P & L
The abbreviation for profit and loss statement. Also known as the income statement. To learn more, see Explanation of Income Statement.
Pacioli
An Italian monk associated with debits, credits, and double-entry accounting approximately 500 years ago.
paid-in capital
The amount paid or contributed by stockholders in exchange for shares of a corporation's stock.
paid-in capital from treasury stock
A stockholder equity account with a credit balance. The credit balance results when a corporation sells some of its treasury stock for an amount that exceeds the corporation's cost of the treasury stock that was sold.
paid-in capital in excess of par value
See paid-in capital in excess of par value - common stock, or paid-in capital in excess of par value - preferred stock
paid-in capital in excess of par value - common stock
The stockholders' equity account that represents the amount paid to a corporation for its common stock that was in excess of the common stock's par value. This account is sometimes referred to as the premium on common stock (The par value of common stock is recorded in a separate stockholder's equity account.)
paid-in capital in excess of par value - preferred stock
The stockholders' equity account that represents the amount paid to a corporation for its preferred stock that was in excess of the preferred stock's par value. This account is sometimes referred to as the premium on preferred stock (The par value of preferred stock is recorded in a separate stockholder's equity account.)
paid-in capital in excess of stated value - common stock
The stockholders' equity account that reports the amount paid to a corporation that is in excess of the common stock's stated value. The stated value of each share issued is recorded in the Common Stock account.
participating
This term is associated with the preferred stock that does allow its holders to receive more than its stated dividend. The participating feature is unusual. To learn more about preferred stock, see Explanation of Stockholders' Equity.
par value
A stated legal amount often appearing on stock and bonds.
par value of bonds
The stated legal amount appearing on bonds.
par value of common stock
A stated legal amount for each share of common stock. The par value for every share of common stock issued must be recorded in the separate stockholders' equity account Common Stock.
par value of preferred stock
A stated legal amount for each share of preferred stock. The par value for every share of preferred stock issued must be recorded in the separate stockholders' equity account Preferred Stock.
participating preferred stock
Preferred stock where the dividend can increase above the original, stated dividend.
partnership
A form of business entity having partners. (Consult with an attorney about this form of entity versus alternatives.)
past cost
Also referred to as a sunk cost. A past cost is not relevant to a decision.
payable
In accounting this word is often included in the title of liability accounts. It means the amount owed by a company as of the balance sheet date, even if the company did not yet receive an invoice from the supplier. For example, the electric utility furnishes electricity for the month of January, but does not read the meter until February 1 and sends the invoice or bill on February 4. The company pays the bill on March 1. The electricity used in January is a payable or obligation on January 31. To learn more, see Explanation of Adjusting Entries.
payback
In business decision making it means the number of years before the cash invested in a project is returned. It involves the cash flows from the projected but the cash flows are not discounted to reflect the time value of money.
payee
The person or organization to whom a check is written.
payroll taxes payable
A current liability that includes payroll taxes withheld from employees and payroll taxes that are levied on an employer but have not yet been remitted.
payroll withholdings
The amounts withheld for employees' checks for Social Security tax, Medicare tax, federal income tax, state income tax, and voluntary deductions such as United Way, union dues, 401(k) contributions, employee's portion of health insurance, etc. To learn more, see Explanation of Payroll Accounting.
pension expense
Under the accrual method of accounting, this account reports the employer's expense for the company's pension plan during the period indicated in the heading to the income statement. For information on pensions you are directed to an Intermediate Accounting text.
pension payable
A liability account that reports the amount a company owes as of the date of the balance sheet for the company’s pension plan. For information on pensions you are directed to an Intermediate Accounting text.
period cost
An amount that should be charged to the current accounting period as an expense.
periodic average
A weighted average cost used with the periodic inventory system. To learn more, see Explanation of Inventory & Cost of Goods Sold.
periodic FIFO
One of the cost flow assumptions associated with the periodic inventory system. The first (oldest) costs are removed from inventory first and are charged to the income statement as cost of goods sold. The recent costs remain in inventory. To learn more, see Explanation of Inventory & Cost of Goods Sold.
periodic LIFO
One of the cost flow assumptions associated with the periodic inventory system. The latest (recent) costs of goods purchased are removed from inventory first and are charged to the income statement as cost of goods sold. The oldest costs remain in inventory. To learn more, see Explanation of Inventory & Cost of Goods Sold.
periodic system of inventory: The system where the inventory account is not updated during the year. Rather the merchandise purchased is recorded in temporary purchases accounts. At the time a balance sheet in presented, the inventory account is adjusted to reflect the cost of the inventory on hand. To learn more, see Explanation of Inventory & Cost of Goods Sold.
periodicity
See time period assumption.
permanent accounts
Accounts that do not close at the end of the accounting year. Also referred to as real accounts. The permanent accounts are all of the balance sheet accounts (asset accounts, liability accounts, owner's equity accounts) except for the owner's drawing account.
perpetual average
The moving average cost of inventory items under the perpetual inventory system. A new average cost per unit is developed after each purchase of an inventory item. To learn more, see Explanation of Inventory & Cost of Goods Sold.
perpetual FIFO
The first-in, first-out cost flow assumumption under the perpetual inventory system. The first (oldest) costs are the first costs removed from inventory at the time that goods are sold. The most recent costs will remain in inventory. The results are the same as periodic FIFO. To learn more, see Explanation of Inventory & Cost of Goods Sold.
perpetual inventory
See perpetual system of inventory.
perpetual inventory method
See perpetual system of inventory.
perpetual LIFO
The last-in, first-out cost flow assumption under the perpetual inventory system. The last (most recent) costs as of the time that goods are sold are the first costs removed from inventory. The oldest costs as of the time of the sale will remain in inventory. The results will be different from periodic LIFO. To learn more, see Explanation of Inventory & Cost of Goods Sold.
perpetual system of inventory
The inventory system where purchases are debited to the inventory account and the inventory account is credited at the time of each sale for the cost of the goods sold. Hence, the balance in the inventory account is constantly or perpetually changing. Under this system there is a general ledger account Cost of Goods Sold. To learn more, see Explanation of Inventory & Cost of Goods Sold.
pert
See program evaluation and review technique.
petty cash
A current asset account that represents an amount of cash for making small disbursements such as postage due and reimbursements for small amounts of supplies.
phantom profits
Also referred to as illusory profits. Occurs because accountants use past costs rather than replacement costs. For example, in computing the cost of goods sold accountants often use the FIFO cost flow assumption. This results in the oldest costs being matched with sales. Economists prefer that the replacement cost of the inventory be matched with sales. The difference in profits from using FIFO instead of replacement cost is referred to as phantom or illusory profits. Similarly, accountants depreciate the original cost of buildings and equipment. Economists prefer that the replacement cost be depreciated. With inflation the accounting profits are higher than the economists would report using replacement cost.
physical life: The length of time that an asset would last. Instead of the physical life, accountants focus on the useful life. For example, a computer's physical life is perhaps 50 years. However, its useful life is likely to be only five years or less, because newer more efficient computers will cause companies to replace computers before the end of their physical life.
plant assets
Often referred to as fixed assets. This would include long term assets such as buildings and equipment used by a company. Plant assets (other than land) will be depreciated over their useful lives.
plant-wide overhead rate
One overhead for assigning all of the manufacturing production and service department costs to products. This rate will be less accurate than departmental rates if a company manufactures a diverse group of products.
pledged asset
An asset given to a lender as collateral for a loan.
p.o.
See purchase order.
POP
Point of purchase.
POS
Point of sale.
post-closing trial balance
A listing of all of the accounts in the general ledger with account balances after the closing entries have been posted. This means that the listing would consist of only the balance sheet accounts with balances. The income statement accounts would not be listed because they are temporary accounts whose balances have been closed to the owner's capital account.
postdated check
A check bearing a date in the future. The company receiving such a check should not report the check as cash until the date of the check.
posting
Recording an entry in an account in the general ledger or in a subsidiary ledger.
postretirement benefits
Benefits provided by a company to retirees. Typical examples of potential benefits are pensions, life insurance, and health insurance.
predetermined overhead rate
Usually an annual manufacturing overhead rate established just prior to an accounting year and based on budgeted amounts.
preferred stock
A class of corporation stock that provides for preferential treatment of dividends: preferred stockholders will be paid dividends before the common stockholders receive dividends. In exchange for the preferential treatment of dividends, preferred shareholders usually do not share in the corporation's earnings and instead receive only their fixed dividend.
preferred stock account
The stockholders' equity account which reports the par value of the preferred shares of stock that have been issued.
preferred stock $100 par
The paid-in (or contributed) capital account that is a credited $100 for each share of $100 par preferred stock that is issued. If the proceeds from the issuance or sale of one of the shares is greater than $100, the amount in excess of $100 is credited to Paid-in Capital in Excess of par--Preferred Stock. To learn more about preferred stock, see Explanation of Stockholders' Equity.
premium on bonds payable
A liability account with a credit balance associated with bonds payable that were issued at more than the face value or maturity value of the bonds. The premium on bonds payable is amortized to interest expense over the life of the bonds and results in a reduction of interest expense.
premium on common stock
See paid in capital in excess of par value - common stock.
premium on preferred stock
See paid in capital in excess of par value - preferred stock.
prepaid advertising
A current asset that reports the amount paid for advertising that has not yet taken place. When the advertising occurs the prepaid advertising is reduced and advertising expense is recorded.
prepaid asset
See prepaid expense.
prepaid association dues
Usually represents expenses that have been prepaid. For example, if a company pays its liability insurance premiums for the next six months, the company will report the unexpired portion of those premiums as the current asset Prepaid Insurance. As the insurance expires, it moves out of the asset account and into the income statement account Insurance Expense.
prepaid dues
A current asset that reports the amount paid for dues that have not yet expired. As the prepaid dues expire, the account Prepaid Dues is reduced and dues expense is increased.
prepaid expense
A current asset representing amounts paid in advance for future expenses. As the expenses are used or expire, expense is increased and prepaid expense is decreased.
prepaid insurance
A current asset which indicates the cost of the insurance contract (premiums) that have been paid in advance. It represents the amount that has been paid but has not yet expired as of the balance sheet date.
A related account is Insurance Expense, which appears on the income statement. The amount in the Insurance Expense account should report the amount of insurance expense expiring during the period indicated in the heading of the income statement.
prepaid rent
A current asset account that reports the amount of future rent expense that was paid in advance of the rental period. The amount reported on the balance sheet is the amount that has not yet been used or expired as of the balance sheet date.
prepayment-type adjusting entry
See deferral-type adjusting entry.
present value
Future amounts that have been discounted to the present.
present value factors
Factors that are used to convert future cash flows to their present value.
present value of 1 table
A table showing present value factors for various interest rates and numbers of years/periods for one amount at a future point in time.
present value of a single moment
The discounted value of a single amount at a future point in time.
present value of an annuity
The discounted value of a recurring equal amount occurring at future points with equal time intervals.
present value of an annuity due
The discounted value of a recurring equal amount occurring at the beginning of each equal time interval.
present value of an annuity due table
A table showing the present value factors for a recurring equal amount occurring at the beginning of each equal time interval. Also known as the present value table for an annuity in advance.
present value of an ordinary annuity
The discounted value of a recurring equal amount occurring at the end of each equal time interval.
present value of an ordinary annuity table
A table showing the present value factors for a recurring equal amount occurring at the end of each equal time interval.
present value model
A term used to describe the net present value method and the internal rate of return. The model discounts future cash flows back to the present time.
present value table
See present value of an annuity due table, present value of an ordinary annuity table, and present value of 1 table.
primary activities
For a retailer, wholesaler, and distributor the primary activities would be the buying of merchandise and then the sale of that merchandise. A manufacturer's primary activities would be the production and sale of products.
prime costs
The combination of direct materials and direct labor.
principal
In financial accounting this term refers to the amount of debt exluding interest. Payments on mortgage loans usually require monthly payments of principal and interest.
principal payment
A payment toward the amount of principal owed. Generally when a loan payment consists of only a principal and interest payment, the amount owed for interest is processed first and the remaining amount of the payment is applied to the principal balance.
principles and guidelines
General rules upon which more detailed, specific accounting rules and standards are based. To learn more, see Explanation of Accounting Principles.
prior period adjustment
The most common example is the correction of an error from a prior year. When such a correction is made, it is reported in the current period's statement of retained earnings rather than in the current period's income statement.
proceeds
The amount received from the sale of an asset, from the issuance of bonds or stock, or from a bank loan.
process costing system
The cost accounting system where similar units are mass produced. Costs are collected by department and are then assigned to the units produced.
procurement
Another word for purchasing.
product cost
In manufacturing, the product cost includes direct materials, direct labor, and manufacturing overhead. A retailer's product cost is the net cost from suppliers plus costs to get the product in place and ready for use (e.g. freight-in).
product warranty cost
The cost of repairing or replacing products sold during their warranty periods.
production department
A department that is directly involved in manufacturing products. Examples are the machining, finishing, and assembling departments.
production service department
A department within a factory that does not directly produce a product. Examples are the factory maintenance department, factory administrative department, and quality assurance department.
production volume variance
See fixed manufacturing overhead volume variance.
profit and loss statement
Also referred to as the P & L and the income statement. To learn more, see Explanation of Income Statement.
profitability
A word to describe whether a company is able to earn more revenues than expenses.
profit center
Also referred to as the P & L and the income statement. To learn more, see Explanation of Income Statement.
profit margin
Net income divided by net sales.
pro forma financial statement
Financial statements based upon various assumptions.
pro forma income
Income based upon some assumptions.
program evaluation and review technique
A management tool that identifies the critical path--the path of sequential activities that takes the longest time to complete.
promissory note
A formal, written promise to pay interest and to repay the principal amount.
property dividend
A dividend paid in assets other than cash.
property, plant, and equipment: A major classification on the balance sheet. It is the second long term asset section after current assets. Included are land, buildings, leasehold improvements, equipment, furniture, fixtures, delivery trucks, automobiles, etc. that are owned by the company. To learn more, see Explanation of Balance Sheet.
proprietor: An individual owner of a business that is not incorporated.
proprietorship: See sole proprietorship.
The term that refers to the stock of a corporation which is traded on the stock exchanges (as opposed to stock that is privately held among a few individuals).
purchase commitments
A commitment to purchase a specific number of items in the future at a fixed price. If the agreement is noncancellable, the company must report a loss when the current cost of the items falls below the contracted price.
purchase discounts
The temporary contra purchases account used in a periodic inventory system which represents the discounts allowed by paying within prescribed credit terms such as 1/10 (1% can be deducted from the amount owed if paid within 10 days). When the credit balance of this account is combined with the other purchases accounts, the result is the amount of net purchases.
purchase order
Also referred to as a "p.o." A multi-copy form prepared by the company that is ordering goods. The form will specify the items being ordered, the quantity, price, and terms. One copy is sent to the vendor (supplier) of the goods, one copy is sent to the accounts payable department to be later compared to the receiving ticket and invoice from the vendor.
purchase returns and allowances
The temporary contra purchases account used in a periodic inventory system which represents the amounts of merchandise that were returned to suppliers and the amounts allowed as deductions by suppliers for goods not returned. When the credit balance of this account is combined with the other purchases accounts, the result is the amount of net purchases.
purchases
A temporary account used in the periodic inventory system to record the purchases of merchandise for resale. (Purchases of equipment or supplies should not get recorded in the purchases account.) This account reports the gross amount of purchases of merchandise. Net purchases is the amount of purchases minus purchase returns, purchase allowances, and purchase discounts.
purchases - net
The gross amount of purchases minus the amount of purchase returns, purchase allowances, and purchase discounts.
PV
Present value.
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