Definitions of Terms

A-F

Accounts receivable

Amounts due from customers for goods or services provided in the normal course of business operations.

Aging the accounts

Procedure for the computation of the adjustment for uncollectible accounts receivable based on the length of time the end-of-period outstanding accounts have been unpaid.

Amortized cost of financial asset or financial liability

The amount at which the asset or liability was measured at original recognition, minus principal repayments, plus or minus the cumulative amortization of any premium or discount, and minus any write-down for impairment or uncollectibility.

Assignment

Formal procedure for collateralization of borrowings through the use of accounts receivable. It normally does not involve debtor notification.

Available-for-sale financial assets

Those financial assets that are not held for trading or held to maturity, and are not loans and receivables originated by the entity.

Carrying amount (value)

For marketable equity securities, this is fair value (unless there is no available market value, in which case it is historical cost).

Cash_1

Coins and currency on hand and balances in checking accounts available for immediate withdrawal.

Cash equivalents_1

Short-term, highly liquid investments that are readily convertible to known amounts of cash. Examples include treasury bills, commercial paper, and money market funds.

Control

The power to obtain the future economic benefits that flow from an asset.

Credit risk

Possibility that a loss may occur from the failure of another party to perform according to the terms of a contract.

Current assets

Assets that are reasonably expected to be realized in cash or sold or consumed within a year or within the normal operating cycle of the entity.

Derecognize

Remove a financial asset or liability, or a portion thereof, from the entity's balance sheet.

Derivative

A financial instrument (1) whose value changes in response to changes in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or similar variable (which is known as the underlying), (2) that requires no initial net investment or little initial net investment relative to other types of contracts that have a similar response to changes in market conditions, and (3) that is settled at a future date.

Effective interest method

The means of computing amortization using the effective interest rate of a financial asset or liability. The effective interest rate is the rate that exactly discounts the expected stream of future cash payments through maturity or the next market-based repricing date to the current net carrying amount of the asset or liability. The computation includes all fees and points paid or received between parties to the contract.

Equity instrument

Any contract that evidences a residual interest in the assets of an enterprise after deducting all its liabilities.

Factoring

Outright sale of accounts receivable to a third-party financing entity. The sale may be with or without recourse.

Fair value

Amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm's-length transaction.

Financial asset

Any asset that is

1. Cash

2. A contractual right to receive cash or another financial asset from another enterprise

3. A contractual right to exchange financial instruments with another enterprise under conditions that are potentially favorable

4. An equity instrument of another enterprise

Financial asset or liability held for trading

One which is acquired or incurred principally for the purpose of generating a profit from short-term fluctuations in price or dealer's margin. Regardless of why acquired, a financial asset should be denoted as held-for-trading if there is a pattern of short-term profit-taking by the entity. Derivative financial assets and liabilities are always deemed held-for-trading unless designated and effective as hedging instruments.

Financial instrument

Any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.

Financial liability

Any liability that is a contractual obligation (1) to deliver cash or another financial asset to another enterprise, or (2) the obligation to exchange financial instruments with another enterprise under conditions that are potentially unfavorable.

Firm commitment

A binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates.

H-R

Hedge effectiveness

The degree to which offsetting changes in fair values or cash flows attributable to the hedged risk are achieved by the hedging instrument.

Hedged item

An asset, liability, firm commitment, or forecasted future transaction that (1) exposes the entity to risk of changes in fair value or changes in future cash flows, and that (2) for hedge accounting purposes is designated as being hedged.

Hedging

Designating one or more hedging instruments such that the change in fair value is an offset, in whole or in part, to the change in the fair value or the cash flows of a hedged item.

Hedging instrument

For hedge accounting purposes, a designated derivative or (in limited instances) another financial asset or liability whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item. Non-derivative financial assets or liabilities may be designated as hedging instruments for hedge accounting purposes only if they hedge the risk of changes in foreign currency exchange rates.

Held-to-maturity investments

Financial assets with fixed or determinable payments and fixed maturities, that the entity has the positive intent and ability to hold to maturity, except for loans and receivables originated by the entity.

Loans and receivables originated by the entity

Financial assets created by the enterprise by providing money, goods, or services directly to a debtor, other than those that are originated with the intent to be sold immediately or in the short term, which should instead be classified as held for trading. Loans and receivables originated by the entity are not included in the held-to-maturity category, but are classified separately.

Market risk

Possibility that future changes in market prices may make a financial instrument less valuable.

Market value

Amount obtainable from a sale, or payable on acquisition, of a financial instrument in an active market.

Marketable equity securities

Instruments representing actual ownership interest, or the rights to buy or sell such interests, that are actively traded or listed on a national securities exchange.

Monetary financial assets and financial liabilities

Financial assets and financial liabilities to be received or paid in fixed or determinable amounts of money.

Net realizable value

Amount of cash anticipated to be produced in the normal course of business from an asset, net of any direct costs of the conversion into cash.

Operating cycle

Average time between the acquisition of materials or services and the final cash realization from the sale of products or services.

Other than temporary decline

Downward movement in the value of a marketable equity security for which there are known causes. The decline indicates the remote likelihood of a price recovery.

Percentage-of-sales method

Procedure for computing the adjustment for uncollectible accounts receivable based on the historical relationship between bad debts and gross credit sales.

Pledging

Process of using an asset as collateral for borrowings. It generally refers to borrowings secured by accounts receivable.

Realized gain (loss)

Difference between the cost or adjusted cost of a marketable security and the net selling price realized by the seller, which is to be included in the determination of net income in the period of the sale.

Recourse

Right of the transferee (factor) of accounts receivable to seek recovery for an uncollectible account from the transferor. It is often limited to specific conditions.

Repurchase agreement

An agreement to transfer a financial asset to another party in exchange for cash or other considerations, with a concurrent obligation to reacquire the asset at a future date for an amount equal to the cash or other consideration plus interest.

Risk of accounting loss

Includes (1) the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract (credit risk), (2) the possibility that future changes in market prices may make a financial instrument less valuable (market risk), and (3) the risk of theft or physical loss.

S-T

Securitization

The process whereby financial assets are transformed into securities.

Short-term investments

Securities or other assets acquired with excess cash, having ready marketability and intended by management to be liquidated, if necessary, within the current operating cycle.

Temporary decline

Downward fluctuation in the value of a marketable equity security that has no known cause which suggests that the decline is of a permanent nature.

Transaction costs

Incremental costs directly attributable to the acquisition or disposal of a financial asset or liability.