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SPONTANEOUS LIABILITIES are obligations that are realized automatically, in the course of operating a company day-to-day, when a company buys goods and services on credit.
PRINCIPLES-BASED ACCOUNTING provides for few exact rules and little implementation guidance. Instead, general principles are put forward and companies must ensure that their financial statements fairly and accurately represent these principles. Proponents argue that this type of system does not allow for less than ethical financial engineering, where complex transactions are undertaken in order to get around following specific rules-based accounting standards. Critics believe a principles-based system allows too much leeway for companies, because they generally do not have to follow specific rules, only wide-arching principles. See also RULES-BASED ACCOUNTING.
MARGIN is a. in accounting see GROSS MARGIN; or, b. in securities, it is the process whereby investors are allowed to buy securities on credit. By buying on margin, the investor significantly increases the leverage, or risk/return potential, of the investment. For example, a purchase of $100 worth of stock with cash of $50 means a four to one increase in value if the stock doubles (versus a two to one increase if the purchase is all cash). On the other hand, if the stock declines, the investor would be forced either to put up more cash or sell the stock at a loss to meet margin requirements established by the Federal Reserve Bank. The margin rules currently stipulate that an investor must maintain 50% of the total market value of the securities in the account in cash.
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