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Glossary—Chapter 5

account form Presentation in a classified balance sheet that lists assets by sections on the left side and liabilities and stockholders’ equity by sections on the right side. (p. 189).

adjunct account An account that increases either an asset, liability, or owners’ equity account. An example is Premium on Bonds Payable, which, when added to the Bonds Payable account, describes the total bond liability of the company. (p. 196).

available-for-sale securities Debt securities not classified as held-to-maturity or trading securities. Companies report available-for-sale securities at fair value, but do not report changes in fair value as part of net income until after they sell the security. Interest on available-for-sale securities is recorded when earned. Unrealized holding gains and losses on available-for-sale securities are recognized as other comprehensive income and as a separate component of stockholders’ equity. (p. 182).

balance sheet Financial statement that shows the financial condition of a company at the end of a period by reporting its assets, liabilities, and stockholders’ equity (p. 178).

cash debt coverage ratio Measure of solvency that indicates a company’s ability to repay its liabilities from cash generated from operations (without having to liquidate productive assets). Computed as the ratio of cash provided by operating activities to total debt, as represented by average total liabilities. (p. 204).

contingency Material events with an uncertain future. The uncertainty can involve a possible gain (gain contingency) or possible loss (loss contingency) that will ultimately be resolved when one or more future events occur or fail to occur. Typical gain contingencies are tax operating loss carryforwards or company litigation against another party. Typical loss contingencies relate to litigation, environmental issues, possible tax assessments, or government investigations. (p. 192).

contra account An account that reduces...