Glossary of Accounting Terms

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Earned Income
Wages, salaries, professional fees, and other amounts received as compensation for services rendered.

Earned Income Credit
A refundable tax credit for eligible low income workers, subject to computations based on qualifying children and phase in and phase out income levels.

Earnings Per Share (EPS)
Measure of performance calculated by dividing the net earnings of a company by the average number of shares outstanding during a period.

Effective Tax Rate
Total income taxes expressed as a percentage of net income before taxes.

EITF
See Emerging Issues Task Force.

Emerging Issues Task Force (EITF)
Assists the Financial Accounting Standards Board (FASB) and provides guidance on early identification of emerging issues affecting financial reporting and problems in implementing authoritative pronouncements.

Employee Benefit Plan
Compensation arrangement, generally in writing, used by employers in addition to salary or wages. Some plans such as group term life insurance, medical insurance and qualified retirement plans are treated favorably under the tax law. Most common qualified retirement plans are: (1) defined benefit plans - a promise to pay participants specified benefits that are determinable and based on such factors as age, years of service, and compensation; or (2) defined contribution plans - provide an individual account for each participant and benefits based on items such as amounts contributed to the account by the employer and employee and investment experience. This type includes profit-sharing plans, employee stock ownership plans and 401(k) plans.

Employee Stock Ownership Plan (ESOP)
Stock bonus plan of an employer that acquires securities issued by the plan sponsor.

Encumbrance
(1) mortgage or other lien on the entity's assets, (2) Anticipated expenditure; (3) Uncompleted or undelivered portion of a purchase commitment.

Engagement Completion Document
A document whereby the auditor identifies all significant findings or issues. The document should be as specific as necessary in the circumstances for a reviewer to gain a thorough understanding of the significant findings or issues.

Entity
A separate or self-contained existence that provides goods or services.

Equity
Residual interest in the assets of an entity that remains after deducting its liabilities. Also, the amount of a business' total assets less total liabilities. Also, the third section of a balance sheet, the other two being assets and liabilities.

Equity Account
Account in the equity section of the balance sheet. Includes capital stock, additional paid in capital and retained earnings.

Equity Method of Accounting
Investors cost basis is adjusted up or down (in proportion to the % of stock ownership) as the investee's retained earnings fluctuation; used for long-term investments in equity securities of affiliate where holder can exert significant influence; 20% ownership or greater is arbitrarily presumed to have significant influence over the investee.

Equity Securities
Capital Stock and other securities that represent ownership shares, or the legal rights to purchase or acquire capital stock.

Error
Act that departs from what should be done; imprudent deviation, unintentional mistake or omission.

Escrow
Money or property put into the custody of a third party for delivery to a grantee, only after fulfillment of specified conditions.

ESOP
See Employee Stock Ownership Plan.

Estate Tax
Tax on the value of a decedent's taxable estate, typically defined as the decedent's assets less liabilities and certain expenses which may include funeral and administrative expenses.

Estimated Tax
Amount of tax liability a taxpayer may expect to pay for the current tax period. Usually paid through quarterly installments.

Estimation Transactions
Activities that involve management judgments or assumptions in formulating account balances in the absence of a precise means of measurement.

Evidential Matter
Underlying accounting data and other corroborating information that support the financial statements.

Exchanges
Transfer of money, property or services in exchange for any combination of these items.

Excise Tax
Tax or duty on the manufacture, sale, or consumption of commodities.

Excluded Income
See Exclusions.

Exclusions
Income item which is excluded from a taxpayer's gross income by the internal revenue code or an administrative action. Common exclusions include gifts, inheritances, and death proceeds paid under a life insurance contract. Also known as excluded income.

Executor
Person appointed by a will to manage a decedent's estate.

Exempt Organization
Organization which is generally exempt from paying federal income tax. Exempt organizations include religious organizations, charitable organizations, social clubs, and others.

Exemption
Amount of a taxpayer's income that is not subject to tax. All individuals, trusts, and estates qualify for an exemption unless they are claimed as a dependent on another individual's tax return. Exemptions also are granted to taxpayers for their dependents.

Expatriation Tax
Individuals that loose or terminate their residency within the 10 year period immediately preceding the close of a tax year, if the termination or loss is for the sole purpose of avoiding tax.

Expectation Gap
The difference in perception between the public and the CPA as a result of accounting and audit service.

Expenditure
Payment, either in cash, by assuming a liability, or by surrendering asset.

Experienced Auditor
An auditor that has a reasonable understanding of audit activities and has studied the company's industry as well as the accounting and auditing issues relevant to the industry.

Exploration Expenditures
Unlimited deductions are allowed for a taxpayer's expenses incurred while searching for any ore or mineral deposit (except oil or gas).

Exposure Draft
Document issued by the American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB), Governmental Accounting Standards Board (GASB) or other standards setting authorities to invite public comment before a final pronouncement is issued.

Extension
Time granted by a taxing authority, such as the Internal Revenue Service (IRS), a state or city, which allows the taxpayer to file tax returns later than the original due date.

Extent of Tests of Control
Each year the auditor must obtain sufficient evidence about whether the company's internal control over financial reporting, including the controls for all internal control components, is operating effectively.

External Reporting
Reporting to stockholders and the public, as opposed to internal reporting for management's benefit.

Extinguishment of Debt
To get rid of the liability by payment; to bring to an end.

Extraordinary Items
Events and transactions distinguished by their unusual nature and by the infrequency of their occurrence. Extraordinary items are reported separately, less applicable income taxes, in the entity's statement of income or operations.

* Definitions courtesy of the New York State Society of CPAs

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