Glossary · 88 terms
Accounting
All accounting terms in the EquitiesAmerica.com glossary — plain-English definitions for American investors.
Accounts Payable(AP)
Accounts payable is a current liability on a company's balance sheet representing amounts owed to suppliers and vendors for goods or services that have been received but not yet paid for.
Accrual Accounting(accrual basis accounting)
Accrual accounting is a method of recording financial transactions in which revenues are recognized when earned and expenses are recognized when incurred, regardless of when cash is actually received or paid.
Amortization(amortization expense)
Amortization is the systematic allocation of the cost of an intangible asset over its useful life, or the scheduled reduction of a loan balance through regular principal and interest payments.
Anti-Dilutive Securities(anti-dilutive instruments)
Anti-dilutive securities are potential common shares — such as out-of-the-money options, warrants, or convertible instruments whose conversion would increase EPS or decrease a per-share loss — that are excluded from the diluted EPS calculation under ASC 260 because including them would improve rather than reduce the per-share result.
Attestation Report(404(b) attestation)
An attestation report on internal control over financial reporting is the report issued by a registered public accounting firm under SOX Section 404(b) that expresses an independent opinion on whether a public company's ICFR is effective as of the fiscal year-end, based on the auditor's own independent assessment conducted in accordance with PCAOB auditing standards.
Audit Opinion(auditor's report)
An audit opinion is the formal conclusion issued by an independent registered public accounting firm after completing an audit, stating whether a company's financial statements are presented fairly in all material respects in accordance with GAAP.
Authorized vs Issued Shares
Authorized shares are the maximum number of shares a corporation is legally permitted to issue as stated in its certificate of incorporation; issued shares are the subset of authorized shares that have actually been sold or granted to shareholders, with the difference representing shares available for future issuance.
Basic vs Diluted EPS (Detailed)(diluted EPS)
Basic EPS divides net income available to common shareholders by the weighted-average shares outstanding during the period; diluted EPS uses a larger share count that includes the incremental shares from all dilutive instruments — options, warrants, convertibles, and RSUs — producing a lower per-share figure that reflects the maximum potential dilution.
Big Bath Accounting
Big Bath Accounting is the practice of deliberately taking an unusually large write-down, restructuring charge, or impairment in a single bad period — often when results are already poor — to clear the decks, set a depressed earnings baseline, and make subsequent periods appear more profitable by comparison.
Cash Basis Accounting(cash method)
Cash basis accounting is a method of recording revenues and expenses only when cash is actually received or paid, without regard to when the underlying economic activity occurred.
Cash Flow Hedge(cash flow hedging)
A cash flow hedge is a designated hedging relationship under ASC 815 in which a derivative is used to offset the variability in cash flows attributable to a particular risk associated with a recognized asset or liability, or a highly probable forecasted transaction, with the effective portion of the hedge gain or loss deferred in other comprehensive income until the hedged item affects earnings.
Channel Stuffing
Channel Stuffing is an earnings management practice in which a company ships excess product to distributors, retailers, or dealers beyond what can be sold through to end customers, prematurely recognizing revenue in the current period while creating unsustainable future-period headwinds as the channel digests excess inventory.
Comprehensive Income
Comprehensive Income is the total change in a company's equity during a period from all non-owner sources, combining net income (from the income statement) with Other Comprehensive Income (OCI) — gains and losses recognized in equity but deliberately excluded from the traditional income statement to reduce volatility.
Consolidation Accounting(consolidated financial statements)
Consolidation accounting under ASC 810 combines the financial statements of a parent company and its subsidiaries into a single set of financial statements that presents the economic entity as a whole, eliminating intercompany transactions and balances to avoid double-counting.
Contract Asset(unbilled revenue)
A contract asset is an entity's right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time — most commonly, the entity's future performance of additional obligations under the same contract — recognized under ASC 606 (Revenue from Contracts with Customers).
Contract Liability(deferred revenue)
A contract liability is an entity's obligation to transfer goods or services to a customer for which the entity has already received consideration — or for which consideration is due — from the customer, recognized under ASC 606 as a liability until the entity satisfies the underlying performance obligation.
Cookie Jar Reserves
Cookie Jar Reserves is an earnings management technique in which a company builds up excessive accounting reserves or provisions during profitable periods and then releases them into income during weak periods, artificially smoothing reported earnings in a way that obscures underlying business volatility.
Critical Audit Matter(CAM)
A critical audit matter (CAM) is any matter arising from the audit of the current-period financial statements that was communicated or required to be communicated to the audit committee, involved especially challenging, subjective, or complex auditor judgment, and relates to accounts or disclosures that are material to the financial statements.
Deferred Revenue(unearned revenue)
Deferred revenue is a liability on a company's balance sheet representing cash received from customers for goods or services that have not yet been delivered or earned, requiring future recognition as revenue.
Deferred Tax Asset/Liability(DTL)
Deferred Tax Assets and Liabilities arise from temporary differences between the carrying values of assets and liabilities on a company's GAAP financial statements and their tax basis, representing future tax benefits (assets) or future tax obligations (liabilities) that will reverse as those differences unwind over time.
Diluted EPS Two-Class Method(two-class EPS method)
The two-class method is an EPS computation approach under ASC 260 required when an entity has participating securities, allocating undistributed earnings between common shareholders and participating security holders based on their respective contractual participation rights before computing per-share amounts for each class.
Discontinued Operations
Discontinued Operations is an accounting classification for a component of a business that has been disposed of or is classified as held for sale, reported separately from continuing operations on the income statement so investors can assess the ongoing earnings power of the retained business.
Earnings Management
Earnings Management is the use of accounting judgments, estimates, and timing discretion by corporate managers to deliberately influence reported earnings, staying within the bounds of generally accepted accounting principles while presenting financial results in a more favorable or predictable light.
Earnings Per Share Calculation (ASC 260)(ASC 260)
Earnings per share (EPS) under ASC 260 measures net income attributable to common shareholders on a per-share basis, requiring all public entities to present both basic EPS (using the weighted average common shares outstanding) and diluted EPS (reflecting the dilutive effect of all potential common shares).
Emphasis of Matter(EOM paragraph)
An emphasis of matter paragraph is an additional paragraph in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements which, in the auditor's judgment, is of such fundamental importance that it is essential to users' understanding of the financial statements, without modifying the auditor's opinion.
Equity Method Accounting(ASC 323)
The equity method of accounting under ASC 323 requires an investor to initially record an investment in a common stock at cost and subsequently adjust the carrying amount each period to reflect the investor's proportionate share of the investee's net income, other comprehensive income, and dividends received.
Expected Credit Loss Model (CECL)(CECL)
The Current Expected Credit Loss model (CECL), codified in ASC 326, requires US financial institutions and other creditors to recognize an allowance for credit losses equal to the lifetime expected credit losses on financial assets measured at amortized cost at the time of origination or purchase, replacing the prior incurred-loss model.
Extraordinary Items
Extraordinary Items was a now-eliminated GAAP classification for events that were both unusual in nature and infrequent in occurrence, reported separately on the income statement net of taxes; FASB eliminated the concept in 2015 (ASU 2015-01) after it became a tool for income manipulation.
Fair Value Accounting(FVA)
Fair Value Accounting is the practice of measuring and reporting assets and liabilities at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair Value Hedge(fair value hedging)
A fair value hedge is a designated hedging relationship under ASC 815 in which a derivative offsets the exposure to changes in the fair value of a recognized asset or liability, or an unrecognized firm commitment, with both the hedging instrument and the hedged item's fair value changes recognized in current-period earnings simultaneously.
Fair Value Hierarchy (Level 1/2/3)(ASC 820)
The fair value hierarchy established under ASC 820 classifies the inputs used to measure fair value into three levels based on their observability, ranging from quoted prices in active markets (Level 1) to unobservable, entity-developed assumptions (Level 3), with the level assigned reflecting the least observable input used in a given measurement.
Foreign Currency Translation (ASC 830)(ASC 830)
Foreign currency translation under ASC 830 is the process of converting the financial statements of a foreign subsidiary from its functional currency into the reporting currency of the parent, with resulting translation adjustments recorded in other comprehensive income rather than net income.
Fresh Start Accounting(ASC 852)
Fresh start accounting under ASC 852 is required for entities emerging from bankruptcy under a reorganization plan when (1) the reorganization value of the emerging entity is less than the total of its post-petition liabilities and allowed claims, and (2) existing pre-petition equity holders receive less than 50% of the voting shares of the emerging entity.
Fully Diluted Shares
Fully diluted shares represent the total number of common shares that would be outstanding if all dilutive securities — including stock options, warrants, convertible notes, restricted stock units, and convertible preferred stock — were exercised or converted into common shares.
Functional Currency(ASC 830 functional currency)
The functional currency under ASC 830 is the currency of the primary economic environment in which an entity operates — the currency that most faithfully reflects the economic substance of the entity's transactions and events — and its determination governs whether a subsidiary's foreign currency differences are remeasured through earnings or translated through other comprehensive income.
GAAP(Generally Accepted Accounting Principles)
GAAP (Generally Accepted Accounting Principles) is the standardized set of accounting rules, standards, and procedures that U.S. public companies must use when preparing financial statements filed with the SEC.
Going Concern(going concern qualification)
A going concern qualification is a disclosure in a company's audit report or financial statements indicating that the auditor has substantial doubt about the company's ability to continue as a going concern for at least 12 months beyond the financial statement date.
Goodwill Impairment(goodwill write-down)
Goodwill Impairment is the write-down of goodwill on a company's balance sheet when the carrying value of a reporting unit exceeds its fair value, indicating that a prior acquisition has not generated the expected economic benefits.
Hedge Accounting(ASC 815)
Hedge accounting is an elective GAAP treatment under ASC 815 that allows companies to match the timing of gains and losses on a designated hedging instrument with the offsetting losses and gains on the hedged item, reducing income statement volatility that would otherwise arise from marking derivatives to fair value each period.
If-Converted Method(if-converted)
The if-converted method is the GAAP approach for calculating the dilutive effect of convertible securities — such as convertible bonds, convertible preferred stock, and convertible notes — on diluted EPS, assuming conversion at the beginning of the period and adding back the after-tax interest or preferred dividends that would have been avoided.
IFRS vs GAAP(US GAAP)
IFRS (International Financial Reporting Standards) and GAAP (Generally Accepted Accounting Principles) are the two dominant accounting frameworks globally, with GAAP required for US public companies and IFRS used in over 140 countries, differing meaningfully in inventory accounting, lease classification, revenue recognition, and financial instrument treatment.
Impairment(impairment charge)
Impairment is an accounting charge recorded when the carrying value of an asset on a company's balance sheet exceeds the asset's recoverable or fair value, requiring a write-down to reflect the economic decline.
Incremental Borrowing Rate(IBR)
The incremental borrowing rate (IBR) is the rate of interest that a lessee would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment, used under ASC 842 to discount lease payments when the rate implicit in the lease cannot be readily determined.
Internal Control over Financial Reporting(ICFR)
Internal control over financial reporting (ICFR) is a process designed by, or under the supervision of, a company's principal executive and principal financial officers, and effected by the board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP.
Key Audit Matter(KAM)
A key audit matter (KAM) is the international counterpart to the U.S. critical audit matter, required under International Standard on Auditing 701 for audits of listed entities, and describes those matters that, in the auditor's professional judgment, were of most significance in the audit of the current-period financial statements.
Lease Accounting (ASC 842 Detailed)(ASC 842)
ASC 842 is the FASB lease accounting standard that requires lessees to recognize a right-of-use asset and a corresponding lease liability on the balance sheet for virtually all leases with terms exceeding twelve months, fundamentally changing how operating leases appear in financial statements.
Lease Accounting (ASC 842)(ASC 842)
Lease Accounting under ASC 842 is the US GAAP standard that requires lessees to recognize a right-of-use asset and a corresponding lease liability on the balance sheet for most lease arrangements, replacing the prior standard that kept operating leases off-balance-sheet.
Management Assessment(ICFR management assessment)
In the context of internal control over financial reporting, management's assessment is the formal evaluation performed by the principal executive officer and principal financial officer of a U.S. public company to determine whether the company's ICFR is effective as of fiscal year-end, required to be included in the annual report under SOX Section 404(a).
Mark-to-Market Accounting(MTM accounting)
Mark-to-Market Accounting is a method of valuing assets and liabilities at their current fair market value rather than at historical cost, reflecting real-time changes in value on the financial statements.
Material Weakness(ICFR material weakness)
A material weakness is a deficiency, or combination of deficiencies, in a company's internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis.
Net Investment Hedge(NI hedge)
A net investment hedge is a designation under ASC 815 and ASC 830 that allows a company to offset the foreign currency translation risk on its net investment in a foreign operation, deferring the effective portion of the hedging instrument's gain or loss in the cumulative translation adjustment within other comprehensive income.
Non-Controlling Interest(minority interest)
Non-controlling interest (NCI), sometimes called minority interest, represents the portion of a consolidated subsidiary's equity that is attributable to shareholders other than the parent company, presented as a separate component of consolidated equity on the balance sheet and as an allocation of consolidated net income on the income statement.
Non-GAAP Earnings(adjusted earnings)
Non-GAAP earnings are financial performance metrics reported by companies that exclude certain items from the GAAP-based income statement, such as stock-based compensation, amortization of acquired intangibles, and restructuring charges.
Off-Balance Sheet Arrangement(OBS arrangement)
An off-balance sheet arrangement is any transaction, agreement, or contractual obligation to which a company is party that has, or is reasonably likely to have, a material current or future effect on its financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources — but that is not fully reflected on the face of the balance sheet.
Operating Lease Obligation(operating lease liability)
An operating lease obligation is the lease liability recognized on the balance sheet of a lessee under ASC 842 for an operating lease — representing the present value of future lease payments discounted at the lessee's incremental borrowing rate or the rate implicit in the lease — which, unlike a finance lease liability, is paired with a corresponding right-of-use asset but does not result in separate interest and amortization expense in the income statement.
Operating Lease vs Finance Lease(capital lease)
Under US GAAP (ASC 842), a lease is classified as either an operating lease (with straight-line expense recognition) or a finance lease (similar to ownership, with front-loaded interest and depreciation expense), based on criteria related to the economics of the arrangement, with both types now required to appear on the balance sheet.
Other Comprehensive Income (OCI)(OCI)
Other Comprehensive Income (OCI) is the portion of comprehensive income that bypasses the traditional income statement, comprising unrealized gains and losses on certain financial instruments, pension liability adjustments, foreign currency translation differences, and the effective portion of qualifying hedging instruments.
Participating Securities(participating preferred)
Participating securities under ASC 260 are securities that contractually entitle their holders to participate in dividends or distributions of undistributed earnings alongside common shareholders, requiring the use of the two-class method to allocate earnings between common and participating security holders for EPS purposes.
PCAOB Inspection(PCAOB audit inspection)
A PCAOB inspection is a regulatory examination conducted by the Public Company Accounting Oversight Board of a registered public accounting firm's audit work, quality control systems, and compliance with applicable professional standards, designed to assess whether audits of U.S. public companies are being performed in accordance with PCAOB rules and auditing standards.
Performance Obligation(POB)
A performance obligation is a promise in a contract with a customer to transfer either a distinct good or service, or a series of distinct goods or services that are substantially the same and have the same pattern of transfer, to the customer — the fundamental unit of account under ASC 606 for determining when and how much revenue to recognize.
Pooling of Interests (Historical)(pooling method)
Pooling of interests was a method of accounting for business combinations, eliminated by FASB in 2001 under SFAS 141, in which the assets and liabilities of combining entities were simply added together at their pre-existing book values without any fair value step-up, goodwill recognition, or purchase price allocation.
Principal vs Agent (Revenue)(gross vs net revenue)
The principal versus agent assessment under ASC 606 determines whether an entity should recognize revenue on a gross basis — as the full amount charged to the end customer — when it controls the promised good or service before transferring it to the customer (principal), or on a net basis — as only the fee or commission retained — when it arranges for another party to provide the good or service to the customer (agent).
Pro Forma Adjustment(non-GAAP adjustment)
A pro forma adjustment is a modification made to a company's historical or projected financial statements to present results as if a specified event — such as an acquisition, divestiture, restructuring, or accounting change — had already occurred or had never occurred, enabling more meaningful comparisons of underlying business performance.
Proportionate Consolidation(pro rata consolidation)
Proportionate consolidation is an accounting method in which a venturer records its pro-rata share of the assets, liabilities, revenues, and expenses of a joint venture line by line in its own financial statements, rather than as a single investment line, and is permitted in limited circumstances under US GAAP for unincorporated entities in certain industries.
Purchase Accounting(ASC 805)
Purchase accounting, now called the acquisition method under ASC 805, is the required framework for recording business combinations under US GAAP, in which the acquirer measures all identifiable acquired assets and assumed liabilities at their acquisition-date fair values, with any excess of the purchase price recognized as goodwill.
Pushdown Accounting(ASC 805-50)
Pushdown accounting is an elective method, codified in ASC 805-50, that allows an acquired entity to record a new basis of accounting in its own standalone financial statements following a change-in-control event, reflecting the purchase price paid by the acquirer rather than the acquired entity's historical cost basis.
Related Party Transaction(RPT)
A related party transaction is a transaction between a company and a person or entity that has a close relationship with the company — such as a major shareholder, executive officer, director, or entity in which such persons have a financial interest — that may not have been negotiated on fully arm's-length terms and therefore requires specific disclosure under U.S. GAAP and SEC regulations.
Remeasurement vs Translation(temporal method)
Under ASC 830, remeasurement converts a subsidiary's books from the currency in which they are maintained into the functional currency, with gains and losses recognized in income; translation converts functional-currency financial statements into the parent's reporting currency, with the resulting adjustment deferred in other comprehensive income.
Restatement(financial restatement)
A Restatement is the revision and reissuance of previously filed financial statements to correct material errors, misapplications of accounting standards, or fraud that rendered the original statements misleading.
Retained Earnings(accumulated earnings)
Retained earnings is the cumulative total of a company's net income that has been kept within the business rather than distributed to shareholders as dividends, reported as a component of shareholders' equity on the balance sheet.
Revenue Recognition (ASC 606)(ASC 606)
Revenue recognition under ASC 606 is the FASB standard that governs when and how companies record revenue from contracts with customers, replacing a fragmented collection of industry-specific rules with a single five-step framework focused on the transfer of promised goods or services.
Right-of-Use Asset(ROU asset)
A right-of-use asset (ROU asset) is an asset recognized on the lessee's balance sheet under ASC 842 that represents the lessee's right to use an underlying leased asset for the lease term, measured initially at the amount of the lease liability plus any lease payments made before or at commencement, initial direct costs incurred by the lessee, and lease incentives received.
Segment Reporting
Segment Reporting is the requirement under GAAP (ASC 280) and IFRS (IFRS 8) for public companies to disclose financial information separately for distinct operating segments of their business, giving investors visibility into divisional performance that would be obscured by consolidated reporting alone.
Share-Based Payment Accounting(SBC accounting)
Share-based payment accounting is the framework under ASC 718 (US GAAP) that requires companies to recognize the fair value of stock options, restricted stock units, and other equity awards as compensation expense in the income statement over the vesting period of the award.
Shareholders Equity Statement(statement of stockholders equity)
The statement of shareholders' equity is a required financial statement that reconciles changes in each component of equity — including common stock, additional paid-in capital, retained earnings, and treasury stock — over a reporting period.
Significant Deficiency(ICFR significant deficiency)
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness yet important enough to merit attention by those responsible for oversight of the company's financial reporting, including the audit committee.
SOX Section 302(Section 302 certification)
SOX Section 302 requires the principal executive officer and principal financial officer of a U.S. public company to personally certify in each annual and quarterly SEC report that they have reviewed the filing, that it does not contain any untrue statement of material fact, that the financial statements fairly present the company's financial condition and results, and that they have disclosed any significant deficiencies, material weaknesses, and fraud involving management to the auditors and audit committee.
SOX Section 404(Section 404)
SOX Section 404 requires U.S. public company management to include in its annual report an assessment of the effectiveness of internal control over financial reporting as of fiscal year-end, and for accelerated filers, requires the company's external auditor to separately attest to and report on management's assessment of ICFR effectiveness.
Special Purpose Entity(SPE)
A special purpose entity (SPE), also called a variable interest entity (VIE) under U.S. GAAP, is a legal entity created to accomplish a narrow, specific objective — such as isolating financial assets, facilitating asset securitization, or enabling project financing — whose consolidation into a sponsoring company's financial statements depends on whether the sponsor is the primary beneficiary as determined under ASC 810.
Stock Compensation (RSUs/Options)(RSU)
Stock Compensation refers to equity-based pay granted to employees and executives in the form of restricted stock units (RSUs) or stock options, aligning their interests with shareholders by making a portion of their total remuneration dependent on the company's stock price.
Stock-Based Compensation(SBC)
Stock-Based Compensation is a non-cash expense recorded on the income statement representing the fair value of equity awards — such as stock options and restricted stock units — granted to employees in exchange for services.
Synthetic Lease(synthetic lease financing)
A synthetic lease is a financing structure in which a special purpose entity acquires an asset — typically real estate — and leases it to a company under terms that are designed to qualify as an operating lease for financial accounting purposes (keeping the asset off the lessee's balance sheet) while simultaneously qualifying as a financed acquisition for income tax purposes (allowing the lessee to claim depreciation and interest deductions).
Transaction Price Allocation(standalone selling price)
Transaction price allocation is the fourth step in the ASC 606 five-step revenue recognition model, requiring an entity to allocate the total transaction price to each identified performance obligation in proportion to the standalone selling prices of the goods or services underlying those obligations, so that the amount of revenue recognized when each obligation is satisfied reflects the consideration the entity is entitled to in exchange for satisfying that specific obligation.
Treasury Method(treasury stock method)
The treasury stock method is the GAAP-prescribed approach for calculating the dilutive effect of in-the-money stock options and warrants on diluted earnings per share, where the assumed proceeds from exercise are used to hypothetically repurchase shares at the average market price, with only the incremental net new shares added to the diluted count.
Treasury Stock Method (Detailed)(TSM)
The treasury stock method is the GAAP technique prescribed by ASC 260 for calculating the dilutive effect of in-the-money stock options and warrants on earnings per share, assuming that proceeds from hypothetical exercise are used to repurchase shares at the average market price during the period.
Variable Consideration(contingent consideration)
Variable consideration is any portion of the transaction price in a contract with a customer that is contingent on the occurrence or non-occurrence of a future event — including discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, and royalties — which under ASC 606 must be estimated and included in the transaction price only to the extent it is probable that a significant revenue reversal will not occur.
Variable Interest Entity(VIE)
A variable interest entity (VIE) is a legal structure — such as a special purpose entity, trust, or partnership — that lacks sufficient equity at risk to finance its own activities or whose equity investors lack the typical characteristics of a controlling financial interest, requiring the primary beneficiary to consolidate it under ASC 810 regardless of ownership percentage.
Weighted Average Lease Term(WALT)
The weighted average lease term is a disclosure metric required under ASC 842 that expresses the average remaining lease term across all of a lessee's operating or finance lease portfolio, weighted by the outstanding lease liability balance of each lease, providing users of financial statements with a summary measure of the duration of the company's lease obligations.