Glossary of Accounting Terms

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Paid in Capital
Portion of the stockholders' equity which was paid in by the stockholders, as opposed to capital arising from profitable operations.

Par Value
Amount per share set in the articles of incorporation of a corporation to be entered in the capital stocks account where it is left permanently and signifies a cushion of equity capital for the protection of creditors.

Parent Company
Company that has a controlling interest in the common stock of another.

Partnership
Relationship between two or more persons based on a written, oral, or implied agreement whereby they agree to carry on a trade or business for profit and share the resulting profits. Unlike a corporation's shareholders, the partnership's general partners are liable for the debts of the partnership. (See General Partnership, Limited Liability Partnership, Limited Partnership .)

Passive Activity Loss
Loss generated from activities involved in the conduct of a trade or business in which the taxpayer does not materially participate.

PCAOB
Public Corporation Accounting Oversight Board, a private-sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002, to oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.

Peer Review
Process by which an accounting firm's practice is evaluated for compliance with professional standards. The objective is achieved through the performance of an independent review by one's peers.

Pension
Retirement plan offered by an employer for the benefit of an employee, usually at retirement, through a trustee who controls the plan assets. (See Employee Benefit Plan.)

Perpetual Inventory
System that requires a continuous record of all receipts and withdrawals of each item of inventory.

Personal Financial Planning
Process for arriving at a comprehensive plan to solve an individual's personal, business, and financial problems and concerns.

Personal Financial Specialist (PFS)
Certified Public Accountant who specializes in personal financial planning and completes a series of requirements that include education, experience, ethics and an exam.

Personal Financial Statements
Financial statements prepared for an individual or family to show financial status.

Personal Property
Movable property that is not affixed to the land (real property). Personal property includes tangible items such as cash, cars and computers, as well as intangible items, such as royalties, patents and copyrights.

Phantom Income
Income reported on a tax basis for which no cash or financial benefit is realized.

Pledged Asset
Asset placed in a trust and used as collateral for a debt.

Pooling of Interest
Used to account for the acquisition of another company when the acquiring company exchanges its voting common stock for the voting common stock of the acquired company when certain criteria are met.

Post-Retirement Benefits
Pensions, health care, life insurance and other benefits that are provided by an employer to retirees, their dependents, or survivors.

Preferred Stock
Type of capital stock that carries certain preferences over common stock, such as a prior claim on dividends and assets.

Premium
(1) Excess amount paid for a bond over its face amount. (2) In insurance, the cost of specified coverage for a designated period of time.

Prepaid Expense
Cost incurred to acquire economically useful goods or services that are expected to be consumed in the revenue-earning process within the operating cycle.

Present Value
Current value of a given future cash flow stream, discounted at a given rate.

Preventive Controls
These have the objective of preventing errors or fraud from occurring in the first place that could result in a misstatement of the financial statements.

Prime Rate
Rate of interest charged by major U.S. banks on loans made to their preferred customers.

Principal
Face amount of a security, exclusive of any premium or interest. The basis for interest computations.

Private Placement
Sales of securities not involving a public offering and exempt from registration pursuant to certain exemptions.

Privilege
A right or immunity granted as a peculiar benefit advantage.

Privity
An interest in a transaction, contract or legal action to which one is not a party, arising out of a relationship to one of the parties.

Pro Forma
Presentation of financial information that gives effect to an assumed event (e.g. Merger).

Pro Rata
Distribution of an expense, fund, or dividend proportionate with ownership.

Profit Sharing Plan
Defined contribution plan characterized by the setting aside of a portion of an entity's profits in participant's accounts. (See Employee Benefit Plan.)

Projection
Prospective financial statements that include one or more hypothetical assumptions.

Promissory Note
Evidence of a debt with specific amount due and interest rate. The note may specify a maturity date or it may be payable on demand. The promissory note may or may not accompany other instruments such as a mortgage providing security for the payment thereof. (See Demand Loan.)

Proprietorship
Business owned by an individual without the limited liability protection of a corporation or a Limited Liability Company (LLC). Also known as sole proprietorship.

Prospective Financial Information (forecast and projection)
Forecast: Prospective financial statements that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations, and changes in financial position. A financial forecast is based on the responsible party's assumptions reflecting conditions it expects to exist and the course of action it expects to take. Projection: Prospective financial statements that present, to the best of the responsible party's knowledge and belief, given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and changes in financial position.

Prospectus
Major part of the registration statement filed with the Securities and Exchange Commission (SEC) for public offerings. A prospectus generally describes securities or partnership interests to be issued and sold.

Proxy
Document authorizing someone other than the shareholder to exercise the right to vote the stock owned by the shareholder.

Public Offering
Offering shares to the public. Generally done through SEC filings.

Public Oversight Board (POB)
The POB is an independent oversight board, composed of public members, which monitors and evaluates peer reviews conducted by the SEC Practice Section (SECPS) of the AICPA's Division for CPA Firms as well as other activities of the SECPS.

Purchase Method of Accounting
Accounting for a merger by adding the acquired company's assets at the price paid for them to the acquiring company's assets.

Push-Down Accounting
Method of accounting in which the values that arise from an acquisition are transferred or "pushed down" to the accounts of an acquired company.

* Definitions courtesy of the New York State Society of CPAs

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