Glossary of Accounting Terms

ACCOUNTS PAYABLE Specific obligations (liabilities) to outside vendors.

ACCOUNTS PAYABLE VOUCHER (APV) A sequentially numbered voucher supporting payment for goods and/or
services purchased and with the appropriate accounting distribution.
ACCRUAL BASIS An accounting convention which requires the recording of
revenues/expenses in the period when earned/incurred rather than in
the period when received/paid.
ACQUISITION COST The cash or cash equivalent value exchanged to acquire goods or
services and have them available for use.
ACTUAL COST Cost incurred in the current manufacturing period. For example, actual
material cost is actual pounds consumed times actual average unit
price.
ALLOCATION Assigning costs or revenues according to benefits received,
responsibilities, or other logical base.
AMORTIZE To charge off a portion of the cost of an asset over its useful life. Also,
to retire an expense over a period of time.
APPROPRIATION REQUEST Medium through which capital expenditures are authorized to a
specified dollar ceiling.
BOOK INVENTORY Sometimes called a perpetual or running inventory. A continuous
record of the amount of materials and goods on hand.
BUDGET VARIANCE The difference between the actual amount incurred and the budgeted
amount.
BUDGETED COST Dollars approved by Management indicating the expected expenditure
required to operate during a given period under assumed conditions.
CAPACITY Physical volume, which an installation is capable of producing.
Capacity terms such as "Practical", "Theoretical", "Name-plate", etc.
have special meaning.

CLOSING DATE (CUT-OFF)
CONTRIBUTION APPROACH
CONTRIBUTION MARGIN
CONTROLLABLE COST
CONTROLLING ACCOUNT
CONVERSION COST
COST CENTER
COST LEDGER
COST OF MANUFACTURE
COST OF SALES
COST SHEET
Last date that data will be accepted for entry into the current month's
accounting records.
A method of preparing income statements, which separates variable
costs from, fixed costs to emphasize the importance of cost behavior
patterns for purposes of planning and control.
Excess of sales price over variable cost. Also called marginal income.
May be expressed as a total, as a ratio, or on a per-unit basis.
A cost, which may be directly regulated at a given level of managerial
authority, either in the short run or in, the long run.
An account containing primarily totals of a series of transactions, the
detail of which appears in a subsidiary ledger or its equivalent. Its
balance equals the sum of the balances of the detail accounts.
(Reconciliation between subsidiary and controlling account is
required).
The total Cost of Manufacture excluding direct materials cost.
The smallest unit of activity or area of responsibility for which costs are
accumulated.
A subsidiary ledger containing accounts used in computing or
summarizing the Cost of Manufacture.
Cost charged to a semi-finished or finished product inventory. It
includes all material, labor and overhead directly related to the
manufacturing processes, or related to the facilities used in producing
the product.
Aggregate of Cost of Goods Sold, Period Expense-Other, Selling
Expense, Research and Development Expense, Finished Product
Distribution Expense, Departmental Management Expense, Corporate
Administrative Expense, Interest Expense, Exchange Gains/ Losses,
etc.
Monthly statement summarizing the elements of production costs and
 Glossary of Accounting Terms
units produced and charged into each semi-finished and finished
product inventory.
CROSS ENTRY VOUCHER (CEV) A document used to record entries from one sub-account to another
sub-account within the same general ledger account. Mill Entry Voucher
(MEV) serves the same purpose.

DAYS SALES OUTSTANDING
DEFERRED CHARGE
DEPARTMENTAL EARNINGS
STATEMENTS
A measure of accounts receivable investment in terms of current and
prior months' average daily sales, which remain unpaid (outstanding) at
month end.
An expenditure not recognized as a cost of operations of the period in
which incurred but carried forward to be reflected as an expense in one
or more future periods.
Management reports produced monthly for each industrial department
by Accounting Services Section. Statements reflect U.S., European and
Latin America/Asia Pacific (OTE) operations for each significant product
group sold or transferred by the industrial department on a worldwide
basis.

DEPRECIATION The amortization of the original capitalized cost of plant, property, and
equipment to the particular periods and/or products that benefit from the
utilization of assets. This charge recognizes the decline in value of
assets due to wear and obsolescence based on their expected useful
life.
DIRECT COST Any cost that is directly identifiable with a product or operation; generally
excludes any allocated or distributed costs.
DIRECT COSTING Method of accounting which assigns only variable production costs to
inventories. Fixed costs, which are considered a function of time rather
than production, are recognized in the period in which they were
incurred without assigning them to specific units produced.
DIRECT LABOR All operating labor, which is directly related and specifically and
conveniently traceable to specific products.
DISCOUNTED CASH FLOW A method of adjusting cash flows for the time value of money using such
techniques as internal rate of return (IRR) or net present value (NPV).
DISTRIBUTIVE (COMMON AREA) Accounts set up to accumulate indirect or common costs, which will later
ACCOUNTS be distributed on an equitable basis to the direct accounts they serve.
DOMESTIC SALES Sale of Company products or services to customers in the United
States, District of Columbia, and U.S. Possessions (e.g., Puerto Rico).
DOMESTIC TRANSFERS "Sale" of a department's products or services to another department or
domestic subsidiary in the United States, District of Columbia, and U.S.
Possessions (e.g., Puerto Rico).
EFFICIENCY VARIANCE Use variance applied to labor and variable overhead.
EMPLOYEE BENEFITS Fringe benefits, such as hospitalization, pension, FICA, vacation pay,
etc., borne by the Company.
EXPENSE VARIANCE Difference between actual and standard expense for the actual mix and
volume attained.
EXPORT SALES Sales of Company products or services to customers outside the United
States, District of Columbia, and U.S. Possessions (e.g., Puerto Rico).
FINANCIAL ACCOUNTING STANDARDS The professional rule-making body, which has primary responsibility for
BOARD (FASB) setting financial, accounting and reporting standards by business
enterprises in the United States.
FINISHED PRODUCT DISTRIBUTION The cost of those functions directly related to the movement and storage
EXPENSE of finished product between the time it is packaged at the end of the
production line and the time it is delivered to the customers facility,
including allocation of directly related overhead and management
expenses.
FIXED ASSET VOUCHER (FAV) A document used to record changes to the Company's permanent
 Glossary of Accounting Terms
investment and related depreciation reserve.
FIXED COST Costs that tend to remain constant for a period of time and within a
relevant range of activity (rent, property tax, etc.)
FIXED VALUE INVENTORIES Inventories which are valued at each physical inventory by pricing out
the existing inventory at its current replacement price. Interim purchases
are charged to cost.
FLEXIBLE BUDGET A set of different budgets indicating costs to be incurred at different
levels of operations. The flexible budget enables one to compare actual
results to results expected at a specific level of operations.
FREE ISSUE Refers to the practice of charging certain stores items to Cost of
Manufacture rather than to inventory when received.
FREIGHT-IN Freight paid on incoming shipments, treated as an element of cost of
goods or materials received.
FREIGHT-OUT Freight paid or allowed by the seller on shipments to customers.
GENERAL LEDGER The Company's principal record of asset, liability (including stockholders'
equity), revenue, and expense accounts.
GENERAL LEDGER TRIAL BALANCE A statement containing all general ledger account balances at a certain
date.
GENERALLY ACCEPTED ACCOUNTING The body of accounting rules, methods, and procedures, which is
PRINCIPLES (GAAP) sanctioned by the accounting profession, either by convention or by the
authoritative literature, as a guide to the preparation of financial
statements.
GROSS BOOK VALUE The recorded value of an item of permanent investment, generally
comprised of bare equipment value, installation cost, and an appropriate
share of project distributives (overhead, etc.), before deduction of
accumulated depreciation.
GROSS MARGIN Sales less variable costs. (Also known as Marginal Income.)
HISTORICAL COST Cost incurred at the time of acquisition.
INDIRECT COST An allocated or distributed cost not attributed to the production of
specific goods or services but to an activity associated with production.
INDIRECT LABOR COST Labor costs which do not affect the construction or composition of a
product but are incident to and necessary for production, i.e., workers
employed in service departments or jobs (janitors, watchmen).
INVENTORY Raw materials, stores, finished and semi-finished goods on hand, in
transit, in storage, or consigned to others at the end of an accounting
period and owned by the Company.
INVENTORY CONTROL An approach to assuring the effective and efficient acquisition and use
of inventory through the systematic employment of accounting
documents and a physical review of a plant and its distribution
operations.
INVENTORY "CUT OUTS" Trial Balance reclassifications of balances out of plant inventory
accounts to Prepaid Expenses, Construction, Accounts Payable, etc.
INVOICE (SALES) A document showing the description, quantity, price, terms, nature of
delivery, and other particulars of goods sold or of services rendered.
JOB COST SHEET The detailed record for the accumulation of job costs; e.g. the material,
labor and overhead cost incurred on a job or specific production.
JOURNAL ENTRY VOUCHER (JEV) A document used to record transactions between accounts in the
Company's general ledger.
LABOR RATE VARIANCE The difference between actual wage rate and standard wage rate
multiplied by the actual hours of direct labor used.
LIABILITY A probable future sacrifice of economic benefits arising from a present
obligation to transfer assets or provide services to an outside party in
the future as a result of past transactions or events.
LIFO (LAST-IN, FIRST-OUT) A method of inventory valuation and costing based on the flow of costs
theory. It assumes that earliest-acquired stock is still on hand, and the
latest-acquired stock is assume to have been used immediately. It
 Glossary of Accounting Terms
MAINTENANCE
MATERIAL PRICE VARIANCE
MATERIAL QUANTITY
MILL ENTRY VOUCHER (MEV)
NET BOOK VALUE
NET REALIZABLE VALUE
NEW VENTURE DEVELOPMENT
OPERATING/SERVICE SPARES
OTHER ACCRUED LIABILITIES (O.A.L)
OUT-OF-POCKET COST
OVERAPPLIED OVERHEAD
PACKAGING MATERIAL
PERIOD EXPENSES
PERPETUAL INVENTORY ACCOUNT
PHYSICAL INVENTORY
PHYSICAL LIFE
attempts to match current costs of obtaining inventory against current
revenues.
Expenditures necessary to achieve the originally anticipated useful life
of a fixed asset. Maintenance is concerned with restoration or
prevention of destruction of parts that deteriorate faster than the whole
property unit.
The difference between the actual unit price for materials and the
established standard unit price multiplied by the actual number of units
acquired (or used in production).
The difference between the actual unit usage VARIANCE of parts and
materials and the established standard unit usage multiplied by the
standard unit price.
The document used to record entries between one sub-account and
another sub-account within the same general ledger account. Cross
Entry Voucher (CEV) serves the same purpose.
Gross book value less associated depreciation reserve.
Value obtained by deducting from actual current inventory sales price
the related Selling and Finished Product Distribution Expense, cash
discounts, volume discounts, trade discounts and any further processing
costs.
Development of new products or processes with the objective of
commercializing new business ventures. Charges are expensed in the
period incurred.
A normal complement of items of equipment, regardless of cost, with a
useful life in excess of 24 months kept in the operating area to retain
normal flexibility of the equipment served and to meet changes in
production schedules, or where it is the intent and purpose to rotate the
item with like equipment in the operation for cleaning, adjusting,
resurfacing, refurbishing, etc.
Includes (1) reserves for taxes other than Federal and State taxes on
income, (2) liability to customers for outstanding returnable containers,
(3) accrued but unpaid payroll, (4) accrued vacation pay, (5) accrued
sales freight, royalties and interest payable on Notes and Debentures,
and (6) a variety of reserves where a liability is known to exist and which
is properly applicable to current cost but where a substantial future
expenditure will be made, e.g., boiler repairs, maintenance shutdowns,
product warranties, etc.
The cash cost associated with a course of action.
The amount by which overhead cost distributed to products exceeded
actual overhead cost incurred.
Any material used to protect, restrain, or support one or more packages.
Some examples of packaging material are: wrapping film, polyethylene
bags, corrugated boxes, and cans.
Period expenses are not part of the manufacturing process, and are
recorded as either Period Expense - Other (e.g., Pre operating and
Start-Up Expenses) or Wilmington/Departmental Expenses.
Departmental expenses are those expenditures incurred by an industrial
department related to administration, marketing, distribution and
research functions of the business.
A book inventory kept in continual agreement with stock on hand by
physical quantities. The inventory dollar balance results from the method
of valuation applied to inventory quantities.
A physical count (or other physical measure) of all inventories on hand.
This verifies the book balance and is usually done on an annual basis.
An estimate of the period over which an asset will maintain its functional
capacity.
 Glossary of Accounting Terms
PLANT COST STATEMENT Statement prepared by the plant monthly, summarizing the cost of an
organization, function, service, activity, product or center.
POWER COST (UTILITIES) Cost includes materials (purchased electricity, fuel, coal, water, etc.),
labor, and other applicable expenses related to generation or
procurement of electricity, steam, etc.
PRECIOUS METALS An inventory or permanent investment classification consisting of gold,
silver, platinum and other precious metals used as catalysts,
ingredients, and laboratory and process equipment.
PREDETERMINED OVERHEAD RATE A rate used to apply overhead to specific situations; e.g., projects. It is
obtained by dividing the expected overhead costs by the chosen base;
e.g., units produced, labor dollars, etc.
PREOPERATING EXPENSES Costs associated with new and/or expanded commercial facilities,
incurred before facilities are essentially complete and capable of
producing acceptable product.
PREPAID EXPENSES Unabsorbed costs and prepayments.
PRICE VARIANCE Actual quantity purchased or consumed times the difference between
actual and standard unit prices. Or actual vs. forecast or actual vs. prior
period price comparisons.
PROCESS COSTING A method of cost accounting whereby costs (either actual or standard)
are charged to process operations and averaged over units produced. It
is usually used when there is continuous mass production of like units
that pass in consecutive order through a series of production steps.
PROCESS STEP One or more production units that perform an identifiable function within
a cost center, i.e., grinder, evaporator, digester, etc. A cost center may
have one or more process steps.
PRODUCT COST Total of all production costs directly or indirectly related to products used
to determine product inventory value.
PROFIT CONTRIBUTION Sales less variable costs. Also called Contribution Margin.
PROFIT MARGIN The percentage obtained by dividing earnings by sales and transfers.
RATE VARIANCE Total actual hours of direct labor used times the difference between
actual and standard wage rates paid.
RECONCILIATION 1) The determination of the items necessary to bring the balances of two
or more related accounts or statements into agreement. 2) A statement
of the details of the difference between any two or more accounts.
RESERVE RATIO (DEPRECIATION) The percentage ratio of cumulative depreciation accruals to the related
gross permanent investment.
RESPONSIBILITY ACCOUNTING A system of reporting, which is tailored to an organizational structure so
that costs and revenues are reported at the level having the related
responsibility within the organization.
SALES MIX VARIANCE The variance due to a change in actual versus forecast sales pattern
when products have varying price and/or profit ratios.
SALES VOLUME VARIANCE Difference due to changes in actual and forecast sales volume.
SALVAGE VALUE The cash inflow expected from the sale of materials, permanent
investment, etc., which are no longer useful to the Company.
SAMPLING A method of forming an opinion about a group of items on the basis of
an examination of fewer than all of the items, with or without the use of
mathematical procedures.
SATELLITE STORES (SUBSTORES) Small collections of stores and operating supplies outside the Central
Stores location.
SELLING EXPENSE The cost incurred in promotion and consummation of sales of finished
products and certain services to customers and non-consolidated
affiliated companies. Examples include direct selling effort, advertising,
technical services, travel expenses, product samples, etc.
SEMIVARIABLE COST An item of labor or indirect expense that varies, but not proportionately,
with quantities produced. The costs increase stepwise as volume
increases.
 Glossary of Accounting Terms
SHUTDOWN COST All costs and expense directly associated with the decision to terminate
operations, such as, severance pay, dismantlement and
decontamination costs.
SPENDING VARIANCE Difference between actual and standard overhead expense based on
actual volume.
STANDARD COST A forecast of the cost of performance, which should be attained under
projected conditions as determined by reasonable estimates or
engineering studies.
STANDARD COST SYSTEM An accounting technique whereby costs are recorded on the basis of
predetermined standards while deviations from such standards are
identified separately for analysis and control.
STANDBY COST Cost of maintaining facilities in a standby condition at zero production
volume awaiting return to normal operations or disposition.
START-UP EXPENSES That portion of production costs incurred during the start-up of new or
expanded facilities representing the cost of excess capacity or abnormal
yields not used in production of acceptable product.
STORES Inventories of maintenance materials, supplies, small parts, etc., that
normally do not become an integral part of the finished product.
Examples are pipe and fittings, electrical supplies, lumber.
SUBSIDIARY LEDGER A ledger consisting of a group of accounts showing the detail which
supports a control account in the general ledger.
SUBSTORES Small collections of stores operating supplies not on perpetual inventory
system, located at points in the plants other than Central Stores. Sub
stores are valued annually at time of physical inventory.
TRANSFER PRICE The price at which goods and services are transferred within the
Company.
TRANSFERS Represent "sale" of products between (1) profit centers, (2) industrial
departments, (3) parent Company and consolidated subsidiaries, and
(4) consolidated subsidiaries.
Domestic Transfers - Sale of an industrial department's products or
services to another industrial department within the U.S. or trust
territories.
Export Transfers - Sale of parent Company products or services to a
foreign consolidated subsidiary.
Intracompany - Transactions by departments within the same company.
Intercompany - Represents products manufactured by one company
and sold to another company, generally at market value, between parent
Company and consolidated subsidiaries and between consolidated
subsidiaries.
TRANSPORTATION CHARGES The cost of freight, handling charges, etc., relating either to goods,
which are purchased, in process, or sold.
UNBILLED SHIPMENTS Those products shipped to customers but for which billing has not been
rendered.
UNDERAPPLIED OVERHEAD The amount of overhead cost incurred in excess of the amount of
overhead cost applied.
UNIT COST Total cost of production divided by units produced.
UNREALIZED TRANSFER PROFIT (UTP) A department or subsidiary's profit on the transfer of products to another
department/ subsidiary, which is not realized by the consolidated entity
until products are sold to outside parties.
USE (EFFICIENCY) VARIANCE Difference between actual quantities used and standard quantities
allowed for the number of good units produced times standard unit price.
VARIABLE COST Costs directly and indirectly related to and variable with levels of
production (e.g., materials, operating labor, direct power, etc.) which
would not be incurred if the operation did not exist. Sometimes called
out-of-pocket, marginal, or incremental costs.