Glossary

Call loan

Loans which are repayable on demand.

Cap

A means to limit capital use in assets.

Capital Gain

Represents the gain generated through the disposal of an asset.

Capital market

Is the generalised term used to describe the market of debt and equity securities.

Capital rationing

Assesses a mixture of projects that can provide the highest overall net present value (NPV) when a company has a limit on capital spending.

Capital reduction

Involves the reduction of a company’s declared or stated capital base.

Capital Reserve

Is a fund that has been set aside for a specific purpose. It cannot be used for anything else.

Capital structure

The financing components of a company, including ordinary and preference shares, debentures and loan stock.

Capitalised interest

Refers to the interest cost incurred whilst an asset is being prepared for its intended use.

Capitalised lease

Is a type of lease which is recorded as an asset acquisition which is then accompanied by a corresponding liability by the lessee.

Carrying value

Is the amount that an asset or a liability is recorded on a balance sheet.

Cash basis

A type of bookkeeping that notes down when revenues and expenditures are received and paid.

Cash cow

Segment of the business that generates a large quantity of money.

Certificate of deposit (CD)

A type of formal instrument that is issued by banks when a deposited fund is not withdrawn for a length of time. Early withdrawals can result in a cash penalty.

Certified financial planner

A trained individual who can successfully implement financial plans for clients using knowledge based around income/estate tax, investments and risk management analysis.

Chart of accounts

Refers to the list of accounts appearing in the nominal ledger. The list is usually arranged in the order accounts appear in the financial statements.

Clearing account

Is a temporary holding account that contains costs/amounts that at a specified date are to be transferred to another account i.e. income summary account that contains revenue and expense amounts that are to be transferred to retained earnings at the end of a fiscal period.

Clearing House

Institution whereby interbank indebtedness is computed, and net amounts owing can be calculated.

Coding of accounts

Involves the assignment of an identification number to every account in the financial statements.

Collection period

Represents the number of days needed to collect accounts receivable. The length of this period is determined by the rate of turnover a company has.

Commercial bank

A financial institution that provides a commercial banking service, including accepting bank deposits and offering business loans, to individuals and companies.

Compensating balances

A deposit that banks can use to offset an unpaid loan.

Compound interest

Process of adding back interest earned on an investment to the original investment, thereby increasing the principle on which further interest is calculated.

Consistency Concept

Represents the uniformity of accounting concepts and procedures used by an entity in the preparation of financial statements.

Contra

Entry made to offset or nullify a previous entry.

Control account

Account which gives summary to the balance of all accounts on another ledger.

Convertible Bond

A bond that can be converted into shares of the issuing company.

Corporate culture

Values and beliefs held by people within an organisation

Corporation tax

Tax payable by a company on its profits.

Cost accounting

Focuses on the cost accumulation used for inventory valuations that are needed for external reporting and internal profit measurement.

Coupon

Annual rate of interest paid by the issuer of a bond until maturity.

Covenant

A formal agreement that some act will or will not be carried out, e.g. a promise to pay interest.

CPI (Consumer Price Index)

Index that tracks the prices of a variety of goods purchased by an average consumer.

Credit control

Methods used to ensure customers settle their accounts within the agreed time period.

Credit crunch

Situation occurring when the supply of money cannot keep pace with demand.

Credit default swap

Specific kind of counterparty agreement allowing the transfer of third party credit risk from one party to the other.

Credit derivative

Financial instrument used to mitigate or to assume specific forms of credit risk, often to separate the credit risk of a borrower from overall market risk.

Credit rating

Rating used by financial institutions making loans which they use to judge an individual or company’s credit worthiness.

Credit Ratings Agency

An agency that rates the creditworthiness of companies based on detailed financial information.

Credit risk

The risk that an issuer might default on a payment or go into liquidation.

Creditor

Individuals/organisations owed money.

Creditor days

Ratio measuring the average period it takes an individual/company to pay its creditors. It is calculated by dividing trade creditors by its cost of sales and then multiplying by the number of days in the financial period in question.

Cumulative preference shares

When a company fails to pay a dividend, holders of cumulative preference shares are entitled to receive this missed payment when a dividend is next declared.

Currency hedging

A technique used to guard against foreign exchange fluctuations.

Currency risk

The potential for losses arising from adverse movements in a currency.

Currency swap

Arrangement in which two parties exchange a series of cash flows in one currency for another, at agreed intervals over an agreed period.

Current assets

Assets that are regularly turned over and can be readily converted into cash, including debtors and stocks.

Current liabilities

Liabilities owed by a company that are due for settlement within 12 months, including trade creditors and bank overdrafts.

Current ratio

Is a measurement of liquidity where current assets are divided by current liabilities. This is commonly used to measure short-term solvency.

Current yield

The annual interest rate paid by a bond, expressed as a percentage of its current market price.

Cut-off rate

A set maximum/minimum rate that is susceptible to – in this circumstance – rates which cannot be exceeded on either end.