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NEED INSTANT ONLINE FINANCIAL ANALYSIS? VENTURELINE IS THE WORLDWIDE LEADER FOR SEC TRACEABLE COMPANY & INDUSTRY ANALYSES ACCOUNTING TERMS - ACCOUNTING DICTIONARY - ACCOUNTING GLOSSARYOVER 3,000 ACCOUNTING TERMS The Web's Most Complete Accounting Dictionary-Accounting Glossary of Accounting Terms Download the Accounting Dictionary-Accounting Glossary of Accounting Terms
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LABOR BUDGET see DIRECT LABOR BUDGET. LABOR INTENSIVE is used to describe industries or sectors of the economy that relies relatively heavily on inputs of labor, usually relative to capital but sometimes to human capital or skilled labor, compared to other industries or sectors. LABOR THROUGHPUT VARIANCE reveals potential constraints on throughput caused by changes in the mix of products being produced. It is computed the way the traditional labor "efficiency" variance is computed but aggregated at a fairly high level (e.g., total plant or total department) and expressed as percent of actual clocked production hours vs. standard production hours. LAG TIME is the period of time between two closely related events, phenomena, etc., as between stimulus and response or between cause and effect: a time-lag between the declaration of war and full war production. LAND, in terms of accounting, is the value of real estate less the value of improvements, e.g. buildings. LANDED COST is the total expense of receiving goods at place of retail sale, including retail purchase price, transportation costs, duties, value added taxes, excise tax and other taxes. LANDING COST is the initial charges for landing imported goods, such as those for receiving goods from dockside vessels or from barges to lighters. They may also cover wharfage or delivery from the dock to land conveyance or warehouse. LARGE-CAP is a stock with a level of capitalization of at least $5 billion market value. LATIN AMERICAN MODEL is an accounting model. There are other accounting systems which differ from the U.S. accounting model. U.S. GAAP and FASB standards are not the only accounting principles used internationally; for example, many countries reverse the U.S. debit and credit system. Many countries with high rates of inflation account for inflation in financial reports much more than the U.S. does. Also, for any company operating internationally there is the currency exchange translation problem when consolidating financial statements. LBO see LEVERAGED BUY-OUT. LCL see LESS THAN CONTAINER LOAD. LCM is Lower of Cost or Market. LCM RULE is an abbreviation for lower-of-cost-or-market rule. LCM requires that an asset be reported on the financial statements at the lower of purchase cost or market value. LEAD SCHEDULE, in accounting, is a working paper with columnar headings similar to those in a working trial balance, set up to combine similar ledger accounts the total of which appears in the working trial balance as a single amount. LEAD-TIME is the time between the initial stage of a project or policy and the appearance of results, for example, the long lead-time in oil production because of the need for new field exploration and drilling. LEASE is a contract where a party being the owner (lessor) of an asset (leased asset) provides the asset for use by the lessee at a consideration (rentals), either fixed or dependent on any variables, for a certain period (lease period), either fixed or flexible, with an understanding that at the end of such period, the asset, subject to the embedded options of the lease, will be either returned to the lessor or disposed off as per the lessor's instructions. LEASEHOLD is an agreement between the lessee and lessor specifying the lessee's rights to use the leased property for a specific purpose and given time at a specified rental payment. LEASEHOLD IMPROVEMENTS are those repairs and / or improvements, usually prior to occupancy, made to a leased facility by the lessee. The cost is then added to fixed assets and amortized over the life of the lease. LEASE RATE FACTOR is the periodic lease or rental payment expressed as a percentage (or decimal equivalent) of equipment cost. Used to calculate payments given the cost of equipment (e.g. A lease rate factor of 0360 on an equipment cost of $5,000.00 requires a monthly payment of $180.00 (0360x$5,000.00=$180.00). LEAST-SQUARED METHOD of approximating cost is a statistical approach that is both objective and considers all the data points. By using mathematical formulas to arrive at the best possible cost line (i.e., the regression line), it is more accurate than the methods mentioned previously. The regression line is in the form Y=a + bX, where X is the independent variable and Y is the dependent variable. The coefficient of determination (R2) can be used to judge the line’s goodness of fit. LEDGER is a book of accounts in which data from transactions recorded in journals are posted and thereby classified and summarized. The ledger is typically divided up into (traditionally physical separate books): a. Purchases/Creditors Ledger is the subsidiary ledger in which creditors' accounts are recorded; also known as the bought ledger. Each creditor's account is credited with purchases and debited with cash paid, discounts received and returns outward. The detail in the creditors ledger is summarized in the creditors ledger control account kept in the general ledger; b. Sales/Debtors Ledger is the subsidiary ledger in which debtors' accounts are recorded; also known as the sold ledger. Each debtor's account is debited with sales and credited with cash received, discounts allowed and returns inward. The detail in the debtors ledger is summarized in the debtors ledger control account kept in the general ledger; c. General/Impersonal Ledger is a book of final entry summarizing all of a company's financial transactions, through offsetting debit and credit accounts, e.g. liability, reserve, capital, income and expense accounts; and d. Private Ledger is confidential and records items such as capital, loans, mortgages, directors' salaries and awards, etc. LEGAL ENTITY is a person or organization that has the legal standing to enter into contracts and may be sued for failure to perform as agreed in the contract, e.g., a child under legal age is not a legal entity, while a corporation is a legal entity since it is a person in the eyes of the law. LEGAL ENTITY ASSUMPTION see ENTITY ASSUMPTION. LEGALLY MANDATED is that which is required by law, e.g. the ratio of majority inhabitant vs. minority new-hire quotas in a legislated work environment. LEGITIMACY THEORY posits that businesses are bound by the social contract in which the firms agree to perform various socially desired actions in return for approval of its objectives and other rewards, and this ultimately guarantees its continued existence. LEHMAN FORMULA is a compensation formula
originally developed by investment bankers Lehman Brothers for investment
banking services: LEMON is a. an investment with a poor or negative rate of return or a purchase made where the product has continuing problems, e.g. a lemon of an automobile; or, b. an asset that is in continual need of repair, e.g. an automobile can be referred to as a lemon. LEMONS AND PLUMS, in finance, LEMON is an investment with a poor or negative rate of return; and, PLUM is an investment with a healthy rate of return. LESSEE is the party to whom the possession of specified property has been conveyed for a period of time in return for rental payments. LESSOR is the party who conveys specified property to another for a period of time in return for the receipt of rent. LESS THAN CONTAINER LOAD (LCL) is a shipment in which the freight does not completely fill the container; or a particular consignor's freight when combined with others to produce a full container load. LETTER OF AUTHORIZATION (LOA) is a form that permits a Donor to provide written instructions to transfer a stock certificate in the Donor’s name in full or in part to another party, such as a charitable organization, without using a transfer agent. This form given to the charitable organization with the designated stock certificate and a separate Stock Power is usually executed by the charitable organization’s brokerage to expedite the sale and receipt of proceeds from the gift of securities. LETTER OF AWARENESS is a formal letter written to a lender, normally by a parent company, acknowledging its relationship with another group company and its awareness of a loan being made to that company. It is the weakest form of comfort letter. Such letters do not constitute a guarantee, but may nevertheless involve a significant moral commitment on the part of the writer. LETTER OF CREDIT (LOC) is a legal document issued by a buyer’s bank that upon presentation of required documents payment would be made. Usually confirmed by the seller's bank, protection is given to the seller that payment will be made if the goods are shipped correctly, and protection is given to the buyer that the goods will be shipped before payment is made. LETTER OF CREDIT, CONFIRMED is a letter of credit that is guaranteed by a bank that is acceptable to a seller (usually a local bank), regardless of buyer's bank. LETTER OF CREDIT, IRREVOCABLE is a letter of credit where payment is guaranteed as long as the seller meets all conditions stipulated. A revocable letter of credit can be cancelled or altered by the buyer without permission of the seller. LETTER OF GUARANTEE is a written promise issued by a bank to compensate (pay a sum of money) to the beneficiary (third party, local or foreign) in the event that the obligor (customer) fails to honor its obligations in accordance with the terms and conditions of the guarantee/agreement/contract. LETTER OF INTENT (LOI) is a document that describes the preliminary understanding between parties who intend to make a contract or join together in another action. LEVERAGE is property rising or falling at a proportionally greater amount than comparable investments. For example, an option is said to have high leverage relative to the underlying stock because a price change in the stock may result in a relatively large increase or decrease in the value of the option. In general, in finance, leverage is the use of debt financing. Leverage, within a corporation, is the use of borrowed money to increase the return on investment. For leverage to be positive, the rate of return on the investment must be higher than the cost of the money borrowed. LEVERAGED BUY-OUT (LBO) is a transaction used for taking a public corporation private, financed through the use of debt funds: bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in such investments. LEVERAGED LEASE is a lease arrangement under which the lessor borrows a large proportion of the funds needed to purchase the asset and grants the lender a lien on the assets and a pledge of the lease payments to secure the borrowing. LEVERAGE HYPOTHESIS is the theory that managers have incentive to avoid technical default of loan covenants because it could result in increases in the firm’s cost of capital. LEVERAGE RATIOS measures the relative contribution of stockholders and creditors, and of the firm's ability to pay financing charges. Value of firm's debt to the total value of the firm. LEVIED is a charge imposed and collected. LEVY is to impose and collect a charge. LIABILITY, in insurance, is a term used when
analyzing insurance risks that describes possible areas of financial exposure
/ loss. Presently, there are three forms of liability coverage that insurers
will underwrite: The first is general liability, which covers any kind
of bodily injury to non-employees except that caused by automobiles and
professional malpractice. The second is product liability, which covers
injury to customers arising as a direct result of goods purchased from
a business. The third is public liability, which covers injury to the
public while they are on the premises of the insured. LIABILITY, in accounting, is a loan, expense, or any other form of claim on the assets of an entity that must be paid or otherwise honored by that entity. LIBOR see LONDON INTERBANK OFFERED RATE. LICENSE is a legal document giving official permission to do something. LIEN is the right to take another's property if an obligation is not discharged. LIFO (last-in, first-out) is an inventory cost flow whereby the last goods purchased are assumed to be the first goods sold so that the ending inventory consists of the first goods purchased. LIFO LIQUIDATION is a reduction in the reported value of inventory below levels established in prior years under the LIFO method; arises when purchases for the period are not sufficient to offset the sale of inventory in the period. LIFO RESERVE is the difference between the ending inventory under LIFO and FIFO (or other method that might be chosen). LIFTING & OPERATING EXPENSE (LOE), in the oil/energy industry, within any accounting period, it is all cash costs incurred in connection with the running and maintenance of production wells. LIKE KIND, in taxes, refers to property that is similar to another for which it has been exchanged: real estate exchanged for real estate, for instance. The definitions of like kind properties can be found in the US Tax Code at Section 1031. LIMITATION, in contracts, is a certain period limited by statute after which actions, suits, or prosecutions cannot be brought in the courts. LIMITED LIABILITY is one that does not go beyond the owner's investment in the business. LIMITED PARTNER is a partner in a venture who has no management authority and whose liability is restricted to the amount of his or her investment. LIMITING FACTOR is a factor or condition that, either temporarily or permanently, impedes goal accomplishment. LINEAR PROGRAMMING (LP), in accounting, is the mathematical approach to optimally allocating limited resources among competing activities. It is a technique used to maximize revenue, contribution margin, profit function; or, to minimize a cost function, subject to constraints. Linear programming consists of two ingredients: (1) objective function and (2) constraints, both of which are linear. In formulating the LP problem, the first step is to define the decision variables that one is trying to solve. The next step is to formulate the objective function and constraints in terms of these decision variables. LINE ITEM is one item from a group of many items, e.g. one inventory item from the list of all inventoried items or one budgeted item from a financial budget. LINE ITEM BUDGET is a budget initiated by government entities in which budgeted financial statement elements are grouped by administrative entities and object. These budget item groups are usually presented in an incremental fashion that is in comparison to previous time periods. Line item budgets are also used in private industry for comparison and budgeting of selected object groups and their previous and future expenditure levels within an organization. LINE MANAGEMENT is the administration of the line functions of an organization; administration of activities contributing directly to the organization's output. LINE OF CREDIT is an agreement whereby a financial institution promises to lend up to a certain amount without the need to file another loan application. The borrower is required to reduce the debt whenever the limit of the full amount of credit has been reached. LINKED ACCOUNT gives you the flexibility of opening minor or custom account(s) that are linked to your primary account. Transactions between linked accounts are usually controlled through the password of the primary account. Linked accounts are possible through either commercial or consumer accounts, e.g. a consumer may have his/her checking, savings and over-draft protection accounts linked so that transactions can be easily made between them. LIP ACCOUNT see LOAN-IN-PROCESS ACCOUNT. LIQUID is to be in a state of liquidity, i.e., maintain sufficient assets in the form of cash or assets easily convertible to cash to satisfy current liabilities. When speaking of money or an economy: being very liquid means it is driven by primarily by cash, checking/saving accounts, treasury bills, stocks and bonds, etc; while being very illiquid means it is driven primarily by human capital. LIQUID ASSET is cash and any asset that can quickly be converted into cash (e.g., cash, checks and easily-convertible securities). LIQUIDATING DIVIDENDS are dividends paid by a corporation that is in the process of liquidation/bankruptcy. Liquidating Dividends are paid from the capital of the corporation as opposed to earnings. Recipients of Liquidating Dividends are typically shareholders, bond holders and/or creditors. In the U.S. such dividends are generally nontaxable under the Internal Revenue Code. LIQUIDATION is the selling of all the assets of a debtor and the use of the cash proceeds of the sale to pay off creditors. LIQUIDATION VALUE is a type of valuation similar to an adjusted book value analysis. Liquidation value is different than book value in that it uses the value of the assets at liquidation, which is often less than market and sometimes book. Liabilities are deducted from the liquidation value of the assets to determine the liquidation value of the business. Liquidation value can be used to determine the bare bottom benchmark value of a business, since this should be the funds the business may bring upon valuation. LIQUIDATOR is a person appointed by a court of law or unsecured creditors who liquidates assets or preserves them for the benefit of affected parties. LIQUIDITY is a company's ability to meet current obligations with cash or other assets that can be quickly converted to cash. LIQUIDITY RATIO see CASH RATIO. LISTED COMPANY is a public company listed or quoted on a stock exchange. LISTED INVESTMENTS are those investments which are listed or quoted on a stock exchange. LISTING is a written contract between an agent and a principal giving authorization to the agent to perform services for the principal involving the principal’s property; or, a record of a property for sale by a broker who has been authorized by the owner of the property to be sold. LITIGATION is legal proceeding in a court; a judicial contest to determine and enforce legal rights. LITIGATION RISK is an assessment of the likelihood or probability that legal action may be taken, e.g. auditors may encounter an unacceptable level of litigation risk on an assignment where the client has possibly been involved with fraudulent financial reporting. LIVING DEAD are venture capital investments that neither fail nor are easily liquidated. These are termed the "living dead" and are judged as failures by venture capitalists. LLC is Limited Liability Corporation. LLCR is Loan Life Coverage Ratio. LMA, among others, is an acronym for Lease Management Agreement, Local Marketing Agreement or Legal Marketing Association. LOADED LABOR RATE is the employee hourly rate plus employee benefits, capital expenses, and other overhead. LOAN is an agreement under which an owner of assets (the lender) allows another entity (the borrower) to use the assets for a specified time period. In return, the borrower agrees to pay the lender a payment (interest) and return the assets (cash) at the end of the agreed upon time period. LOAN COVENANT is a legally enforceable promise or restriction in a mortgage. For example, the borrower may covenant to keep the property in good repair and adequately insured against fire and other casualties. A breach of covenant in a mortgage usually creates a default, defined by the mortgage, and can be the basis for foreclosure. LOAN-IN-PROCESS ACCOUNT (LIP ACCOUNT) serves as a deposit account for construction funds. The buyer's down payment is deposited into this account and is used for the initial construction draws. Disbursements of actual loan funds begin once the buyer's money is depleted. Interest on the borrowed funds will be billed monthly on the amount withdrawn. Upon completion of the house, the buyer will be asked to furnish a homeowner's insurance policy and monies for completing the escrow account. Once final disbursements to the builder are made, monthly payments begin based on amortization of the balance at that time. LOAN STOCK is stock bearing a fixed rate of interest. Unlike a debenture, loan stock may or may not be secured. LOAN TO VALUE RATIO, in real estate, is the percentage value for the relationship between the amount of the mortgage loan and the appraised value of the property. Loan-to-value ratio is expressed to a potential purchaser of a property in terms of the percentage a lending institution is willing to finance. LOC see Letter of Credit. LOCKBOX is 1. a fireproof metal strongbox (usually in a bank) for storing valuables e.g., a safety deposit box; and, 2. a service offered by banks to companies in which the company receives payments by mail to a post office box and the bank picks up the payments several times a day, deposits them into the company's account, and notifies the company of the deposit. This enables the company to put the money to work as soon as it's received, but the amounts must be large in order for the value obtained to exceed the cost of the service. LODGEMENT, in law, is bringing a legal charge or accusation against someone. LOE see LIFTING & OPERATING EXPENSE. LOGGING is the practice of recording data, in some medium, sequential input, often in a time-associated format. LOI is Letter of Intent. LONDON INTERBANK OFFERED RATE (LIBOR) is the rate that the most creditworthy international banks that deal in Eurodollars charge each other for large loans. It is equivalent to the federal funds rate in the U.S. LONG-LIVED ASSETS are usually those assets that are not consumed during the normal course of business, e.g. land, buildings and equipment, etc. LONG-TERM is a long period of time. In securities, for a bond it is 10 or more years or as it relates to a buy and hold investment strategy. In accounting, it is thought of as being in excess of 12 months, e.g. long-term liabilities. See SHORT-TERM. LONG TERM DEBT is all senior debt, including bonds, debentures, bank debt, mortgages, deferred portions of long term debt, and capital lease obligations. LONG-TERM DEBT TO EQUITY expresses the relationship between long-term capital contributions of creditors as related to that contributed by owners (investors). As opposed to DEBT TO EQUITY, Long-Term Debt to Equity expresses the degree of protection provided by the owners for the long-term creditors. A company with a high long-term debt to equity is considered to be highly leveraged. But, generally, companies are considered to carry comfortable amounts of debt at ratios of 0.35 to 0.50, or $0.35 to $0.50 of debt to every $1.00 of book value (shareholders equity). These could be considered to be well-managed companies with a low debt exposure. It is best to compare the ratio with industry averages. LONG-TERM LIABILITIES are liabilities of a business that are due in more than one year. An example of a long-term liability would be a mortgage payable. LONG-TERM RECEIVABLE, in accounting, is any receivable that is scheduled or projected for receipt in greater than a 12-month period, e.g. notes receivable or a receivable in litigation. LOSS, in finance, is when expenses exceed sales or revenues, i.e. goods or services are sold for less than their cost. LOSS LEADER is a featured article of merchandise sold at a loss in order to draw customers. LOT can be: 1. A group of items which are bought or sold together; 2. Multiple shares held or traded together, usually in units of 100; or, 3. A parcel of land. LOT COSTING see BATCH COSTING. LP see LINEAR PROGRAMMING. LRIC is an acronym for Long Run Incremental Cost. A service costing methodology used primarily in the telecommunications industry. LTM means Last Twelve Months. LUMP-SUM is an agreed upon sum of money, which is paid in full settlement all at one time.
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