Definition of T account
T account
The format used for a general ledger page. The name of the account is put on the top line, and a vertical line is dropped from the top line (hence the "T"). Debits are recorded on the left side, and credits are recorded on the right.
Related Terms:
Net flow of goods, services, and unilateral transactions (gifts) between countries.
An agreement between two or more firms to share risk and financing responsibility in
purchasing or underwriting securities.
The production of financial and non-financial information used in planning for the future; making decisions about products, services, prices and what costs to incur; and ensuring that plans are implemented and achieved.
The provision and analysis of management accounting data about a business and its competitors, which is of use in the development and monitoring of strategy (Simmonds).
An offset to an asset account that reduces the balance of the asset account.
The accounts found on the Balance Sheet; these account balances are carried forward for the lifetime of the company.
a professional designation in the area of management accounting that
recognizes the successful completion of an examination,
acceptable work experience, and continuing education requirements
a discipline that focuses on techniques or
methods for determining the cost of a project, process, or
thing through direct measurement, arbitrary assignment, or
systematic and rational allocation
a body established by Congress in 1970 to promulgate cost accounting
standards for defense contractors and federal agencies; disbanded
in 1980 and reestablished in 1988; it previously issued
pronouncements still carry the weight of law for those
organizations within its jurisdiction
an organization composed of individuals interested in the field of management accounting; it coordinates the Certified Management
accountant program through its affiliate organization
(the Institute of Certified Management accountants)
a discipline that includes almost
all manipulations of financial information for use by managers
in performing their organizational functions and in
assuring the proper use and handling of an entity’s resources;
it includes the discipline of cost accounting
pronouncements of the Society of Management accountants of
Canada that advocate appropriate practices for specific
management accounting situations
the professional body representing an influential and diverse
group of Certified Management accountants; this body produces
numerous publications that address business management issues
a pronouncement developed and issued by the Management
accounting Practices Committee of the Institute of Management
accountants; application of these statements is
through voluntary, not legal, compliance
That part of the balance of payments accounts that records demands for and supplies of a currency arising from activities that affect current income, namely imports, exports, investment income payments such as interest and dividends, and transfers such as gifts, pensions, and foreign aid.
National Income and Product Accounts
The national accounting system that records economic activity such as GDP and related measures.
Individual Retirement Account
A personal savings account into which a defined
maximum amount may be contributed, and for which any resulting interest
is tax deferred.
Contract Accounting
Method of accounting for sales or service agreements where completion
requires an extended period.
Capitalized
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures
for items with useful lives greater than one year.
Collection policy
Procedures followed by a firm in attempting to collect accounts receivables.
Counterpart items
In the balance of payments, counterpart items are analogous to unrequited transfers in the
current account. They arise because the double-entry system in balance of payments accounting and refer to
adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs,
and revaluation of the various components of total reserves.
FASB No. 52
The U.S. accounting standard which was replaced by FASB No. 8. U.S. companies are required
to translate foreign accounts by the current rate and report the changes from currency fluctuations in a
cumulative translation adjustment account in the equity section of the balance sheet.
Settlement price
A figure determined by the closing range which is used to calculate gains and losses in
futures market accounts. Settlement prices are used to determine gains, losses, margin calls, and invoice
prices for deliveries. Related: closing range.
Unilateral transfers
Items in the current account of the balance of payments of a country's accounting books
that corresponds to gifts from foreigners or pension payments to foreign residents who once worked in the
country whose balance of payments is being considered.
Ledger
A collection of all the different accounts of the business that summarize the transactions of the
business.
Accumulated depreciation
A contra-fixed asset account representing the portion of the cost of a fixed asset that has been previously charged to expense. Each fixed asset account will have its own associated accumulated depreciation account.
accumulated depreciation
A contra, or offset, account that is coupled
with the property, plant, and equipment asset account in which the original
costs of the long-term operating assets of a business are recorded.
The accumulated depreciation contra account accumulates the amount of
depreciation expense that is recorded period by period. So the balance in
this account is the cumulative amount of depreciation that has been
recorded since the assets were acquired. The balance in the accumulated
depreciation account is deducted from the original cost of the assets
recorded in the property, plant, and equipment asset account. The
remainder, called the book value of the assets, is the amount included on
the asset side of a business.
bad debts
Refers to accounts receivable from credit sales to customers
that a business will not be able to collect (or not collect in full). In hindsight,
the business shouldn’t have extended credit to these particular
customers. Since these amounts owed to the business will not be collected,
they are written off. The accounts receivable asset account is
decreased by the estimated amount of uncollectible receivables, and the
bad debts expense account is increased this amount. These write-offs
can be done by the direct write-off method, which means that no
expense is recorded until specific accounts receivable are identified as
uncollectible. Or the allowance method can be used, which is based on
an estimated percent of bad debts from credit sales during the period.
Under this method, a contra asset account is created (called allowance
for bad debts) and the balance of this account is deducted from the
accounts receivable asset account.
capitalization of costs
When a cost is recorded originally as an increase
to an asset account, it is said to be capitalized. This means that the outlay
is treated as a capital expenditure, which becomes part of the total
cost basis of the asset. The alternative is to record the cost as an expense
immediately in the period the cost is incurred. Capitalized costs refer
mainly to costs that are recorded in the long-term operating assets of a
business, such as buildings, machines, equipment, tools, and so on.
income statement
Financial statement that summarizes sales revenue
and expenses for a period and reports one or more profit lines for the
period. It’s one of the three primary financial statements of a business.
The bottom-line profit figure is labeled net income or net earnings by
most businesses. Externally reported income statements disclose less
information than do internal management profit reports—but both are
based on the same profit accounting principles and methods. Keep in
mind that profit is not known until accountants complete the recording
of sales revenue and expenses for the period (as well as determining any
extraordinary gains and losses that should be recorded in the period).
Profit measurement depends on the reliability of a business’s accounting
system and the choices of accounting methods by the business. Caution:
A business may engage in certain manipulations of its accounting methods,
and managers may intervene in the normal course of operations for
the purpose of improving the amount of profit recorded in the period,
which is called earnings management, income smoothing, cooking the
books, and other pejorative terms.
inventory write-down
Refers to making an entry, usually at the close of a
period, to decrease the cost value of the inventories asset account in
order to recognize the lost value of products that cannot be sold at their
normal markups or will be sold below cost. A business compares the
recorded cost of products held in inventory against the sales value of the
products. Based on the lower-of-cost-or-market rule, an entry is made to
record the inventory write-down as an expense.
mark to market
Refers to the accounting method that records increases
and decreases in assets based on changes in their market values. For
example, mutual funds revalue their securities portfolios every day based
on closing prices on the New York Stock Exchange and Nasdaq. Generally
speaking, however, businesses do not use the mark-to-market method
to write up the value of their assets. A business, for instance, does not
revalue its fixed assets (buildings, machines, equipment, etc.) at the end
of each period—even though the replacement values of these assets fluctuate
over time. Having made this general comment, I should mention
that accounts receivable are written down to recognize bad debts, and a
business’s inventories asset account is written down to recognize stolen
and damaged goods as well as products that will be sold below cost. If
certain of a business’s long-term operating assets become impaired and
will not have productive utility in the future consistent with their book
values, then the assets are written off or written down, which can result
in recording a large extraordinary loss in the period.
backflush costing
a streamlined cost accounting method that speeds up, simplifies, and reduces accounting effort in an environment that minimizes inventory balances, requires
few allocations, uses standard costs, and has minimal variances
from standard
CASB
see Cost accounting Standards Board
Generally accepted accounting principles
The rules that accountants follow when processing accounting transactions and creating financial reports. The rules are primarily
derived from regulations promulgated by the various branches of the AICPA Council.
Write off
The transfer of some or all of the contents of an asset account into an expense
account upon the realization that the asset no longer can be converted into cash, can
be of no further use to the company, or has no market value.
Coverdell Education IRA
A form of individual retirement account whose earnings
during the period when funds are stored in the IRA will be tax free at the
time when they are used to pay for the cost of advanced education.
Completed-Contract Method
A contract accounting method that recognizes contract revenue
only when the contract is completed. All contract costs are accumulated and reported as expense
when the contract revenue is recognized.
Percentage-of-Completion Method
A contract accounting method that recognizes contract
revenue and contract expenses as progress toward completion is made.
Breeder bill of materials
A bill of material that accounts for the generation and
cost implications of byproducts as a result of manufacturing the parent item.
Assuris
Assuris is a not for profit organization that protects Canadian policyholders in the event that their life insurance company should become insolvent. Their role is to protect policyholders by minimizing loss of benefits and ensuring a quick transfer of their policies to a solvent company where their benefits will continue to be honoured. Assuris is funded by the life insurance industry and endorsed by government. If you are a Canadian citizen or resident, and you purchased a product from a member life insurance company in Canada, you are protected by Assuris.
All life insurance companies authorized to sell in Canada are required, by the federal, provincial and territorial regulators, to become members of Assuris. Members cannot terminate their membership as long as they are licensed to write business in Canada or have any in force business in Canada.
If your life insurance company fails, your policies will be transferred to a solvent company. Assuris guarantees that you will retain at least 85% of the insurance benefits you were promised. Insurance benefits include Death, Health Expense, Monthly Income and Cash Value. Your deposit type products will also be transferred to a solvent company. For these products, Assuris guarantees that you will retain 100% of your Accumulated Value up to $100,000. Deposit type products include accumulation annuities, universal life overflow accounts, premium deposit accounts and dividend deposit accounts. The key to Assuris protection is that it is applied to all benefits of a similar type. If you have more than one policy with the failed company, you will need to add together all similar benefits before applying the Assuris protection. The Assuris website can be found at www.assuris.ca.
Insured Retirement Plan
This is a recently coined phrase describing the concept of using Universal Life Insurance to tax shelter earnings which can be used to generate tax-free income in retirement. The concept has been described by some as "the most effective tax-neutralization strategy that exists in Canada today."
In addition to life insurance, a Universal Life Policy includes a tax-sheltered cash value fund that cannot exceed the policy's face value. Deposits made into the policy are partially used to fund the life insurance and partially grow tax sheltered inside the policy. It should be pointed out that in order for this to work, you must make deposits into this kind of policy well in excess of the cost of the underlying insurance. Investment of the cash value inside the policy are commonly mutual fund type investments. Upon retirement, the policy owner can draw on the accumulated capital in his/her policy by using the policy as collateral for a series of demand loans at the bank. The loans are structured so the sum of money borrowed plus interest never exceeds 75% of the accumulated investment account. The loans are only repaid with the tax free death benefit at the death of the policy holder. Any remaining funds are paid out tax free to named beneficiaries.
Recognizing the value to policy holders of this use of Universal Life Insurance, insurance companies are reworking features of their products to allow the policy holder to ask to have the relationship of insurance to investment growth tracked so that investment growth inside the policy may be maximized. The only potential downside of this strategy is the possibility of the government changing the tax rules to prohibit using a life insurance product in this manner.
External Financial Statements
Corporate financial statements that have been reported on by an external independent accountant.
Interest Option
One of several investment accounts in which your premiums may be invested within your life insurance policy.
Variable Annuity
A form of annuity policy under which the amount of each benefit is not guaranteed or specified. The amounts fluctuate according to the earnings of a separate investment account.
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