The Cost Method is an accounting technique used by a parent company for investments in subsidiary companies, particularly when ownership is less than 20% of the outstanding voting common stock.
The traditional method of measuring fixed assets where they are valued at their historical cost less accumulated depreciation, with an alternative being the revaluation model.
A cost object is any item for which a separate measurement of costs is desired, including products, services, customers, or specific operations.
A cost objective is the budget limit set for an activity, task, or project, intended to constrain spending within predefined financial boundaries to ensure financial discipline and project feasibility.
The cost of capital is the return, expressed in terms of an interest rate, required by an organization to finance its activities. It can vary depending on the types of capital employed, such as equity share capital or loan capital. A unique weighted average cost of capital (WACC) is often computed for each organization based on their specific mix of capital sources. The cost of capital is frequently used as a hurdle rate in discounted cash flow calculations.
Cost of carry refers to the expenses associated with holding a particular asset over a period of time, which can include storage costs, insurance, and financing.
The effective overall rate of interest that a company pays on its loans, bonds, and other debts, used in calculating the total cost of capital for that firm. This is usually calculated as an after-tax figure.
The rate of return that a company's shareholders expect for holding stock in that company, used as part of the calculation of the total cost of capital for a firm. It represents the opportunity cost to investors of holding shares. The cost can be calculated by a formula dividing dividends per share by the current market value and adding the dividend growth rate.
Cost of funds refers to the interest cost paid by a financial institution for the use of money, including various liabilities such as money market accounts, passbook savings accounts, and CDs.
The Cost of Goods Manufactured (COGM) represents the total production cost of finished goods transferred from a production facility to inventory over an accounting period.
An essential metric in accounting, Cost of Goods Sold (COGS) represents the direct costs associated with the production of goods sold by a company. This value is critical in determining the business's gross profit and provides insights into the efficiency and cost management of production processes.
Cost of Goods Sold (COGS) represents the direct costs attributed to the production of goods sold by a company. COGS include the cost of materials, direct labor, and manufacturing overhead.
The total costs incurred to ensure good quality or rectify poor quality. By enhancing quality, managers can reduce costs and boost profits. These costs are categorized into prevention, appraisal, internal failure, and external failure costs.
A key financial metric representing the direct costs to an organization of supplying goods or services, used to calculate gross profit by deducting this figure from sales revenue.
Cost of Sales Adjustment (COSA) refers to modifications made to the cost of goods sold (COGS) to reflect changes in inventory levels, obsolescence, shrinkage, or other factors that may affect the reported cost of sales.
Cost of Sales Adjustment (COSA) refers to an adjustment made to the trading profit of an organization due to a holding gain on the cost of sales, commonly within the framework of current-cost accounting.
A cost overrun occurs when the actual cost of a project exceeds the project budget, requiring additional funding to cover the shortfall. This situation necessitates revisiting financial planning and resource allocation.
A cost pool is an accounting term referring to a grouping of individual costs typically by department or service center. These groupings are used to allocate and better manage indirect costs.
Cost prediction involves forecasting future cost levels based on historical cost behavior using various statistical techniques, such as linear regression, to inform budgeting, decision-making, and strategic planning.
Cost Records refer to documents that provide evidence of the prices at which investments were purchased or the costs incurred in producing goods, providing services, or supporting activities. These records are essential for calculating capital gains and substantiating financial performance.
Cost segregation is the process of accurately classifying assets for federal tax depreciation, which can result in significant tax savings for businesses. This process involves a professional and supportable analysis of the property to separate faster depreciable assets.
A cost sheet is a form used in costing to collect and present all the costs associated with a service, product, process, or cost center, often for management analysis or use in a costing system.
A predetermined level of cost expected to be incurred by a specific cost item in the supply, production, or operation of a service, product, process, or cost centre. Cost standards are often applied to performance standards in order to calculate standard overhead costs.
Cost tracing refers to the process of directly associating costs with specific cost objects such as projects, departments, or products, ensuring more accurate tracking of financial performance.
A cost unit represents a unit of production for which costs are aggregated. It can vary from a single item like a chair or light bulb to a sub-assembly in more complex products like an aircraft wing or gearbox. In cases where individual unit costs are minimal, cost units might be expressed as batches.
Cost-Benefit Analysis is a technique used in capital budgeting that evaluates the estimated costs against the expected benefits of a proposed investment.
Cost-effectiveness refers to the ability to generate sufficient value to offset the associated costs of an activity. In a business context, this value is often interpreted as revenue.
A Cost-of-Living Adjustment (COLA) is an increase in income that keeps up with the cost of living. It is typically used in wage contracts, pensions, social security benefits, and other financial agreements to counteract inflation.
A COLA is an adjustment in wages or benefits intended to offset changes in the cost of living, typically indexed to metrics such as the Consumer Price Index (CPI).
The Cost-of-Living Index is a tool that measures the relative cost of living over time or between different locations. It is typically used to compare the expense required to maintain a certain standard of living across various cities or countries.
A cost-plus contract is an agreement where a supplier is reimbursed for all costs incurred in generating a product or service, plus a specified profit margin. This form of contract is commonly used in situations with unpredictable costs or projects requiring substantial research.
A method to establish the selling price of a product or service by estimating the total cost and adding a percentage mark-up to achieve a profitable price.
Cost-plus transfer prices are set by cost-plus pricing, which includes a mark-up to provide a profit for the supplying division. This method incorporates variable costs and fixed costs for the purpose of setting a transfer price that includes a profit margin.
An agreement on a construction project where the contractor earns a specified percentage profit over the actual costs incurred. This contract type is considered suboptimal due to reduced incentives for cost control. An alternative approach is the cost-plus-fixed-fee contract.
A type of inflation caused by increasing prices, typically resulting from rising costs of production inputs such as raw materials and wages.
Cost-Volume-Profit (CVP) Analysis helps businesses understand how changes in costs and volume affect a company's operating income and net income, providing critical insights for decision-making in financial planning and strategy.
Cost-Volume-Profit (CVP) analysis is a method used by businesses to understand the inter-relationships between cost, volume, and profit. It helps in decision-making by determining the break-even point, analyzing the profit potential of a company, and evaluating the impact of different levels of sales and production.
The cost per unit of production that a firm sustains at varying levels of output.
Cost, Insurance, and Freight (CIF) is a trade term used in international shipping to indicate that the seller covers the cost, insurance, and freight charges up to the destination port.
A costing method is a practice that organizations use to value and allocate costs associated with producing goods or services. The choice of costing method can significantly impact the financial reporting and management decision-making processes of a business.
Techniques and procedures in cost accounting and management accounting to obtain the costs of services, products, processes, and cost centers for decision making, planning, and control.
Costing principles are the fundamental guidelines that direct how costs are recorded and reported in management accounting, ensuring that financial data is accurate and useful for decision making.
A cottage industry is a system of production where goods are manufactured by artisans or workers at their homes rather than in factories. These are often small-scale and involve manual or semi-mechanized operations.
An expert group of economists appointed by the President of the United States to provide counsel on economic policy.
Council tax is a UK local government tax applied based on property valuation, replacing the community charge in 1993–94. It includes various rebates and exemptions depending on occupancy and income.
Counsel refers to an attorney or legal adviser who provides advice or aid concerning legal matters. Counsel can represent clients in court, offer legal opinions, and guide individuals and businesses through legal complexities.
The term 'counselor' is frequently used interchangeably with 'attorney' or 'lawyer' and refers to a professional who offers legal and financial advice. Additionally, counselors may provide services for specific loan programs and advise on financial matters.
A counterclaim is a counter demand made by a defendant against the plaintiff. It is not merely an answer or denial of the plaintiff's allegations; rather, it asserts an independent cause of action in favor of the defendant.
Government economic policies designed to dampen the effects of the business cycle, such as the Federal Reserve Board's action during the early 1980s inflation to raise interest rates and reduce demand.
Counterfeit refers to items or documents that are forged, imitated, or fabricated without authorization, usually with the intent to deceive and pass the imitation off as genuine.
Countermand refers to the action of revoking or retracting a previous order by issuing a new and contradictory directive. It is commonly used in various business contexts where changes in instructions or decisions are needed promptly.
A counteroffer is the rejection of an original offer to buy or sell along with a simultaneous substitute offer. They are commonly encountered in various transactions, particularly in real estate, where factors other than price might be negotiated.
Countervailing credit, often referred to as back-to-back credit, is a form of financing used in international trade that involves two separate but interdependent letters of credit. This type of credit is typically established by an intermediary in trade transactions to facilitate complex trade processes.
Country risk refers to the potential financial losses that can arise when conducting transactions or holding assets in a foreign country due to political or economic instability.
Country screening involves using countries as the basic unit of analysis for market evaluation, allowing businesses to identify the most favorable markets for their products or services.
A coupon can refer to several aspects in the context of bonds, including the dated slip attached to a bond for interest payment collection, the rate of interest paid by a bond, or a general term for certain bonds and notes in the US Treasury markets.
A bond issued with detachable coupons that need to be presented to a paying agent or the issuer to receive semiannual interest payments. These are bearer bonds, meaning the interest is payable to whoever holds the coupon.
The Coupon Collector's Problem is a classic example in probability theory concerning how many trials are expected to collect all possible outcomes. This can be represented by the process of collecting coupons, each of which represents a unique outcome in a finite sample space.
Coupon stripping is a financial process in which the coupons are stripped off a bearer security and then sold separately as a source of cash, with no capital repayment; the bond, bereft of its coupons, becomes a zero coupon bond and is also sold separately.
Couponing is an advertising method where vouchers are distributed to consumers allowing discounts on merchandise or service purchased within a stated period of time. Couponing provides an incentive for increasing sales.
A court bond, also known as a judicial bond, is a form of surety bond that ensures compliance with a court's orders and protects against potential financial losses from legal proceedings.
A court that is required by law to maintain a record of its proceedings, including orders and judgments, and has the authority to imprison and levy fines.
Covariance is a statistical measure that indicates the extent to which two variables change together. A positive covariance suggests that the variables tend to increase or decrease in tandem, whereas a negative covariance indicates that as one variable increases, the other tends to decrease.
A covenant is a legally-binding promise made in a deed that can be enforced as a contract. It often involves agreements or restrictions related to financial obligations or land use.
A covenant not to compete is a contractual promise to refrain from conducting business or professional activities similar to those of another party, found primarily in employment, partnership, or sale of a business contracts.
The term 'cover' has multiple meanings in finance and corporate terms, commonly associated with buying back shorted positions, meeting fixed financial obligations, and the net-asset value supporting a security.
A Coverdell Education Savings Account (ESA) is a type of Individual Retirement Account (IRA) designed to help parents save for their child's education expenses. These accounts allow for tax-free growth and withdrawals for qualified education expenses.
A Coverdell Education Savings Account (ESA) is a tax-advantaged investment account designed to encourage savings for future education expenses. It can be established for a beneficiary under the age of 18, and the savings can be used for qualified education expenses from elementary through higher education.
A covered option is a type of option contract that is backed by the shares underlying the option. It involves the holder of the option also owning the equivalent amount of the underlying shares, reducing the risk compared to naked options.
CPA can stand for multiple terms including Certified Public Accountant, Critical-Path Analysis, and Customer Profitability Analysis. Each of these has specific implications in fields ranging from accounting to project management and customer relations.
A cracker is an individual who breaks into computer systems via the Internet and uses them without authorization, often with malicious intent.
A Craft Union is a union of skilled tradespeople sharing comparable trade skills. These unions are often organized locally and may be affiliated with larger organizations such as the AFL-CIO. An industry-wide union, such as the United Auto Workers or United Steelworkers, represents the opposite structure.
In bankruptcy, a cram down refers to the reduction of various classes of debt to a lower amount. It allows a bankruptcy reorganization plan to be confirmed even if some creditor classes vote against it, provided the plan is fair and equitable and does not unfairly discriminate against any dissenting class.
A rapid and significant decline in stock prices or economic activity, or a catastrophic hardware or software failure in data processing systems.
A crawler, also known as a spider, is a computer program that automatically navigates the World Wide Web (WWW) and collects information for various purposes such as indexing for search engines.
Creative accounting involves the use of accounting practices and principles that adhere to the letter of the rules of standard accounting practices but deviate from the spirit of those rules. This kind of accounting presents company financial performance in an overly favorable light, often inflating profits and hiding liabilities.
An annual two-volume worldwide directory of creative suppliers such as photographers, illustrators, directors, production facilities, and photofinishers, sometimes referred to as the 'Black Book.' The Creative Black Book sells advertising space on an annual basis.
Creative destruction is a free-market concept popularized by economist Joseph Schumpeter that holds economic progress results from entrepreneurial innovation, inevitably leading to the destruction of established businesses that become obsolete.
Any financing arrangement other than a traditional mortgage from a third-party lending institution. Creative financing devices include loans from seller, balloon-payment loans, wraparound mortgages, assumption of mortgage, sale and lease-backs, land contracts, and alternative mortgage instruments.
Credit is a financial term that refers to the ability to borrow money or access goods or services with the understanding that you'll pay later. It encapsulates various arrangements and concepts within personal and corporate finance. Credit influences numerous aspects of the economy, from individual purchasing power to corporate financial strategies.
A term used in accounting to indicate an entry made on the right-hand side of an account ledger, typically representing a decrease in assets or an increase in liabilities and equity.
A credit analyst is a professional responsible for evaluating the financial affairs of individuals or corporations to determine their creditworthiness. They assess the risk associated with lending and determine credit ratings.
A credit balance is an accounting term that refers to the situation where the total of credit entries in an account exceeds the total of debit entries. These balances typically represent revenue, liabilities, or capital.
A private organization that maintains consumer credit data files and provides credit information to authorized users for a fee.
Credit bureau scores are numerical expressions based on a statistical analysis of a person's credit files, representing the creditworthiness of that individual.
A credit card is a plastic card issued by a bank or finance organization allowing the holder to make purchases in shops, hotels, restaurants, petrol stations, etc., on credit.
Legislation designed to curb fees, interest rate increases, and other abusive practices by credit card companies. The legislation went into effect fully in February 2010.
Credit control is a system used by organizations to ensure their outstanding debts are paid within a reasonable period, involving the establishment of a credit policy, assessment of clients' credit rating, and the management of overdue accounts.
A period during which lenders are unwilling to extend credit to borrowers. The term is particularly associated with the period beginning in late 2007, when the previous era of 'easy credit' came to a sudden end in the wake of the subprime lending fiasco.
A Credit Default Option (CDO) is an option that grants the holder the right, but not the obligation, to enter into a credit default swap at a predetermined price on a specified future date. It is a form of swaption and is used to hedge against credit risk.
A Credit Default Swap (CDS) is a financial derivative that allows an investor to 'swap' or offset their credit risk with that of another investor.
A financial derivative that functions like an insurance contract where one party pays periodic fees in exchange for compensation in the event of default by a third party, known as the reference entity.
A credit default swap (CDS) is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor. The buyer of a CDS makes periodic payments to the seller and, in return, receives a payoff if the underlying financial instrument defaults.
A financial instrument where the payoff is linked to the credit rating or payment performance of the underlying asset, involving various structures such as unfunded and funded derivatives.
Credit enhancement involves various techniques to improve the credit rating of asset-backed securities, either through internal measures by the issuer or external methods such as third-party guarantees.
A credit entry is made on the right-hand side of an account, representing an increase in a liability, revenue, or equity item, or a decrease in an asset or expense.
A comprehensive record of an individual's debt repayment behaviors and actions, utilized by lenders to evaluate creditworthiness.
A credit limit refers to the maximum balance that a credit card issuer allows a customer to borrow on their credit card. It is a fundamental aspect of credit management and determines the extent of a cardholder's purchasing power.
A credit line, also known as a line of credit, refers to a pre-approved loan amount that a borrower can draw upon as needed and repay either immediately or over time. It is commonly used for short-term borrowing needs.
A Credit Note is a financial document issued by a seller that reduces the amount payable by a customer, typically issued when goods are returned or an overcharge needs correction.
