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calendar year: An entity's reporting year, covering 12 months and ending on December 31.

callable bonds: Bonds for which the issuer reserves the right to pay the obligation before its maturity date.

capital: The total amount of money or other resources owned or used to acquire future income or benefits.

capital account: An account in which a proprietor's or partner's interest in a firm is recorded; it is increased by owner investments and net income and decreased by withdrawals and net losses.

capital expenditure: An expenditure that is recorded as an asset because it is expected to benefit more than the current period.

capital gain: The excess of the selling price over the cost basis when assets, such as securities and other personal and investment assets, are sold.

capital lease: A leasing transaction that is recorded as a purchase by the lessee.

capital stock: The portion of a corporation's owners' equity contributed by investors (owners) in exchange for shares of stock.

cash: Coins, currency, money orders, checks, and funds on deposit with financial institutions; the most liquid of assets.

cash basis: Gross income is recognized when cash is received.

cash-basis accounting: A system of accounting in which transactions are recorded and revenues and expenses are recognized only when cash is received or paid.

cash disbursements journal: A special journal in which all cash paid out for supplies, merchandise, salaries, and other items is recorded.

cash dividend: A cash distribution of earnings to shareholders.

cash equivalents: Short-term, highly liquid investments that can be converted easily into cash.

cash inflows: Any current or expected revenues or savings directly associated with an investment.

cash outflows: The initial cost and other expected outlays associated with an investment.

cash over and short: An account used to record overages and shortages in petty cash.

cash receipts journal: A special journal in which all cash received, from sales, interest, rent, or other sources, is recorded.

ceiling: The maximum market amount at which inventory can be carried on the books; equal to net realizable value.

certified public accountant (CPA): A special designation given to an accountant who has passed a national uniform examination and has met other certifying requirements; CPA certificates are issued and monitored by state boards of accountancy or similar agencies.

chart of accounts: A systematic listing of all accounts used by a company.

charter (articles of incorporation): A document issued by a state that gives legal status to a corporation and details its specific rights, including the authority to issue a certain maximum number of shares of stock.

classified balance sheet: A balance sheet in which assets and liabilities are subdivided into current and noncurrent categories.

closed transaction: A transaction that is completed within the accounting period; both the purchase and payment or sale and receipt of payment occur within the same accounting period.

closing entries: Entries that reduce all nominal, or temporary, accounts to a zero balance at the end of each accounting period, transferring their preclosing balances to a permanent balance sheet account.

code of professional ethics: Rules set by the AICPA's Committee on Professional Ethics, which govern the conduct of CPAs.

common stock: The most frequently issued class of stock; usually it provides a voting right but is secondary to preferred stock in dividend and liquidation rights.

comparative financial statements: Financial statements in which data for two or more years are shown together.

compounding period: The period of time for which interest is computed.

compound journal entry: A journal entry that involves more than one debit or more than one credit or both.

conduit principle: The idea that all income earned by an entity must be passed through to the owners and reported on their individual tax returns; applicable to proprietorships, partnerships, and S corporations.

consignee: A vendor who sells merchandise owned by another party, known as the consignor, usually on a commission basis.

consignment: An arrangement whereby merchandise owned by one party (the consignor) is sold by another party (the consignee), usually on a commission basis.

consignor: The owner of merchandise to be sold by someone else, known as the consignee.

consolidated financial statements: Statements that report the combined operating results, financial position, and cash flows of two or more legally separate but affiliated companies as if they were one economic entity.

contingent liability: A potential obligation, dependent upon the occurrence of future events.

contra account: An account that is offset or deducted from another account.

contributed capital: The portion of owners' equity contributed by investors (the owners) in exchange for shares of stock.

control account: A summary account in the General Ledger that is supported by detailed individual accounts in a subsidiary ledger.

control activities: Policies and procedures used by management to meet its objectives; generally divided into adequate segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance.

control environment: The actions, policies, and procedures that reflect the overall attitudes of top management, the directors, and the owners about control and its importance to the entity.

convertible bonds: Bonds that can be traded for, or converted to, other securities after a specified period of time.

convertible preferred stock: Preferred stock that can be converted to common stock at a specified conversion rate.

corporation: A legal entity chartered by a state; ownership is represented by transferable shares of stock.

cost method of accounting for investments in stocks: Method used to account for an investment in the stock of another company when less than 20 percent of the outstanding voting stock is owned.

cost of goods sold: The expense incurred to purchase or manufacture the merchandise sold during a period.

cost principle: The idea that transactions are recorded at their historical costs or exchange prices at the transaction date.

coupon bonds: Unregistered bonds for which owners receive periodic interest payments by clipping a coupon from the bond and sending it to the issuer as evidence of ownership.

credit: An entry on the right side of the account.

credit card draft: The part of the multiple-page credit form that is sent by the retailer to the credit card company for reimbursement of the stated amount.

cumulative-dividend preference: The rights of preferred stockholders to receive current dividends plus all dividends in arrears before common stockholders receive any dividends. current assets: Cash and other assets that may reasonably be expected to be converted to cash within a year or during the normal operating cycle.

current-dividend preference: The right of preferred shareholders to receive current dividends before common shareholders receive dividends.

current (or working capital) ratio: A measure of the liquidity of a business; equal to current assets divided by current liabilities.  

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