Accounting Dictionary

O&M is an acronym for either Operations & Maintenance or Operations & Management.

OBJECT CODE designates the type of expense or revenue to be charged to an account.

OBJECT COST is the total cost of producing an item: direct cost (labor & material) + overhead cost = Total Object Cost.

OBJECTIVE is a statement that is written in terms of specific measurable time-based and verifiable outcomes that challenge the organization to be more responsive to the environment to achieve the desired goals. Dependent upon usage, GOALS are general in nature, while OBJECTIVES are specific, measurable and time-based. In some organizations, the meanings for GOAL and OBJECTIVE are reversed.

OBJECTIVITY PRINCIPLE states that accounting will be recorded on the basis of objective evidence. Objective evidence means that different people looking at the evidence will arrive at the same values for the transaction. Simply put, this means that accounting entries will be based on fact and not on personal opinion or feelings.

OBLIGATE is to cause to be indebted or grateful. To de-obligate would be to enable the debt to be forgiven or expunged.

OBLIGATION BOND is a bond signed by a mortgagor (borrower) for an amount greater than the loan amount. Such a bond creates a personal obligation on the part of the borrower and assures the lender of recourse in case of nonpayment of property taxes and insurance or past due interest on the mortgage.

OCCUPANCY COST is any cost or charge incurred by a tenant pursuant to its lease, such as rent, operating expense increases, parking charges, moving expenses, remodeling costs, etc.

OFF-BALANCE SHEET is not fully documented accounting transactions that can potentially incur risks of loss that are not fully transparent to investors.

OFF-BALANCE SHEET ASSET is an item representing a resource of the entity or something that is projected to have future economic value. It is a positive indicator of the entities financial position even though it is not contained within the balance sheet.

OFF-BALANCE SHEET FINANCING a. is a form of borrowing in which the obligation is not recorded on the borrower’s financial statements. Off-balance sheet financing can employ several different techniques, which include development arrangements, leasing, product financing arrangements or recourse sales of receivables. Off-balance sheet financing will raise concerns regarding the lenders’ overall risk, but it improves their debt to equity ratio, which enhances their borrowing capacity. As a result, loans are often easy to arrange and are given lower interest rates because of the improved debt structure on the balance sheet. Off-balance sheet financing is a technique often used by multinational businesses in order to secure additional loans on the worldwide loan market; and, b. is a method of obtaining funds through a long-term non-cancelable lease that is accounted for as an operating lease. The lease does not meet the criteria of a 'capital lease'. This being the case, the present value of the lease obligation in not included in the lessee's balance sheet.

OFF-BALANCE SHEET LIABIILITY is an item not reported within the body of a financial statement as a liability that may require future payment or services, e.g., litigation, renegotiated claims within a government contract, and guarantees of future performance.

OFF-BOOK PARTNERSHIP is a type of blind trust. It offers some advantages over the traditional methods of capital procurement. In some cases there is a fatal lack of transparency (e.g. Enron) that allows off-book partners to hide debts, pump profits, launder money and enrich insiders, but ultimately bankrupting the company and stripping assets from its employees’ pension funds. See BLIND TRUST.

OFFICIAL INTEREST RATE, normally, is the rate of interest charged by the government or traders within the money market, e.g., federal funds rate and bank repurchase agreement (repo rate).

OFF-PEAK is not in the period of most frequent or heaviest use: lower rates for telephone calls made during off-peak hours; travelers who take advantage of off-peak fares. See PEAK.

OFFSET is: a. In banking, the deduction by a debtor from a claim or demand of a debt or obligation. Such an offset is based upon a counterclaim against the party making the original claim. Example: Seller makes a claim or files a lawsuit asking for $20,000 from Debtor as the final payment in purchase of a restaurant; as part of his defense Debtor claims an offset of $10,000 for alleged funds owed by Seller for repairs Debtor made on property owned by Seller, thus reducing the claim of Seller to $10,000; b. in accounting, the amount equaling or counterbalancing another amount on the opposite side of the same ledger or the ledger of another account; c. in securities, the elimination of a long or short position by making an opposite transaction. See also OFFSET ACCOUNT.

OFFSET ACCOUNT is an account that is setup for elimination of a long or short position by making an opposite transaction.

OFFSOURCE, slang, is to outsource to an offshore location to primarily save on the cost of labor. See OUTSOURCE.

OFF THE BOOKS is a term associated with transactions which do not appear in any of the financial records kept by a business. Strictly speaking, ‘off the books’ implies cash payments received for assets (products and services) which are not officially recorded in the accounting system of the business.

OMAD is Output Message Accountability Data. In SAP transactions, it is the Number Ranges for Batch Numbers.

OMITTED is to leave undone or leave out, i.e. to prevent from being included or considered or accepted.

ONE-OFF is a happening that occurs only once and is not repeated, e.g. a one-off sale is a sales event that will occur only once.

ONEROUS CONTRACT is one in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits to be received under the contract.

ONE-SHOTS is slang for governmental expenditures done on a one time appropriation.

ONE-WRITE SYSTEM (also known as PEGBOARD SYSTEM) is a useful system for small and home-based businesses. It captures information at the time the transaction takes place. These One-Write Systems are efficient because they eliminate the need for recopying the data and are compatible with electronic data processing if you should decide to computerize. Many small businesses rely totally on the One-Write System for simplicity and versatility. With only two pieces of paper, a check and a ledger, you get all the benefits of sound bookkeeping: accuracy, money distribution, check control, audit trail, running bank balance, and instant review.

OPEN ACCOUNT is a non-guaranteed payment arrangement, e.g. similar to department store credit. Goods are purchased and delivered without payment. Future payment for delivered goods is dependent on the good faith of the purchaser.

OPEN ALLOTMENT is where there is no restriction as to an amount that may be taken from that which is being allotted.

OPEN-BOOK CREDIT is a form of trade credit in which sellers ship merchandise on faith that payment will be forthcoming.

OPENING BALANCE is the balance of an account at the start of an accounting period.

OPEN ITEM is a contractual or scheduled commitment that is not yet reflected in Financial Accounting but will lead to actual expenditures in the future, e.g. a purchase order that is not shipped in full will list those unshipped items as open items within the shipping invoice.

OPEN MARKET VALUE (OMV) is an opinion of the best price at which the sale of an interest in an asset would have been completed unconditionally for cash consideration on the date of valuation, assuming:
(a) a willing seller;
(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the asset and state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;
(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;
(d) that no account is taken of any additional bid by a purchaser with a special interest; and
(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.

OPEN TO BUY is the dollar amount budgeted by a business for inventory purchases for a specific time period.

OPERATING ALLOWANCE is an advance/reimbursement against certain costs/expenses and/or a reduction in amount payable to cover those certain costs/expenses.

OPERATING ASSETS are long-term, or non-current, assets acquired for use in the business rather than for resale; includes property, plant, and equipment; intangible assets; and natural resources.

OPERATING BUDGET focuses on the budgeted income statement and its supporting components and schedules:

1. SALES AND COLLECTIONS BUDGET represents one of the first steps in the budgeting process, as items such as inventory levels and operating expenses are driven off of the Sales and Collections Budget. Effective sales budgeting is a key factor in building a useful and representative financial model for a business. Regardless of the nature of your business (for example, whether it is product or service-based).

2. COST OF GOODS SOLD BUDGET decomposes, or breaks down, the components of a business’s cost of goods sold (in some cases referred to as the cost of revenues). This budget breaks out each separate factor underlying the cost of goods sold for a business.

3. INVENTORY AND PURCHASES BUDGET represents what a business plans to buy and how much inventory it intends to hold over a given timeframe, is based on three factors: a business’s desired ending inventory, cost of goods sold, and beginning inventory. A business’s desired ending inventory will drive that business’ budgeted purchases over a given period of time. A larger desired ending inventory will typically lead to a larger Purchases Budget and vice-versa. While the Purchases Budget, a component of the Inventory and Purchases Budget, represents an estimate of future purchases, this is an accrual-based accounting figure, and it is the Disbursements for Purchases Budget (another component of the Inventory and Purchases Budget) that drives a company’s cash flows.

4. OPERATING EXPENSES BUDGET forecasts all of the elements of a business’ operating expenses, such as salaries, rent, depreciation, and others. Some of these expenses are fixed and some are variable (in other words, based on another metric, such as revenues). While the Operating Expenses Budget represents an estimate of future expenses, this is an accrual-based accounting figure, and it is the Disbursements for Operating Expenses Budget, a component of the Operating Expenses Budget, that drives a company’s cash flows.

OPERATING CASH FLOW (OCF) is the amount used to represent the money moving through a company as a result of its operations, as distinct from its purely financial transactions.

OPERATING CASH FLOW RATIO is a measure of how well current liabilities are covered by the cash flow generated from a company's operations. It is calculated: OCF = Cash Flow From Operations / Current Liabilities.

OPERATING COST is the expense of maintaining property (e.g., paying property taxes and utilities and insurance); it does not include depreciation or the cost of financing or income taxes. Also known as OPERATING EXPENSE.

OPERATING EXPENDITURES is the amount used during a particular period directly in support of day-to-day operations such as wages, maintenance, office supplies, etc.

OPERATING EXPENSES is all selling and general & administrative expenses. Includes depreciation, but not interest expense.

OPERATING EXPENSES BUDGET forecasts all of the elements of a business’ operating expenses, such as salaries, rent, depreciation, and others. Some of these expenses are fixed and some are variable (in other words, based on another metric, such as revenues). While the Operating Expenses Budget represents an estimate of future expenses, this is an accrual-based accounting figure, and it is the Disbursements for Operating Expenses Budget, a component of the Operating Expenses Budget, that drives a company’s cash flows.

OPERATING EXPENSE TO SALES reports the operating expenses as a percent of Net Revenues. This then is a measure of the total overhead employed in the firm per Net Sales Revenue Dollar; thereby giving an indication of the efficiency of the cost structure of the company. It gives an indication of the ability of a business to convert income into profit. Generally, businesses with low ratios will generate more profit than others. In general business operations with larger and more stable cash flows can sustain higher ratios than smaller and less stable operations. Scale and income stability are important considerations though it is up to the management of a business to monitor costs in an appropriate manner whatever its size.

OPERATING EXPOSURE, in foreign exchange, is currency fluctuations combined with price level changes that can alter the amounts and riskiness of a firm’s future revenues and costs. It is typified by evaluating real exchange gains or losses. It is prospective and long-term in nature.

OPERATING INCOME is revenue less cost of goods sold and related operating expenses that are applied to the day-to-day operating activities of the company. It excludes financial related items (i.e., interest income, dividend income, and interest expense), extraordinary items, and taxes.

OPERATING INTEREST is the legal right to assets used to produce revenue, e.g., produce oil or gas from a well, accompanied by the responsibilities to pay production costs and assume the risks.

OPERATING LEVERAGE is fixed operating costs divided by total (fixed plus variable) operating costs.

OPERATING PROFIT TO SALES is a useful ratio when evaluating value of a firm. It discounts the effect of varying tax rates and benefits to give a more accurate indication of the return associated with the firm.

OPERATING RATIO measures a firm's operating efficiency; calculated: company operating expenses divided by its operating revenues.

OPERATING REVENUE is that revenue realized from the day-to-day operations of the entity, e.g., sales revenue.

OPERATING RISK is the inherent or fundamental risk of a firm; without regard to financial risk. It is the risk that is created by operating leverage. Sometimes called business risk.

OPERATING TRANSFER specifically identifies the transfer of resources from one fund/account to another made to support the normal level of operations of the receiving fund/account.

OPERATION AGREEMENT, within an LLC, is similar to the constitution of a corporation. It is drafted primarily because an LLC only has a basic Articles of Organization that is very general in nature. An Operation Agreement has much more specificity as to the formation and operation of the LLC organization.

OPERATIONAL GEARING is the higher the proportion of fixed costs relative to variable operating costs, the higher the operational gearing. This results in greater business risk. A retailer has high fixed costs relative to variable costs, so has a lot of business risk. See GEARING and FINANCIAL GEARING.

OPPORTUNISM is a condition of self-interest seeking with guile whereby one party has information that the other party does not.

OPPORTUNISTIC BEHAVIOUR occurs where one party takes advantage of his superior knowledge, in order to further his/her interests, by failing to disclose such information to the other party. This would occur, for example, if a supplier of widgets had information about a product which was deliberately withheld from the potential buyer, in the knowledge that such information would negatively affect the price of the product or the willingness of the buyer to purchase it.

OPPORTUNITY COST is widely used in business planning in evaluating capital investment. A company measures the projected return against the anticipated return it would receive on a highest yielding alternative investment that contains a similar risk profile.

OPPORTUNITY COST OF REVENUE (OCOR) is where revenue/money held now may be invested to produce more money - thus we consider opportunity cost a return or more revenue.

OPTIMAL PRICE is the profit maximizing price. It can be determined through various methods, but generally it is the demand price for the full capacity output of any given product.

OPTION is the formal reservation of the right to buy or sell property / assets at a certain price and / or within a given time in the future.

OPTIONALITY TEST is part of the NAIC security insurer provisional exemption rules: A. Optionality Test: for corporate and municipal issues, principal and interest must be paid in US dollars, contract terms state that principal is repayable in full and the principal repayment schedule is fixed. Further the principal is set at closing, fixed in US dollars and coupon payments cannot be less than zero in any period. B. Optionality Test: for Asset-Backed/Residential Mortgage-Backed securities, the principal and interest must be paid in US dollars, and the coupon payment cannot be less than zero in any payment period. In addition, with the exception for credit enhancements, the timing and amount of cash flows to pay the obligation must depend on the timing and amount of cash flow from the assets underlying the bond. If the bond is prepaid immediately, the insurer must receive at least 98% of the purchase price.

ORDER ENTRY, normally, is a computerized relational database that, at a minimum, generates, schedules and maintains estimates, sales orders and backlogs. Invoices may also be created automatically if linked to Accounts Receivable. More advanced order entry systems are usually fully integrated with the accounting system.

ORDER INTAKE is all orders which were legally concluded during the respective accounting period under review and have also come into effect.

ORDER OF LIQUIDITY is when items on a balance sheet are listed in order of liquidity. After cash, the other current assets are listed in order of liquidity or nearness to cash (i.e. Accounts Receivable first, then Inventory…).

ORDER OF MAGNITUDE is a number assigned to the ratio of two quantities; two quantities are of the same order of magnitude if one is less than 10 times as large as the other; the number of magnitudes that the quantities differ is specified to within a power of 10.

ORDER OF PERMANENCE is where fixed assets are entered in the balance sheet in descending order of permanence (i.e. land first, then buildings, then equipment ...).

ORDINARY ASSET is a non-capital asset used for business purposes. See CAPITAL ASSET.

ORDINARY COURSE OF BUSINESS is the actions or results that would logically be expected in the regular or planned operating activities of a business as opposed to extra-ordinary transactions or activities, e.g. trade liabilities, capital asset procurement or revenue and its sources.

ORDINARY INCOME is the income derived from the regular operating activities of a business or individual, but exclusive of capital gains. Net income from a business, along with personal wages, interest, and dividends are examples of ordinary income.

ORGANIZATIONAL CULTURE is the set of beliefs, values, and norms, together with symbols like dramatized events and personalities that represents the unique character of an organization, and provides the context for action in it and by it.

ORGANIZATION COST is amounts spent to begin a business entity, e.g., business filing fees, franchise acquisition, and legal fees. In the United States, costs associated with a corporation issuing or selling shares or other securities are capitalized and not tax deductible. Other organization expenses may be capitalized and amortized over a period of sixty (60) months or more; thereby providing possible tax relief through organization cost deductions. See also STARTUP COSTS.

ORIGINAL EQUIPMENT MANUFACTURER is a company that builds components or systems that are used in systems or products sold by another company using the purchasing company's brand. Sometimes referred to as "private label."

ORIGINAL ISSUE DISCOUNT is when a long-term debt instrument is issued at a price that is lower than its stated redemption value; the difference is called Original Issue Discount (OID).

OSHA (OCCUPATIONAL SAFETY AND HEALTH ACT) is a federal law in the United States that requires employers to provide employees with a workplace that is relatively free of hazardous conditions.

OTHER COMPREHENSIVE INCOME (OCI) is part of total comprehensive income but is generally excluded from net income. Prior to SFAS 130, these three items—foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains or losses on available-for-sale investments—were disclosed as separate components of stockholders’ equity on the balance sheet. Under SFAS 130, they are to be reported as OCI. Furthermore, they must be reported separately, as FASB decided that information about each component is more important than information about the aggregate. Later, net unrealized losses on SFAS 133 derivatives were also included in the definition of OCI. The intent of SFAS 130 was that “if used with related disclosures and other information in financial statements, the information provided by reporting comprehensive income would assist investors, creditors, and other financial statement users in assessing an enterprise’s economic activities and its timing and magnitude of future cash flows.”

OTHER INCOME is income from activities that are not undertaken in the ordinary course of an entity's business.

OUT-OF-P0CKET are expenses requiring an outlay of cash in a given time period, e.g., payroll, advertising and other operating expenses, but not depreciation.

OUT-OF-THE-MONEY OPTION is an option that has no intrinsic value; for example, an option whose strike price, in the case of a put, is lower than the stocks current price, or in the case of a call, is higher. An investor who buys an out-of-the-money option is speculating that the option will rise in value and become in-the-money. See IN-THE-MONEY OPTION.

OUTSOURCE is to obtain goods or services from an outside supplier; i.e., to contract work outside of your budget and control. (An example would be companies outsourcing a percentage of their direct labor in order to maintain a flexible workforce.).

OUTSTANDING SHARES is the number of shares that are currently owned by all investors. It also includes restricted shares (shares owned by officers and insiders of the company) as well as shares held by the public. Shares that the company has repurchased or retired are not considered outstanding stock.

OVERAGE is that amount, as in money or goods, that is actually on hand and exceeds the desired or listed amount in records or books. Also known as SURPLUS.

OVER-APPLIED FACTORY OVERHEAD is the amount of factory overhead applied in excess of the actual factory overhead incurred for a production period.

OVER-BILLING is invoicing in excess of agreed upon pricing or exaggerating the amount of services or goods provided (sometimes illegally).

OVERDRAFT is, a. a draft in excess of the credit balance within an account; or b. a facility (usually at a bank or other financial institution) enabling an account holder to borrow up to an agreed amount and often for an agreed time.

OVERHAUL is to rebuild, make repairs or adjustments to, e.g. an overhaul expense would be the expenditures incurred in making the subject item(s) acceptable once again.

OVERHEAD is the costs associated with providing and maintaining a manufacturing or working environment. For example: renting the building, heating and lighting the work area, supervision costs and maintenance of the facilities. Includes indirect labor and indirect material.

OVERHEAD ABSORPTION is the term used for describing the transfer of value from a fixed asset such as a building or machine to the final product. In this way the indirect costs of the entity can be assigned to the products or services supplied.

OVERHEAD BUDGET shows the expected cost of all production costs other than direct materials and direct labor. Budgeted variable overhead costs are based on a budgeted variable overhead rate multiplied by budgeted activity. Budgeted fixed overhead costs remain unchanged as the activity level changes within the relevant range. See OPERATING BUDGET.

OVERHEAD RATE is calculated by totaling all your expenses for one year, excluding labor and materials, and then divide this number by your total cost of labor and materials.

OVERLEVERAGED is a balance sheet condition where the entity is incapable of servicing its debt load (interest payments) with available capital sources. Simply put, the entity is carrying too much debt.

OVER THE COUNTER (OTC) is a U.S. market for securities that are not listed on an exchange. Security orders are transacted via telephone and a computer network that connect dealers. As opposed to the NYSE, which is an auction market, the OTC is a negotiated market. OTC dealers may either act either as principals or as agents for customers. The OTC market is regulated by the NASD.

OVERTRADING, in securities, is: a. excessive buying and selling by a broker in a discretionary account, or, b. practice of a member of an underwriting group inducing a brokerage client to buy a portion of a new issue by purchasing other securities from the client at a premium. In finance, it is when a firm expands sales beyond a level that can be financed with normal working capital.

OVERSTATED is when something is represented as greater than is true or reasonable.

OWNED RECEIVABLES is receivables carried on the balance sheet of the institution. See MANAGED RECEIVABLES.

OWN WORK CAPITALIZED represents the value of work performed for own purposes and capitalized as part of fixed assets.

ACCOUNTING TERMS - ACCOUNTING DICTIONARY - ACCOUNTING GLOSSARY