Dictionary of...Accounting Terms
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factoring accounts receivable
- The sale of the accounts receivable (usually for a fee) to a third party known as a factor.
factory burden
- Also referred to as manufacturing overhead, factory overhead, indirect manufacturing costs, or manufacturing support costs. To learn more, see Explanation of Manufacturing Overhead.
factory overhead
- Also referred to as manufacturing overhead, indirect manufacturing costs, factory burden, and manufacturing support costs. To learn more, see Explanation of Manufacturing Overhead.
fair market value
- The amount that would be agreed upon by two independent persons. The amount to be received in the ordinary course of business in an arm's length transaction.
FAF
- See Financial Accounting Foundation.
FAS
- Free Alongside Ship. Terms that indicate title to goods passes to the buyer when the seller places the goods alongside a ship.
FASB
- See Financial Accounting Standards Board.
FASB interpretation
- An official pronouncement by the Financial Accounting Standards Board that involves a previously issued FASB Standard. FASB Interpretations are part of the generally accepted accounting principles.
FASB statements of financial accounting concepts
- This series of output by the Financial Accounting Standards Board is part of the board's conceptual framework project. The original goal in the 1970's was to articulate the definitions, practices, and rules that were used in accounting. It was hoped that from this structured compilation new rules will flow more easily and logically. However, this series of statements is not viewed as part of the generally accepted accounting principles.
FASB statements of financial accounting standards
- These are the official rules that have been released by the Financial Accounting Standards Board. These are part of the generally accepted accounting principles. Before a standard is released, the public had been able to review a discussion memorandum and an exposure draft and to make comments. To read these accounting pronouncements, go to www.fasb.org and select FASB Pronouncements located in the left panel.
favorable variance
- A difference between an actual cost and a budgeted or standard cost, and the actual cost is the lesser amount. In the case of revenues, a favorable variance occurs when the actual revenues are greater than the budgeted or standard revenues.
federal income tax withholdings payable
- This current liability account reports the amount a company owes the U.S. government as of the balance sheet date for the federal income taxes withheld from its employees' salaries and wages.
Federal Insurance Contributions Act (FICA)
- A reference used to indicate the combination of the Social Security tax and the Medicare tax. For the year 2006, the employee’s FICA tax rate is 7.65% on the first $94,200 of an employee’s salary or wages and then 1.45% (the Medicare tax) on any salary or wages in excess of $94,200. The employer must match the employee’s FICA tax, so that the combined employee and employer tax is 15.30% on each’s employee’s first $94,200 of annual wages and then 2.90% on any salary or wages in excess of $94,200. To learn more, see Explanation of Payroll Accounting.
federal unemployment tax
- A payroll tax paid solely by the employer and usually calculated as 0.8% times each employee's first $7,000 of annual wages or salaries. (The tax rate is 6.2% but a credit of up to 5.4% is usually given for contributions to the state unemployment fund.) To learn more, see Explanation of Payroll Accounting
fees earned
- An income statement account that reports the amount of service revenues earned during the time interval indicated in the heading of the income statement. (Under the accrual basis of accounting, fees earned are reported in the time period in which they are earned and not in the period in which the company receives payment.)
FEI
- Financial Executives Institute.
FG Inventory
- See inventory-finished goods.
FICA
- Federal Insurance Contribution Act. FICA indicates the payroll taxes for both Social Security taxes and Medicare taxes. To learn more, see Explanation of Payroll Accounting
FICA expense - delivery
- Under the accrual method of accounting, this account reports the employer's portion (matching) of the Social Security and Medicare tax that pertains to the period indicated in the heading of the income statement, whether or not the company has paid/remitted the FICA taxes within this time period. Since this account involves the delivery function of the business, the expense should be reported in the operating expense section of the company’s income statement.
FICA expense - selling & admin
- Under the accrual method of accounting, this account reports the employer's portion (matching) of the Social Security and Medicare tax that pertains to the period indicated in the heading of the income statement, whether or not the company has paid/remitted the FICA taxes within this time period. Since this account involves the selling and administrative functions of the business, the expense should be reported in the operating expense section of the company’s income statement.
FICA expense - warehouse
- Under the accrual method of accounting, this account reports the employer’s portion (matching) of the Social Security and Medicare tax that pertains to the period indicated in the heading of the income statement, whether or not the company has paid/remitted the FICA taxes within this time period. Since this account involves the warehouse functions of the business, the expense should be reported in the same section of the company’s income statement as the warehouse salaries and wages are reported.
FICA tax payable
- This current liability account reports the amount a company owes (must remit) for its employees' Social Security and Medicare taxes as of the date of the balance sheet.
FIFO
- See first in, first out (FIFO).
FIFO cost flow assumption
- See first in, first out (FIFO).
financial accounting
- Refers to the accounting associated with the preparation of the main financial statements: income statement, balance sheet, statement of cash flows, statement of retained earnings, statement of shareholders' equity.
Financial Accounting Foundation (FAF)
- This organization oversees the Financial Accounting Standards Board (FASB). It selects the members of the FASB and raises funds to assist in paying for its operations.
Financial Accounting Standards Board (FASB)
- A nongovernment group of seven members assisted by a large research staff which is responsible for the setting of accounting standards, rules, and principles. Go to www.fasb.org for more information.
financial leverage
- To learn more, see Explanation of Financial Ratios.
financial ratios
- Using debt (such as loans and bonds) to acquire more assets than would be possible by using only owners' funds.
financial reporting
- Includes the main financial statements (income statement, balance sheet, statement of cash flows, statement of retained earnings, statement of stockholders' equity) plus other financial information such as annual reports, press releases, etc.
financial statement analysis
- Analyzing financial statements by using financial ratios, horizontal analysis, and vertical analysis. To learn more, see Explanation of Financial Ratios.
financial statements
- Usually financial statements refer to the balance sheet, income statement, statement of cash flows, statement of retained earnings, and statement of stockholders' equity.
The balance sheet reports information as of a date (a point in time). The income statement, statement of cash flows, statement of retained earnings, and the statement of stockholders' equity report information for a period of time (or time interval) such as a year, quarter, or month.
To learn more, see Explanation of Financial Ratios. financing activities
- The third section of the statement of cash flows. To learn more, see Explanation of Cash Flow Statement.
finished goods inventory
- See inventory-finished goods.
first in, first out (FIFO)
- A cost flow assumption where the first (oldest) costs are assumed to flow out first. This means the latest (recent) costs remain on hand. To learn more, see Explanation of Inventory & Cost of Goods Sold.
first in, still here (FISH)
- A parody of FIFO used to describe a very slow-moving item in inventory.
fiscal year
- An accounting year that ends on a date other than December 31. For example, a school district might have a fiscal year of July 1, 2003 through June 30, 2004. A retailer might have a fiscal year consisting of the 52 or 53 weeks ending on the Saturday nearest to the last day of February.
FISH
- See first-in, still here (FISH).
fixed assets
- A term used when referring to property, plant, and equipment. Fixed assets other than land are depreciated.
fixed costs
- See fixed expenses.
fixed expenses
- Expenses which do not change in response to reasonable changes in sales or other activity.
fixed manufacturing overhead applied
- The fixed manufacturing costs (e.g., property tax, rent, and depreciation on factory) that have been assigned to (aborbed by) the products manufactured via a predetermined rate. Ideally, by the end of the accounting year the amount applied will equal the amount actually incurred.
fixed manufacturing overhead budget variance
- A variance arising in a standard costing system that indicates the difference between the actual amount of fixed manufacturing overhead incurred and the budgeted amount of fixed manufacturing overhead. To learn more, see Explanation of Standard Costs & Variances.
fixed manufacturing overhead incurred
- The actual cost incurred for manufacturing costs that does not change as production volume changes. Examples include the property tax, rent, and depreciation of the factory building and equipment, and the salaries of the manufacturing management.
fixed manufacturing overhead volume variance
- A variance arising in a standard costing system that indicates the difference between the standard amount of fixed manufacturing overhead for the good units produced (standard hours times standard rate) and the budgeted amount of fixed manufacturing overhead. To learn more, see Explanation of Standard Costs & Variances.
fixed overhead budget variance
- Also referred to as the fixed overhead spending variance. The difference between the actual fixed overhead incurred and the amount of fixed overhead that had been budgeted.
fixed overhead spending variance
- Also referred to as the fixed overhead budget variance. The difference between the actual fixed overhead incurred and the amount of fixed overhead that had been budgeted.
fixed rate loan
- A loan in which the interest rate does not change over the life of the loan.
flexible budget
- A budget that flexes with volume. Under a flexible budget the budgeted amount of manufacturing overhead will increase if the company produces more units than planned. The flexible budget will decrease if the company actually produces fewer units than planned.
float
- The time between when a check is written and when the check clears the bank account on which it is drawn.
floor
- A term used in the lower of cost or market (LCM) that serves as a constraint for the market value. In the LCM for inventory, the floor is the net realizable value (NRV) minus the normal profit. This means that if the replacement cost of an inventory item is less than this amount, this amount becomes the market amount that will be compared with the item’s cost for valuing inventory under LCM. To learn more, see Explanation of Lower of Cost or Market
FOB
- Free on Board. See FOB destination and FOB shipping point.
FOB destination
- Terms indicating that the seller will incur the delivery expense to get the goods to the destination. With terms of FOB destination the title to the goods usually passes from the buyer to the seller at the destination. This means that goods in transit should be reported as inventory by the seller, since technically the sale does not occur until the goods reach the destination.
FOB shipping point
- Terms indicating that the buyer must pay to get the goods delivered. (The buyer will record freight-in and the seller will not have any delivery expense.) With terms of FOB shipping point the title to the goods usually passes to the buyer at the shipping point. This means that goods in transit should be reported as a purchase and as inventory by the buyer. The seller should report a sale and an accounts receivable.
foot
- A word that means to add a column of numbers as in "Foot the amounts listed in column A." Also see crossfoot.
footnotes
- See notes to financial statements.
401(k) expense - delivery
- Under the accrual method of accounting, this account reports the employer’s expense for the company’s 401(k) plan associated with the employees in the delivery department during the period indicated in the heading to the income statement. This expense should be reported in the operating expense section of the company’s income statement.
401(k) expense - selling & admin
- Under the accrual method of accounting, this account reports the employer’s expense for the company’s 401(k) plan associated with the employees in the selling and administrative departments during the period indicated in the heading to the income statement. This expense should be reported in the operating expense section of the company’s income statement.
401(k) expense - warehouse
- Under the accrual method of accounting, this account reports the employer’s expense for the company’s 401(k) plan associated with the employees in the warehouse department during the period indicated in the heading to the income statement. This expense should be reported in the operating expense section of the company’s income statement.
401(k) payable
- This current liability account reports the amount a company owes (is required to remit) for its employees' 401(k) program as of the date of the balance sheet.
free cash flow
- The cash flow from operating activities (To learn more, see Explanation of Cash Flow Statement.) minus the amount of capital expenditures. Other variations are also used.
free cash flow per share
- The amount free cash flow divided by the weighted average number of common shares of stock outstanding during the year.
free on board (fob)
- See FOB destination and FOB shipping point.
freight-in
- The shipping cost to be paid by the buyer of merchandise purchased when the terms are fob shipping point. Freight-in is considered to be part of the cost of the merchandise and should be included in inventory if the merchandise has not been sold.
freight-out
- Delivery expense to be paid by the seller when its merchandise is sold with terms of fob destination. This is an operating expense and is not included in the cost of merchandise.
fringe benefits
- Compensation for employees that is in addition to salaries and wages. Examples include paid absences (vacation, sick, holiday), insurances (health, dental, vision, life), pensions, profit sharing contributions, employer matching of social security and medicare taxes, unemployment taxes, worker compensation insurance, continuing education costs, etc. Generally, the cost of fringe benefits should be expensed when they are earned by the employee, not in the period in which they are paid.
full disclosure principle
- An accounting guideline that requires information pertinent to an investing or lending decision to be included in the notes to financial statements or in other financial reports.
functional expense classification
- One of many ways to classify costs. Under this way of classifying costs, expenses are sorted to appear under the manufacturing function, the selling function, the administrative function, or the financing function.
furniture and fixtures
- Long-term assets that are reported under the classification of property, plant, and equipment on a company's balance sheet. These assets are depreciated over their useful life.
FUTA
- Federal Unemployment Tax Act. See federal unemployment tax.
future value of 1 table
- A table of factors that show what the future value of $1 will grow to if invested at the rate shown in the column heading and compounded for the number of periods indicated in the row.
future value of an annuity due
- The amount that a recurring equal amount deposited at the beginning of each period will grow to under compounded interest.
future value of an ordinary annuity
- The amount that a recurring equal amount deposited at the end of each period will grow to under compounded interest.
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