Monday, November 2, 2009

Accounting Terms (O)

OASDI

See old-age, survivor, and disability insurance (OASDI).

objectives of financial reporting

In the 1970's the Financial Accounting Standards Board (FASB) articulated three objectives of financial reporting. In summary, financial information should (1) be useful to investors and lenders, (2) be helpful in determining a company's cash flows, and (3) report the company's assets, liabilities, and owner's equity and the changes in them.

objectivity

Fair, unbiased, and objective; not subjective.

obsolescence

The process of becoming outdated or no longer being economically feasible (often caused by technology advances). For example, personal computers and computer chips from 1990 are obsolete even though they can be operated. Holding inventory of electronic components will often result in losses because of obsolescence.

off balance sheet financing

Obligations not reported as liabilities on the balance sheet.

office equipment

A long-term asset account reported on the balance sheet under the heading of property, plant, and equipment. Included in this account would be copiers, computers, printers, fax machines, etc.

office equipment expense

The cost to operate office equipment during a specified time interval.

office supplies expense

The amount of office supplies used during a specified time interval.

officers

Officers of a corporation are appointed by the board of directors to execute the policies that have been established by the board of directors. The officers include the chief executive officer (CEO), the chief operations officer (COO), chief financial officer (CFO), vice presidents, treasurer, secretary, and controller.

old-age, survivor, and disability insurance (OASDI)

U.S. social security system.

omitted dividends on preferred stock

See dividends in arrears.

on account

On credit; not for cash.

on consignment

Goods placed with another party without transferring ownership. See consigned goods.

on credit

On account. Goods purchased with terms of net 10 days, net 30 days, or 2/10, net 30 are goods purchased on credit.

operating activities

The activities involved in earning revenues. For example, the purchase or manufacturing of merchandise and the sale of the merchandise including marketing and administration. In the statement of cash flows the operating activities section identifies the cash flows involved with these activities by focusing on net income and the changes in the current assets and current liabilities.

operating cycle

The average time it takes for a retailer's or manufacturer's inventory to turn to cash. If a manufacturer turns its inventory six times per year (every two months) and allows customers to pay in 30 days, its operating cycle is approximately three months.

operating expenses

Operating expenses consist of selling and administrative expenses. Operating expenses are deducted from gross profit to arrive at income from operations.

operating income

A company's profit before nonoperating items such as interest income, interest expense, and gains and losses on sale of assets used in the business, loss on lawsuit, etc.

operating lease

A rental agreement where ownership is not intended. An operating lease is not recorded in the general ledger accounts and therefore the asset and liability will not appear on the balance sheet. A lease that in substance is the purchase and financing of an asset is a capital lease.

operating loss

A company's loss before nonoperating items such as interest income, interest expense, and gains and losses on sale of assets used in the business, loss on lawsuit, etc.

opportunity cost

The next best benefit foregone. Also referred to as the contribution margin given up by not doing an activity. For example, if a sole proprietor is foregoing a salary and benefits of $50,000 at another job, the sole proprietor has an opportunity cost of $50,000. Accountants do not record opportunity costs in the general ledger or report them on the income statement, but they are costs that should be considered in making decisions.

ordinary annuity

A series of equal amounts occurring at the end of each equal time interval. Also known as an annuity in arrears. An example is the monthly payments on a loan. Another example is the semiannual interest on a bond.

ordering cost

In the economic order quantity model, this is the cost of preparing a purchase order and the cost of receiving the goods ordered.

ordinary repairs

Repairs that do not improve an asset or extend the asset's life. These repairs are charged to Repairs Expense or Maintenance Expense when incurred. Major repairs such as a complete engine overhaul that extends the useful life of the engine would be reported differently.

organization chart

A diagram depicting a company's hierarchy or chain of command, its business segments, functions, and departments.

organization-sustaining activities

Activities that are not specifically associated with a specific product or customer. For example, the costs of an audit and filing information with government agencies are examples of organization-sustaining activities.

other accrued expenses payable

Obligations that a company has incurred, but have not yet been routinely recorded in Accounts Payable. For example, if the interest on a bank loan is paid on the 10th of each month, then on the last day of each month approximately 20 days of interest expense is an accrued expense payable.

other assets

Long term assets that are not classified as investments, property, plant, equipment, or intangible assets. An example is bond issue costs that are amortized to expense over the life of the bonds.

other current assets

A balance sheet line to report short-term assets that are too insignificant to be identified separately.

other current liabilities

A balance sheet line to report short-term liabilities that are too insignificant to be identified separately.

outsourcing

Sending work to another organization instead of processing the work in-house. Often payroll is outsourced to a company that specializes in payroll processing.

outstanding checks

Checks which have been written, but have not yet cleared the bank on which they were drawn. In the bank reconciliation, outstanding checks are deducted from the balance per bank. To learn more, see Explanation of Bank Reconciliation.

outstanding shares of common stock

The issued shares of common stock minus the shares of treasury stock. The weighted average of the outstanding shares is used to compute the earnings per share.

over applied overhead costs

Assigning more manufacturing overhead to production than the amount that was planned.

overdraws

A term that refers to a negative checking account balance. It arises when a company writes checks in excess of the amount it has on deposit in its checking account.

overhead application

Assigning manufacturing overhead costs to products being manufactured by using a manufacturing overhead rate.

overhead costs

Usually refers to manufacturing overhead costs such as factory supplies, factory depreciation, indirect factory labor, etc. To learn more, see Explanation of Manufacturing Overhead.


overhead variances

To learn more, see Explanation of Standard Costs & Variances.

overstates

Reports too much. If an error overstates the inventory and the company's net income, the amount of inventory and the amount of net income being reported is more than the correct amount.

overtime pay

Usually the pay for the hours worked in excess of 40 hours per week. Federal laws require payment for these hours for employees who are not able to control their hours. For example, a company is required to pay a production worker or office clerk for hours in excess of 40 per week, even if they are salaried. However, the company is not required to pay a company executive for hours in excess of 40 per week, since the executive can control his or her hours. To learn more, see Explanation of Payroll Accounting

overtime premium

The additional amount given to employees for the overtime hours. Usually this is the "half-time" in time and one-half. For example, if an employee's hourly pay rate is $10 per hour and the employee works 41 hours in a week, the overtime premium is $5 per hour. The worker will earn $415 for the 41 hours. ($400 for 40 hours plus $10 + $5 for the one hour of overtime.) To learn more, see Explanation of Payroll Accounting

owner's capital account

The account in which the owner's investment is recorded plus the net income earned by the company minus the draws made by the owner. Current year net income and draws will be in temporary accounts until the end of the year.

owner's capital account - beg of year

The balance of the owner's capital account excluding the current year's net income and current year's draws by the owner.

owner's drawing account

The contra owner's equity account used to record the current year's withdrawals of business assets by the sole proprietor for personal use. This is a temporary account with a debit balance. It will be closed at the end of the year to the owner's capital account.

owner's ( stockholders' ) equity

The book value of a company equal to the recorded amounts of assets minus the recorded amounts of liabilities. To learn more, see Explanation of Balance Sheet.

owner's equity accounts

The owner's equity accounts are the owner's capital account and the owner's drawing account. During the year the income statement accounts (revenues, expenses, gains, losses), the owner's drawing account, and the income summary accounts are considered to be temporary owner's equity accounts, because at the end of the year the balances in these temporary accounts will be transferred to the owner's capital account.

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