greater depreciation in the early years of an asset's life and smaller depreciation in the later years of the asset's life (compared to constant depreciation amounts using straight-line depreciation). To learn more, see Explanation of Depreciation for an illustration.
deferral
- In accounting this means to defer or to delay recognizing on the income statement certain revenues or expenses until a later, more appropriate time. Revenues are deferred to a balance sheet liability account until they are earned in a later period. When the revenues are earned they will be moved from the balance sheet account to revenues on the income statement.
Expenses are deferred to a balance sheet asset account until the expenses are used up, expired, or matched with revenues. At that time they will be moved to an expense on the income statement. deferral type adjusting entry
- A journal entry that adjusts an amount already recorded on the books of a company because part of the amount pertains to a future accounting period. To learn more, see Explanation of Adjusting Entries.
deferred charge
- See deferred expense.
deferred debits
- See deferred expense.
deferred expense
- A cost that has been recorded in the accounting records and reported on the balance sheet as an asset until matched with revenues on the income statement in a later accounting period.
deferred income taxes
- A liability representing the differences between the income tax expense associated with the revenues and expenses reported on a corporation's income statements and the actual income tax appearing on the corporation's income tax returns.
deferred revenues
- A balance sheet liability account that reports amounts received in advance of being earned. For example, if a company receives $10,000 today to perform services in the next accounting period, the $10,000 is unearned in this accounting period. It is deferred to the next accounting period by crediting a liability account such as Unearned Revenues. Next period (when it is earned) a journal entry will be made to debit the liability account and to credit a revenue account.
deficit
- This term is used in place of retained earnings when the balance in the retained earnings account is negative (a debit balance).
defined benefit pension plan
- A retirement plan that specifies the amount that a retiree will receive, such as 1% of the person's recent salary times the years of service. The employer's obligation is to contribute enough money to meet those payments.
defined contribution pension plan
- A retirement plan that does not specify the amount that a retiree will receive. Rather, the employer's obligation is to contribute a specific amount into a fund to be used for payments to retirees.
delivery expense
- This account shows the amount of delivery expense incurred (occurring) during the accounting period shown in the heading of the income statement. The title of this account could also be Freight Out or Transportation Out.
delivery equipment
- A long term asset account containing the cost of delivery equipment acquired by a company and used in its business. The account will appear on the balance sheet under the heading of Property, Plant and Equipment. There will be a related contra asset account Accumulated Depreciation - Delivery Equipment where the depreciation expense is accumulated.
demand deposits
- This term refers to checking account balances. On a bank's balance sheet, demand deposits are reported as current liabilities.
departmental overhead rate
- Rates based on a department's direct and indirect overhead costs and some measure of the department's activity, such as the department's machine hours. Departmental rates are more accurate than plant-wide rates when a company manufactures diverse products requiring a variety of processes.
dependent variable
- An item that is dependent on another item. For example, your wages would be a dependent variable and the hours you work would be the independent variable. This relationship is often expressed as y = a + bx, where y is the dependent variable and x is the independent variable.
depletion
- The systematic allocation of the cost of a natural resource from the balance sheet to the income statement.
depletion expense
- Amount of depletion charged to expense on the income statement for the period indicated in its heading. The amount is also credited to the contra asset account Accumulated Depletion.
deposits
- A liability account in a bank's general ledger that indicates the amounts owed to bank customers for the balances in the customers' individual checking, savings, and certificate of deposit accounts.
deposits in transit
- A company's receipts that appear on the company's records but do not yet appear on the bank statement. For example, a retail store's receipts of March 31 are deposited after banking hours on March 31 or on the morning of April 1. Those receipts are in the company's general ledger Cash account on March 31, but are not on the March 31 bank statement. As a result they are said to be "in transit" on March 31. On the bank reconciliation a deposit in transit is an adjustment (an addition) to the balance per bank.
depreciable cost
- The amount of an asset's cost that will be depreciated. It is the cost minus the expected salvage value. For example, if equipment has a cost of $30,000 but is expected to have a salvage value of $3,000 then the depreciable cost is $27,000.
depreciated
- An asset's cost that has been assigned to Depreciation Expense.
depreciation
- The systematic allocation of the cost of an asset from the balance sheet to Depreciation Expense on the income statement over the useful life of the asset. (The depreciation journal entry includes a debit to Depreciation Expense and a credit to Accumulated Depreciation, a contra asset account). The purpose is to allocate the cost to expense in order to comply with the matching principle. It is not intended to be a valuation process. In other words, the amount allocated to expense is not indicative of the economic value being consumed. Similarly, the amount not yet allocated is not an indication of its current market value. To learn more, see Explanation of Depreciation
depreciation - accelerated
- See accelerated depreciation.
depreciation - double declining balance
- See double declining balance method of depreciation.
depreciation - straight line
- See straight-line method of depreciation. To learn more, see Explanation of Depreciation.
depreciation - sum of the years digits
- See sum of the years' digits method of depreciation.
depreciation expense
- The income statement account which contains a portion of the cost of plant and equipment that is being matched to the time interval shown in the heading of the income statement. (There is no depreciation expense for land.)
depreciation expense - equipment
- The income statement account which contains a portion of the cost of equipment that is being expensed during the time interval shown in the heading of the income statement.
depreciation methods
- To learn more, see Explanation of Depreciation.
direct allocation method
- A method used in allocating the costs of manufacturing service departments (factory administration, maintenance, etc.) directly to the producing departments in the factory. Under this method, no service department cost will be allocated to another service department.
direct costing
- A method where only the variable manufacturing costs are assigned to inventory and the cost of goods sold. Fixed manufacturing costs are viewed as expenses of the period in which they are incurred. This method is not allowed for external financial statements, but can be used internally. External financial statements must have fixed manufacturing costs allocated to the products.
direct labor efficiency variance
- A variance arising in a standard costing system that indicates the difference between the standard cost of the direct labor that should have been used (standard hours times standard rate) for the good output and the actual hours of direct labor used at its standard rate per hour. To learn more, see Explanation of Standard Costs & Variances.
direct labor price variance
- See direct labor rate variance.
direct labor quantity variance
- See direct labor efficiency variance.
direct labor rate variance
- A variance arising in a standard costing system that indicates the difference between the standard cost of direct labor for the good output (standard hours times standard rate) and the standard cost of the actual hours of direct labor used (actual hours times standard rate). To learn more, see Explanation of Standard Costs & Variances.
direct labor usage variance
- See direct labor efficiency variance.
direct materials
- Raw materials that are a traceable component of a manufactured product. For example, the direct material of a baseball bat is the wood. Flour, sugar, and vegetable oil are direct materials of a company that manufactures dessert products.
direct materials efficiency variance
- See direct materials usage variance.
direct materials inventory
- That component of a product that has not yet been placed into the product or into work in process inventory. This account contains the cost or the standard cost (depending on the cost accounting system) of the direct materials on hand. A manufacturer must disclose in its financial statements the cost of materials on hand as well as its cost of work in process and finished goods.
direct materials price variance
- A variance arising in a standard costing system that indicates the difference between the actual cost of direct materials and the standard cost of direct materials. Recognizing this variance at the time the direct materials are put into the direct or raw materials inventory is preferred over recognizing the variance at the time the materials are placed into production (work in process). To learn more, see Explanation of Standard Costs & Variances.
direct materials quantity variance
- See direct materials usage variance.
direct materials usage variance
- A variance arising in a standard costing system that indicates the difference between the standard cost of direct materials that should have been used (standard quantity times standard cost) for the good output and the actual quantity of direct materials used at their standard cost. To learn more, see Explanation of Standard Costs & Variances.
direct write-off method
- A method for recognizing bad debt expense arising from credit sales. Under this method there is no allowance account. Rather, an account receivable is written-off directly to expense only after the account is determined to be uncollectible. This method is required for income tax purposes. See allowance method for recognizing bad debt expense on the income statements.
disclosure
- See full disclosure principle.
discontinued operations
- Operations of an entire division, subsidiary, or segment of a company where a formal plan exists to eliminate it from the company. (It involves more than pruning a product line of certain models of products.)
The revenues, gains, expenses, and losses pertaining to the business segment are removed from the company's continuing operations and are reported separately on the company's income statement. Discontinued operations amounts appear near the end of the income statement but preceding extraordinary items and the cumulative effect of a change in an accounting principle. It will be shown on a per share basis, if the company's stock is publicly traded. discount on bonds payable
- A contra liability account that reports the amount of unamortized discount associated with bonds that are outstanding. The discount on bonds payable originates when bonds are issued for less than the bond's face or maturity amount. The debit balance in this account will be amortized to bond interest expense over the life of the bonds.
discount on notes payable
- A contra liability account arising when the proceeds of a note payable is less than the face amount of the note. The debit balance in this account will be amortized to interest expense over the life of the note.
discount on notes receivable
- A contra asset account arising when the present value of a note receivable is less than the face amount of the note. The credit balance in this account will be amortized to interest revenue over the life of the note.
discount rate
- In accounting this is the rate used to discount future cash flows in order to determine their present value.
discounted cash flow model
- A process which discounts future cash flows to the present in order to reflect the time value of money. Examples of the discounted cash flow model are net present value and internal rate of return.
discounted cash flow technique
- See discounted cash flow model.
disposal of fixed assets
- The sale, retirement, or exchange of property, plant and equipment.
dividend
- A distribution of part of a corporation's past profits to its stockholders. A dividend is not an expense on the corporation's income statement.
dividend declaration date
- See declaration date.
dividend payment date
- The date a corporation pays a dividend to its shareholders. On this date the accounting entry will be a debit to Dividends Payable and a credit to Cash.
dividend payout ratio
- The percentage resulting from dividing dividends per share by earnings per share.
dividend yield
- The percentage resulting from dividing the dividends per share by the market price per share.
dividends declared
- A temporary account that is debited when cash dividends have been declared (instead of debiting the Retained Earnings account. At the end of the accounting year, the balance in this account is transferred to the Retained Earnings account.
dividends payable
- A current liability account that reports the amounts of cash dividends that have been declared by the board of directors but not yet distributed to the stockholders.
dividends in arrears
- Past omitted dividends on cumulative preferred stock. Generally these omitted dividends were not declared and, therefore, do not appear on the corporation's balance sheet as a liability. However, they must be disclosed in the notes to the balance sheet.
dollar-value LIFO retail method
- A method used by retailers to achieve the LIFO cost flow without tracking individual units. A further advantage is that pools of products are used. This will likely mean less liquidation of LIFO cost layers that would occur with the tracking of individual units.
dollar-value retail method
- A method used by retailers for estimating the cost of ending inventory without tracking the individual units of product.
double-declining balance method of depreciation
- An accelerated method of depreciation, where two times the straight line rate is applied to the book value of an asset. The result is more depreciation expense in the early years and less in the later years of the asset's life compared to the straight line method. To learn more, see Explantion of Depreciation.
double entry accounting
- The 500 year-old accounting system where every transaction is recorded into at least two accounts. To learn more, see Explanation of Debits & Credits.
draw
- The withdrawal of business cash or other assets by the owner for the personal use of the owner. Withdrawals of cash by the owner are recorded with a debit to the owner's drawing account and a credit to the cash account.
drawing account
- The contra owner's equity account that reports the amount of withdrawals of business cash or other assets by the owner for personal use during the current accounting year. At the end of the accounting year, the balance in the drawing account is transferred (closed) to the owner's capital account.
Also on AccountingCoach.com
