Glossary – Accounting

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There are 25 names in this directory beginning with the letter P.
P & L
The abbreviation for profit and loss statement. Also known as the income statement.

Paid-in capital
The amount paid or contributed by stockholders in exchange for shares of a corporation’s stock.

Pass-through contributions
Contributions collected by Charity #1 who is merely acting as a collection agent for Charity #2. Also known as flow-through contributions.

Past cost
Also referred to as a sunk cost. A past cost is not relevant to a decision.

In business decision-making, payback means the number of years before the cash invested in a project is returned. It involves the cash flows from the project but generally the cash flows are not discounted to reflect the time value of money.

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.

Permanent accounts
Also referred to as real accounts. Accounts that do not close at the end of the accounting year. 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.

Petty cash
A current asset account that represents an amount of cash for making small disbursements for postage due, supplies, etc.

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 the 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.

Pledged asset
An asset which serves as collateral for a loan.

Point of purchase.

Point of sale.

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.

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.

Price variance
In standard costing the difference between the actual cost and the standard cost of direct materials or direct labor. The price variance of direct labor is usually referred to as the labor rate variance.

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.

Pro forma income
Income based upon some assumptions.

Another word for purchasing.

Profit margin
Net income divided by net sales.

A word to describe whether a company is able to earn more revenues than expenses.

Program evaluation and review technique (PERT)
A management tool that identifies the critical path—the path of sequential activities requiring the longest time to complete.

An individual owner of a business that is not incorporated.

Purchase commitments
A commitment to purchase a specific number of items in the future at a fixed price. If the agreement is non cancelable, the company must report a loss when the current cost of the items falls below the contracted price.

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, and one copy is sent to the accounts payable department to be later compared to the receiving ticket and invoice from the vendor.

Present value.
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