ACCOUNTING PERIOD 
The period of time at the end of which the accounts are closed and financial statements are prepared recording all transactions during the period. The period is typically twelve months (i.e. a fiscal year) but many institutions also have shorter accounting periods, when they close accounts after periods of one, three or six months. The time period is specified in the financial statements and normally time periods are of equal length to facilitate comparisons.

ACCOUNTING POLICIES 
Accounting policies encompass accounting principles, bases, conventions, rules and procedures adopted by managements in preparing and presenting financial statements. 
 

There are many different accounting policies in use even in relation to the same subject; judgement is required in selecting and applying those which, in the circumstances of the enterprise, are best suited to present properly its financial position and the results of its operations. 

 
Three considerations should govern the selection and application by management of the appropriate accounting policies and the preparation of financial statements:
Prudence: Uncertainties inevitably surround many transactions. This should be recognised by exercising prudence in preparing financial statements. Prudence does not, however, justify the adoption of practices designed to obscure the true financial state of an entity, e.g., the creation of secret or hidden reserves. 
Substance Over Form: Transactions and other events should be accounted for and presented in accordance with their substance and financial reality and not merely with their legal form. 
Materiality: Financial statements should disclose all items which are material enough to affect evaluations or decisions. 
A change in accounting policy that has a material effect in the current period or may have a material effect in subsequent periods should be disclosed together with the reasons. The effect of the change should, if material, be disclosed and quantified. See also Variations in Accounting Policies.

ACCOUNTING PRINCIPLES 
The body of knowledge relating to the theory and procedure of accounting. It provides explanations of current practice and serves as a guide for the selection of conventions or procedures where alternatives exist.

ACCOUNTING STANDARDS 
Guidelines established by the International Accounting Standards Committee, by national authority, custom or general consent which serve as a model for the practice of accounting.

ACCOUNTS PAYABLE 
Amounts due and payable to third parties for goods and/or services received for which demands for payment have been received, but for which payments have not been made. They are usually payable within 12 months (from report date) and classified as current liabilities on the balance sheet. These amounts do not include loans or notes payable. Net annual changes in total accounts payable may be reflected in the Sources and Applications of Funds Statement, or incorporated in changes to working capital.

ACCOUNTS RECEIVABLE 
Amounts due from others within one year of the date of a report. The limitation of one year is used to conform to the definition of current assets (assets which will be liquidated within one year). 

The amounts due would normally be in respect of the revenues derived from elements of sales and services of the particular trade, industry, commercial operations or service provided by the entity and may include items.of non-operating nature, e.g.,interest. In the case of a DFI these amounts would include interest, commitment charges, other financing charges, etc. levied, and non-banking receipts e.g. refund of insurance premium due to a DFI in the normal course of business but for which payment has not been received. Any amount known to be uncollectible within one year, but likely to be collectible after one year should be accounted for as Other Assets.

In DFIs, amounts provided for in a "Provisions for Bad Debts (or Loan Losses) Account" are not included in Accounts Receivable, but are shown as a deduction therefrom. Interest and other financing charges on non-performing loans or leases which were recorded as Accounts Receivable prior to the establishment of a loan or lease as non-performing are transferred from Accounts Receivable to Other Assets. From the date of declaration of a loan or lease as non-performing, interest and other financing charges are recorded as memorandum entries only in the accounting records of Other Assets and not disclosed in financial statements.

ACCRUAL Revenues and expenditures (costs) are accrued, that is, recognized as they are earned or incurred (and not as money (cash) is received or paid) and recorded in the financial statements of the periods to which they relate. Revenues on non-performing loans would not be subject to accrual (see Accounts Receivable).

ACCRUAL ACCOUNTING (as compared to cash accounting)
A form of accounting wherein all transactions are recognized and recorded at the time income is earned or expenditures are incurred, irrespective of whether or not cash is paid or received.

ACCRUED BENEFIT VALUATION METHODS 
Actuarial valuation methods that reflect retirement benefits based on service rendered by employees to the date of the valuation. Such methods may incorporate assumptions regarding projected salary levels to date of retirement.

ACCRUED EXPENSES 
are expenditures which are recognized and recorded at the time of incurrence, but for which a demand for payment has not been received, and are not paid by the end of the accounting period, and which are payable thereafter, e.g. arrears of salaries due, taxes, interest, etc.

ACTUAL VALUATION 
The process used by an actuary to estimate the present value of benefits to be paid under a retirement benefit plan and the present values of plan assets and sometimes of future contributions.

ADVANCING 
A method of borrowing from a Reserve Bank requiring execution of a promissory note with governmental securities as the underlying collateral.

AGEING OF RECEIVABLES 
The analysis of accounts receivables whereby various outstanding accounts receivable are classified as to whether they are current or past due. If past due they are grouped in varying categories (classes) based upon the period when each of these accounts fell due. The various classifications are generally ranges (time intervals) such as up to 30 days, or 60 to 90 days, or over 180 days. The mode of classification depends upon the nature of the particular business.

ALLOWANCE FOR BAD DEBTS or ALLOWANCE FOR LOAN LOSSES 
See Provision for Bad Debts.

AMORTIZATION 
(1) The paying off of debt in regular installments over a period of time. 
(2) The deduction of certain capital expenses over a specific period of time.
This term generally is used in two different contexts. 
The first usage relates to the retirement of debt on an installment or serial payment basis. 
The second usage applies to the systematic process of charging (writing off) the cost of certain tangible assets other than fixed assets, such as leasehold improvements, or of an intangible asset (.e.g. Goodwill, systems development, copyright) over its forecast useful life (see Fixed Assets and Property and Equipment).

ANNUAL FINANCIAL STATEMENTS 
Normally construed as statements of income, sources and applications of funds, changes in shareholders' equity for the fiscal year, and a balance sheet as at the closure of the same fiscal year. However, for a DFI the annual financial statements submitted to audit may include Statements of the Portfolio of Assets and of Provisions, Write-Offs and Revisions (see also Supplementary Information).

ANNUAL REPORT 
A corporation’s annual statement of financial operations, typically a glossy, colorful publication. Annual reports include a balance sheet, income statement, auditor's report and description of a company's operations. The Securities and Exchange Commission requires that publicly-traded companies file an annual report, with the Commission.

ANNUITY PAYMENTS Series of equal periodic payments at uniform intervals combining principal and interest on debt, designed to repay the long term debt by the stated maturity date.

ARBITRAGE The act of buying a security in one market and selling it in another. The term also refers to the act of buying a securing subject to exchange, conversion, or reorganization and selling it upon completion of the exchange, conversion, or reorganization.

ARREARS Any receivable, i.e. revenues from a sale or service, installment of principal and/or interest, which is due and has not been paid within (normally 30) calendar days of the due date.

ASSET 
Any physical object (tangible) or right (intangible) having monetary value and owned by an enterprise.

ASSOCIATED COMPANY 
An investee company that is not a subsidiary and in respect of which the investor's interest in the voting power of the investee is substantial, and the investor has the power to exercise significant influence over the financial and operating policies of the investee, and the investor intends to retain its interest as a long-term investment. 

AUDIT 
Defined in its narrowest application to accounting and financial reporting, is an examination meeting certain international, national and/or professional auditing standards on the basis of which the auditor expresses an independent professional opinion respecting the accuracy and fairness of presentation of annual financial statements, and of the effectiveness of the financial accounting systems and controls used in their preparation 

AUDITOR 
An individual who conducts and audit, usually professionally trained to perform in accordance with certain professional standards 

AUDIT REPORT A written report by and auditor in accordance with the terms of his appointment, and in which he expresses his opinion as to the accuracy, fairness, consistency and acceptability of the financial statements in question, based upon generally accepted Accounting Principles. For the Bank's purposes, an audit report may extend beyond financial statements 

BAD DEBT (Also referred to as an uncollectible account receivable) A receivable that is determined to be uncollectible. A bad debt can be uncollectible in whole or in part. See Bad Debt Expense and Bad Debt Provision.

BAD DEBT EXPENSE The amount written off or charged directly to the income statement, representing the amount determined to be uncollectible, and thus treated as an element of operating expense for the period in question.

BALANCE SHEET A financial statement which shows the financial position, condition, or status of a company as of a particular point in time. The Balance Sheet normally lists three major categories: (a) Assets; (b) Liabilities; and (c) Owners equity Liabilities always equal assets, hence the name "balance sheet."

BALANCE SHEET EQUATION
A formula stating that a corporation's assets equal the sum of its liabilities plus shareholders' equity.

BANKERS' ACCEPTANCE 
A time draft that a drawee bank agrees to pay at maturity (by stamping "accepted" over the signature of its authorized officer).

BASE COST ESTIMATE The staff member's estimate of the expected cost of a project at the time specified (usually at the time of appraisal or negotiations) and assumes no changes in cost due to quantities and/or price changes (Part III of the Guidelines).

BASIC FINANCIAL STATEMENTS 
Annual or periodic financial statements excluding the Supplementary Information; these may be the same as the published financial statements (see also Annual Financial Statements).

BEHEST PROJECT 
An investment undertaken (normally by a DFI) at the request of a government institution, in an entity or project whose financial viability and credit profile do not meet the DFI's lending/credit criteria, or which operates in a sector not serviced by the DFI. Such projects should be managed and reported on separately and independently of the DFI's routine banking and credit operations.

BOOK VALUE The net amount of an asset or group of assets as shown in the asset account after adjustment for depreciation. This figure could be further expanded to include effects of revaluation of assets in question, if any surplus or deficit revealed on revaluation is also taken into the accounts. The term may also be used to mean the net asset value (book value) per share of stock of an enterprise.

BORROWING COSTS Interest costs and other financing charges incurred by an enterprise in connection with the borrowing of funds. This includes amortization of discount or premium arising on the issue of debt securities, amortization of ancillary costs incurred in connection with the arrangement of borrowing and foreign currency differences relating to borrowed funds to the extent that they are regarded as an adjustment to interest costs .

BREAK EVEN ANALYSIS 
An analytical approach for illustrating the relationship between fixed cost, variable cost, and profit (i.e. the volume level at which revenues cover fixed and variable costs), and between cash flows, including contractual debt as fixed disbursement. Break-even analysis may employ a break-even chart which graphically depicts the behavior and relationships of various elements (Part V of the Guidelines).

CAPITAL
Cash or goods accumulated and available for use in producing more cash or goods.

CAPITAL ASSET 
All tangible property, including securities, real estate and other property, held for the long term.

CAPITAL EMPLOYED 
the long-term finance used by an entity, usually based on the paid-in capital, retained earnings, unappropriated reserves and long-term debt. The concept of capital employed is an important element in measuring the operating efficiency of an enterprise.

CAPITAL EXPENDITURE 
an expenditure which creates an asset that is intended to produce a stream of benefits over a number of years. In the case of Bank financing, no minimum life is required. Funds used by a company to acquire or upgrade physical assets such as property, plant or equipment.

CAPITAL INVESTED (See Invested Capital)

CAPITAL STRUCTURE 
The primary liabilities of an enterprise, namely its equity and debt, and the form in which they have been combined (contributed) for purposes of efficient operation See Gearing

CAPITAL STRUCTURE COVENANTS 
Normally Debt Service Coverage, Debt:Equity Ratio and Debt Limitation Covenants designed to support the development and maintenance of an adequate capital structure of an enterprise (see Part VI of the Guidelines).

CAPITAL SURPLUS 
A surplus usually created by issuance of capital stock at a premium or by transfers from retained earnings.

CASH COLLECTIONS 
actual amounts of cash collected, either from cash sales or as a result of billings. Collections against billings are a reduction in Accounts Receivable. Outstanding and as such are not included in the amount of outstanding receivables. See Gross Revenue.

CASH FLOW 
A narrow definition for funds flow, restricted to cash or cash equivalents. A statement based on this narrow definition is essentially a statement of all cash receipts and payments. It is frequently used when an institution has liquidity problems or when the definition of accounting principles and accounting practices are believed to be unsound. See Funds Flow.

CASH GENERATION COVENANT 
usually referred to as the Self-financing Ratio Covenant See Part VI of the Guidelines.

CASH ITEMS Include cash, a maturing coupon or bond, petty cash voucher, returned check, due bill, or similar items temporarily held pending liquidation.

CLOSING RATE 
The spot rate that exists at close of business on the balance sheet date.

CO-FINANCING 
Any arrangement under which funds from the Bank are associated with funds provided by other sources outside the borrowing country in the financing of a particular project 

COLLATERAL 
A specific property that a borrower pledges as security for the repayment of a loan. The borrower agrees that the lender will have the right to sell the collateral for the purpose of liquidating the debt if the borrower fails to repay the loan at maturity or otherwise defaults under the terms of the loan agreement. Examples of collateral are real estate, machinery and equipment, bonds, stock, notes, bills of lading, warehouse receipts and assigned debts.

COMMERCIAL BANK 
An institution that is in the business of accepting deposits and making business loans. Commercial banks may not underwrite corporate securities or most municipal bonds. See also investment banker.

COMMERCIAL PAPER 
An unsecured, short-term promissory note issued by a corporation for financing accounts receivable and inventories. It is usually issued at a discount reflecting prevailing market interest rates. Maturities range up to 270 days.

COMMITMENT CHARGE 
A charge, usually based on a percentage of an unutilized line of credit or loan, paid to a lender for a line of credit or loan

COMMITMENT FEE 
A charge made by a lender for committing loan funds to be available to a borrower on call or at an agreed time or time intervals. The fee is based on the undrawn balance of a loan and represents the cost to the lender of holding funds at a borrower's disposal. Commitment fees may be floating or fixed rate. A floating rate fee is based on the current market rate ruling at the time of making the loan or any part thereof. The fixed rate fee is determined at the date of the loan agreement.

COMMODITY
Any bulk good traded on an exchange or in the cash market; examples include metals, grains and meats.

CONSOLIDATED FINANCIAL STATEMENTS 
Statements which present the assets, liabilities, shareholders' accounts and changes therein, revenue, and expenses of a parent company and its subsidiaries as those of a single company.

CONSTANT PRICES See Real Prices

CONTINGENT RENTAL 
A rental that is not fixed in amount but is based on a factor other than just the passage of time (e.g., percentage of sales, amount of usage, price indices, market rates of interest).

CONTINGENT LIABILITIES 
An obligation which is conditional upon the finalization of certain transactions, or may arise in consequence of a future event now considered possible but not probable. Typical examples of contingent liabilities are guarantees; pending lawsuits that may result in a payment, contested income taxes. The disclosure of contingent liabilities is made either by means of an entity in the balance sheet (e.g. third party guarantees, or by means of a note to the financial statements (e.g. pending outcome of lawsuits against an entity).

CONTINGENCY 
A condition or situation, the ultimate outcome of which, gain or loss, will be confirmed only on the occurrence, or non-occurrence, of one or more uncertain future events.

CONTROL 
Ownership, directly, or indirectly through subsidiaries, of more than one half of the voting power of a company. Control may also be exercised through a management contract, loan default agreements, or by a government using statutory powers.

CORPORATION 
The most common form of business organization, in which the total worth of the organization is divided into shares of stock, each share representing a unit of ownership. A corporation is ongoing and the owners face only limited liability.

COST (or Financial Cost) 
the financial expenditure (in the form of a disbursement of funds, either actual or accrued due) incurred on, or attributable to, a specified item, object, or activity.

COST ACCOUNTING 
A specialized field of accounting which deals with the ascertainment, classification, recording, allocation and summarization of the various elements of cost of production, operation and maintenance (including overheads) of an entity, using accounting and costing principles, methods and techniques.

COST ESTIMATES 
Forecast of probable cost to be incurred in the future. See Base Cost Estimate.

COST OF SALES 
Term generally used to denote the cost of goods sold during a given accounting period (See Gross Profit for details of costs).

COVENANT 
A written pledge or promise. Usually a provision in an agreement between two or more parties whereby each or all parties undertake to do, or refrain from doing, a specific act.

CURRENT ASSETS 
Appears on a company's balance sheet, representing cash, accounts receivable, inventory, marketable securities, prepaid expenses and other assests that can be converted to cash within one year.
Among the items included in current assets should be: 

Cash and bank balances for current operations. 
Cash or bank balances whose use for current operations is subject to restrictions should be included as a current asset only if the duration of the restrictions is limited to the term of an obligation that has been classified as a current liability or if the restrictions lapse within one year of the date of the report. 

Securities not intended to be retained and capable of being readily realized.
Trade and other receivables expected to be realized within one year of the balance sheet date. Trade receivables may be included in their entirety in current assets, provided that the amount not expected to be realized within one year is disclosed. 
Inventories 
Advance payments on the purchase of current assets. 
Expense prepayments expected to be used up within one year of the balance sheet date. 

CURRENT COST (CURRENT VALUE) ACCOUNTING 
Accounting approach designed to reflect changes in the values of assets or goods themselves for changes in specific prices by the use of several methods. The methods commonly used are specific price index, replacement cost, current entry prices, current exit prices, reproduction cost, and discounted present values. Current Cost deals with the effects of changes in prices of resources used by the enterprise and is concerned with values to the business rather than costs.

CURRENT COST (OF AN ASSET) 
The value equal to the value ascertained by methods of revaluation acceptable to the Bank under a loan agreement, sometimes referred to as the current replacement cost of the asset owned, adjusted up or down for the value of any operating advantages or disadvantages.

CURRENT COST OPERATING PROFIT 
Term generally used in U.K. current cost accounting to adjust for inflation. It is the surplus arising from the ordinary activities of the business in the period, after allowing for the impact of price changes on the funds required to continue the existing business and maintain its operating capability, whether financed by share capital or borrowing. Calculated before interest on net borrowing and taxation. See Current Cost Profit Attributable to Shareholders

CURRENT COST PROFIT ATTRIBUTABLE TO SHAREHOLDERS
Term used in U.K. current cost accounting to adjust for inflation. It is the surplus for the period after allowing for the impact of price changes on the funds needed to maintain their proportion of the operating capability. It is calculated after interest, taxation and extraordinary items. See Current Cost Operating Profit.

CURRENT EXPENDITURE (Sometimes also referred to as recurrent or revenue expenditure) 
Expenditure which results in benefits realized within a short period generally within a year. Current expenditures may or may not be revenue-generating, as in the case of highway maintenance.

CURRENT INVESTMENT An investment that is capable of being readily realized and that is either intended to be held for less than twelve months or for which the enterprise has no specific intention.

CURRENT LIABILITIES 
Appears on a company's balance sheet, representing amounts owed for interest, accounts payable, short-term loans, expenses incurred but unpaid and other debts due within one year. Among the items included in current liabilities should be obligations payable at the demand of the creditor and those parts of the following obligations whose liquidation is expected within one year of the balance sheet date:

Bank and other loans. If a loan is repayable in accordance with a schedule of repayment agreed with the creditor, the loan may be classified in accordance therewith, notwithstanding a right of the creditor to demand current payment. 
The current portion of long-term liabilities. 
Trade liabilities and accrued expenses. 
Provision for taxes payable. 
Dividends payable. 
Deferred revenues and advances from customers. 
Accruals for contingencies. 

the issue of share capital or a long-term obligation after the date of the balance sheet; or 
a non-cancellable financing agreement that does not expire within one year of the balance sheet date and that the lender or investor is capable of honoring. 

When an enterprise excludes a liability from the current classification in accordance with the foregoing, the amount of the liability and the terms of the refinancing should be disclosed.

CURRENT MATURITIES OF LONG-TERM DEBT or short-term portion of Long-Term Debt 
is the appropriate portion of long-term debt falling due for repayment in the accounting year following the date of the balance sheet (i.e. within twelve months from the balance-sheet date). Normally this maturity should be recorded in Current Liabilities and the total amount of long-term debt correspondingly reduced, except for calculation of a debt:equity ratio.

CURRENT NET VALUE OF ASSETS IN SERVICE  See Valuation of Fixed Assets.

CURRENT PRICES 
Prices prevailing in each successive accounting period. They are nominal prices, i.e., unadjusted prices that reflect inflation or deflation occurring over time. They should not be confused with present prices.

CURRENT RATIO 
Indicator of company's ability to pay short-term obligations, calculated by dividing current assets by current liabilities. Used to compare companies within a single industry: the higher the ratio, the more liquid the company. A generally accepted measure of short-term solvency and is expressed as the numerical relationship between current assets and current liabilities. It is a measure of short-term debt paying ability. (See Part VI of the Guidelines)

CURRENT RATIO COVENANT
A Liquidity covenant based on the current ratio.

CURRENT REPLACEMENT COST 
The amount of cash (or its equivalent) that would have to be paid to acquire currently the best asset available to undertake the function of the asset owned (less depreciation or amortization if appropriate). This concept of replacement cost should be distinguished from the cost of replacing the service potential of the asset owned (see current cost).

CURRENT REPRODUCTION COST 
The amount of cash (or its equivalent) that would currently have to be paid to acquire as identical asset is measured by referring to the cost of a new asset it may need to be adjusted for depreciation or amortization.

CURRENT SERVICE COST The cost to an employer under a retirement benefit plan for the services of participating employees exclusive of those elements of cost identified as past service cost, experience adjustments and the effects of a change in an actuarial assumption.

DEBT AS PERCENTAGE OF TOTAL CAPITALIZATION 
is long term debt divided by equity plus long-term debt. The current maturities portion of long-term debt, although shown under current liabilities should be included in this calculation. Where deferred credits(e.g. for taxes) are material, they should also be included in the denominator. This ratio deals only with the long-term capitalization of the entity, and tells us the relative importance of long term debt in the capital structure.

DEBT-TO-EQUITY RATIO 
Long-term debt divided by stockholders' equity. The ratio identifies the relationship of debt to ownership interest in the firm's financial structure. A measure of a company's financial leverage, calculated by dividing long term debt by shareholders' equity. A higher debt/equity ratio generally means that a company has been aggressive in financing its growth with debt, which can result in volatile earnings as a result of the additional interest expense.

DEBT : EQUITY RATIO
related total debt to shareholders equity. This calculation should include current maturities of long-term debt in the numerator and total net worth (including retained earnings and free reserves) in the denominator. (See Part VI of the Guidelines)

DEBT/EQUITY RATIOS 
Debt-to-Equity Ratio is a company's total long-term debt expressed as a percentage of shareholders' equity. Unit Measure: %D/Eq (1 = 1%)

Absolute Mode - Debt-to-equity ratio normally is used in the absolute mode. A conservative investor looking for stocks with a maximum 1-to-2 debt-to-equity ratio, would use a minimum of 0 (zero) and a maximum of 50. An aggressive investor looking for leveraged stocks with a minimum debt-to-equity ratio of 2 to 1 would use 200 as the minimum and any high figure as the maximum. 
Relative Mode - Here are several ways to use debt-to-equity ratio in the relative mode: To find low-debt companies that offer low risk or opportunity for future leverage, use debt-to-equity ratio in the low relative mode. Debt-to-equity ratio can be used to find potential sell candidates within specific industry groups that are being impacted by some economic factor. 
For example, if fuel prices were to rise precipitously, the highly leveraged airline industry would be affected negatively. In that industry the maximum impact would probably hit the airline with the highest debt ratio. So you could search the airline industry group using a Debt-to-Equity Ratio in the high relative mode. 
Another example is interest rates. If you expect interest rates to rise significantly, select the industries that would be most affected negatively (housing, for example); then search those industries using debt-to-equity ratio in the high relative mode to find companies which would be impacted the most. 
NOTE:Companies with fixed interest rates on their debt may not be impacted at all by short-term swings in interest rates. 
Combinations - Use debt-to-equity ratio in both the absolute and low relative modes to look for companies that have a debt-to-equity ratio below 1, and as low as possible:

DEBT : EQUITY RATIO COVENANT 
A capital structure covenant which seeks to limit the amount of debt which a borrower may incur by establishing a minimum ratio between debt and equity.(See Part VI of the Guidelines)

DEBT FINANCING 
Raising money for working capital or for capital expenditures by selling bonds, bills or notes to individual or institutional investors. In return for the money lent, the individuals or institutions become creditors and receive a promise to repay principal and interest on the debt. The other major way of raising capital is to issue shares of stock in a public offering.See also equity financing.

DEBT LIMITATION COVENANT 
A capital structure covenant which seeks to limit the amount of debt which a borrower may incur. (See Part VI of the Guidelines).

DEBT SECURITY A security representing a loan by an investor to an issuer such as a corporation, municipality, the federal government or a federal agency. In return for the loan, the issuer promises to repay the debt on a specified date and to pay interest.

DEBT SERVICE the aggregate amount of amortization (including sinking fund payments, if any) of, and interest and other charges on, debt. In the case of Bank loans or credits where only a portion of the loan or credit has been drawn down by the borrower, debt service would also include commitment fee on the unutilized portion.

DEBT SERVICE COVERAGE COVENANT 
A capital structure covenant to regulate the amount of debt which a borrower may incur, by reference to its facility to meet at least debt-service payments from year to year. (See Part VI of the Guidelines) 

DEBT-TO-EQUITY RATIO
Long-term debt divided by stockholders' equity. The ratio identifies the relationship of debt to ownership interest in the firm's financial structure. A measure of a company's financial leverage, calculated by dividing long term debt by shareholders' equity. A higher debt/equity ratio generally means that a company has been aggressive in financing its growth with debt, which can result in volatile earnings as a result of the additional interest expense.

DEBTORS 
Persons or entities owing money to another individual or entity. The word "Debtors" in British accounting terminology refers to Accounts Receivable.

DEFAULT 
(1) The failure to pay interest or principal promptly when due. 
(2) The failure to perform on a futures contract as required by an exchange.

DEFINED BENEFIT PLANS Retirement benefit plans under which amounts to be paid as retirements benefits are determinable, usually by reference to employee's earnings and/or years of service.

DEFERRED CHARGES 
are expenditures which are expected to benefit more than one accounting period and as such are not wholly chargeable to operations, or to capital in any one accounting period. Deferring an expenditure can only be justified if a genuine asset with future service potential has resulted. If the future service potential of any expenditure is obscure or is in doubt, it should be recognized as an expense in the period during which it was incurred. For example, the cost of issuing bonds, management consultant fees for system design and installation may be charged to deferred charges and written off (amortized) over future accounting periods --- but the deferment of charging unrealized losses on foreign exchange transactions (e.g. on debt) should not be treated as deferred charges, but charged to Income in the year of occurrence, and where necessary(because the liability has not been realized by a payment to the lender) carried as a Reserve created by the charge to Income.

DEFINED CONTRIBUTION PLANS 
Retirement benefit plans under which amounts to be paid as retirement benefits are determined by contributions to a fund together with investment earnings thereon.

DEPOSITS 
may be (i) funds deposited by contractors or consumers with a project entity as bona fides; advance payments by consumers against work to be performed; earnest money; or against possible bad debts, or (ii) funds lent to a bank usually on short-term see time deposits. They are generally classified as current assets on a balance sheet.

DEPRECIABLE AMOUNT 
of a depreciable asset is its historical cost or other amount substituted for historical cost in the financial statements, less the estimated residual value.

DEPRECIABLE ASSETS 
Assets which:

are expected to be used during more than one accounting period, and 
have a limited useful life, and 
are held by an enterprise for use in the production or supply of goods and services, for rental to others, or for administrative purposes. 

DEPRECIATION 
The allocation of the depreciable amount of an asset over its estimated useful life. Depreciation for the accounting period is charged to income either directly or indirectly.

DIRECT COSTS 
Costs allocatable directly to a cost center, usually without apportionment, e.g. salaries, wages, materials, transport, (interest expenses, loan fees for a DFI). The use of direct costs is intended to achieve accurate financial measurements of each operation of an enterprise, (particularly for spread determination in a DFI).

DISBURSEMENTS 
the payment of funds from the loan account of a borrower either directly to the borrower as reimbursement for expenditures already incurred on items provided for in the project, or as a direct payment on behalf of the borrower to a consultant, supplier or contractor.

DISCOUNTED PRESENT VALUE 
the present value of an asset based on the discounted expected future net receipts attributable to the asset.

DISCLAIMER OF OPINION 
A statement by an auditor in which he refuses to express an opinion on the financial statements of an entity (see also Qualified Opinion). 

DIVIDENDS 
A distribution of cash or shares to shareholders or stockholders, from earnings of an entity.

DIVIDEND LIMITATION COVENANT 
A Liquidity covenant based on a prescribed limitation of dividends payable by an enterprise, intended to sustain the liquidity of an enterprise. (See Part VI of the Guidelines)

DUE DILIGENCE 
The careful investigation by the underwriters that is necessary to ensure that all material information pertinent to an issue has been disclosed to prospective investors.

EARNINGS 
Net income for a company during a specific period, generally (but not always) referring to after-tax income.

EARNINGS ON INVESTED CAPITAL 
is the sum of net income after taxes plus tax adjusted interest on long-term debt divided by invested capital. The tax adjustment consists of reducing interest expense by a proportion equal to the tax rate. This procedure puts interest paid on long-term debt on the same basis as income available for stockholders, equity and, therefore, reduces the influence of differences in capital structure on the rate of return. This is illustrated below:

Operating Income 1,500
Interest on long-term debt 300
Pre-tax income 1,200
Taxes (33-1/3%) 400
800
Invested Capital 10,000 

Return on Invested Capital:
800 + (300-100) = 10%
10,000

EFFECTIVE LOAN 
A loan that has satisfied conditions precedent.

ENCUMBRANCE 
A claim or lien, such as mortgage upon real property, which diminishes the owner's equity in the property.

EQUITY 
(1) Another word for stock, or similar securities representing an ownership interest.
(2) On the balance sheet, the value of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). 

The balance sheet may list Owners' Equity or Shareholders' Equity.

The net worth of a business, usually consisting of unimpaired paid-up capital; undistributed earnings and free reserves available, or used for investments; non-returnable payments for capital purposes.

EQUITY CAPITAL 
The issued share capital of a enterprise which is neither limited nor preferred in its participation in distribution of its assets.

EQUITY FINANCING 
Raising money for working capital or for capital expenditures by selling common or preferred stock to individual or institutional investors. In return for the money paid, the individuals or institutions receive ownership interests in the corporation. See also debt financing.

EQUITY METHOD 
A method of accounting by an investor for certain types of long-term investments in associated companies and for certain unconsolidated subsidiaries. Under the equity method, the investment account of the investor is adjusted in the consolidated financial statements for the change in the investor's share of the results of operations of the investee.

EVENTS OCCURRING AFTER THE BALANCE SHEET DATE 
Those events, which may be favorable or unfavorable, that occur between the balance sheet date and the date on which the financial statements are authorized for issue. Two types of events can be identified, namely, those that provide further evidence of conditions that existed at the balance sheet date; and those that are indicative of conditions that arose subsequent to the balance sheet date.

EXCHANGE RATE 
The ratio at which the currencies of two countries are exchanged at a particular time.

EXPERIENCE ADJUSTMENTS 
Adjustments to retirement benefit costs arising from the differences between the previous actuarial assumptions as to future events and what actually occurred.

EXTRAORDINARY (UNUSUAL) ITEMS 
Gains or losses that derive from events or transactions that are distinct from the ordinary activities of the enterprise and therefore are not expected to recur frequently or regularly.

FAIR VALUE 
The amount that a debtor could reasonably expect to receive in a current sale between a willing buyer and a willing seller, that is, other than in a forced or liquidation sale. Fair value of assets is measured by their market value if an active market for them exists. If no active market exists for the assets transferred but exists for similar assets, the selling prices in that market may be helpful in estimating the fair value of the assets transferred. If no market price is available, a forecast of expected cash flows may aid in estimating the fair value of assets transferred, provided the expected cash flows are discounted at a rate commensurate with the risk involved.

FAIR MARKET VALUE 
The amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction.

FIDUCIARY 
A person legally appointed and authorized to hold assets in trust for another person and manage those assets for the benefit of that person.

FINAL PAY PLAN 
A defined benefit plan that promises benefits based on an employee's remuneration at or near retirement. The remuneration considered for this purpose is sometimes that of the final year and sometimes an average of a number of years as specified in the plan.

FINANCE CHARGE 
In a finance lease, this represents the difference between the total minimum lease payments over the lease term and the initial recorded liability.

FINANCE LEASE 
A lease that transfers substantially all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred.

FINANCIAL ACCOUNTING 
the process of recording, classification and compilation of financial transactions in a manner appropriate to determine (i) the financial performance of an entity, and (ii) its status, and financial relationship to other entities and persons.

FINANCIAL COST See Cost

FINANCIAL INTERNAL RATE OF RETURN 
the internal rate of return on an asset investment. It is the discount rate that equates the present value of future net revenue streams (over the economic life of the asset) to the cost of the investment. (See the Bank's Guidelines on Economic Analysis of Projects and Part V of these Guidelines)

FINANCIAL LEVERAGE the extent to which the company uses long-term debt or other senior fixed charge obligations to finance its assets. In British accounting this is referred to as Gearing.

FINANCIAL MANAGEMENT 
the process of financial decision-making based on the planning, forecasting, organizing, controlling and communicating of financial and physical data derived from the design and implementation of a project, with the objective of achieving optimum financial and economic benefits from an investment. Financial management may incorporate one or more of three branches of accounting -- management, financial and cost accountting.

FINANCIAL REPORTING PERIOD 
usually the fiscal year of a project entity, but may also be defined as shorter periods, e.g., three months, to provide interim financial reports in a fiscal year.

FINANCIAL STATEMENTS typically are:

Income Statements 
Statement of Changes in Shareholders' Equity 
Statements of Cash flow or Sources and Application of Funds 
Balance Sheets 
Notes to the Financial Statements 
Any supplementary information provided for particular users of the statement 
These Statements and notes may include financial performance measurements, e.g. ratios, trends, etc.
For a DFI, the following should also be included:
Portfolio of Investments Performing Assets 
Schedule of Transactions in Year 
Non-Performing Assets 
Provisions for Bad Debts (Loan Losses), Write-Offs and Recoveries 

FISCAL YEAR 
The accounting year of an enterprise (See Accounting Period). An accounting year may not coincide with a taxation year, the government's fiscal year, or a Central (Reserve) Bank's fiscal year.

FIXED ASSETS 
all tangible assets (movable and immovable) held by an enterprise and used in its normal operations for the production of goods or services; such assets have normal life longer than one year and are not normally acquired for resale (see Property and Equipment, and Valuation of Fixed Assets).

FIXED CHARGES 
costs which do not vary in amount with the level of output within the relevant range or line or production, particularly fixed financial costs such as interest, lease payments, and sinking fund payments.

FOREIGN CURRENCY 
A currency other than the reporting currency of an enterprise.

FOREIGN CURRENCY LOAN 
A loan repayable in a foreign currency, regardless of the currency, or form, in which the loan was received.

FOREIGN EXCHANGE COSTS (of a project) generally are the sum of 

(i) direct payments made in currencies other than that of the borrowing country for equipment and materials, consulting services, and contractors (including depreciation on imported plant and equipment): 
(ii) estimates of the import component (raw materials, components, fuel and depreciation of the imported plant and equipment) embodied in goods and services that are paid for in local currency. Where present, these two elements should be reflected in the foreign costs column of each project's cost table.

FOREIGN EXCHANGE POSITION 
The aggregate of an enterprise's assets, liabilities, and commitments receivable or payable in multiple or single foreign currencies.

FORGIVABLE LOANS 
Loans which the lender undertakes to waive repayment of under certain prescribed conditions.

FORWARD FOREIGN EXCHANGE CONTRACT 
A contract for the purchase or sale of foreign exchange to be delivered at a future date (usually six months) at a rate fixed at the time the contract is entered into. Settlement is made at delivery.

FORWARD RATE 
The exchange rate applicable by the terms of an agreement for the exchange of two currencies at a future date.

FUNDING 
The financing of expenditures, usually referring to capital expenditures, but not exclusively. For Pensions Fund accounting purposes it is the irrevocable transfer of assets to an entity separate from the enterprise to meet future obligations for the payment of retirement benefits.

FUNDS FLOW 
though this term is often used interchangeably with cash flows, funds flow is a broader concept which focuses upon changes (increases and decreases) in working capital between two points in time, these points being usually the beginning and end of the accounting or reporting period (see Cash Flow and Statement of Sources and Application of Funds).

GEARING 
A term used to describe the relationship between a prior charge (debt etc.) on capital and the equity of an enterprise. A "highly-geared" company has high proportion of debt relative to equity.

GENERAL PRICE-LEVEL ACCOUNTING (GPL) 
accounting approach designed to identify and segregate the impact of inflation on conventional financial statements. A method of reporting financial statement elements in monetary units each of which has equal worth while changing no accounting principles. Makes use of a general index rather than specific price indices. Also called constant monetary unit, general purchasing power, and current purchasing power accounting.

GOING CONCERN 
An enterprise that is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations.

GOODWILL 
an intangible asset of a firm usually established by the price paid on acquisition of a going concern over its book value.

GOVERNMENT 
refers to government, government agencies and similar bodies under control or direction of government whether local, national or international.

GOVERNMENT GRANTS 
Assistance by government in the form of transfers of resources to an enterprise in return for past or future compliance with certain conditions relating to the operating activities of the enterprise. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the enterprise.

GRANTS RELATED TO ASSETS 
Government grants whose primary condition is that an enterprise qualifying for them should purchase, construct or otherwise acquire long-term assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.

GRANTS RELATED TO INCOME 
Government grants other than those related to assets.

GROSS INVESTMENT IN THE LEASE 
The aggregate of the minimum lease payments under a finance lease from the standpoint of the lessor and any unguaranteed residual value accruing to the lessor.

GROSS MARGIN (Sales Margin) 
generally refers to the margin earned by a firm on the sale of goods or services. Gross Margin is equivalent to the net sales price charged less the price paid for, and/or cost of resources applied to, the goods by the business.

GROSS PROFIT 
sales revenues less direct cost incurred in the production of the goods sold. Depreciation on production is generally also included in the cost but general overhead is not. Gross profit is calculated as follows:

Sales 
Deduct Cost of Sales 
Materials 
Labor 
Depreciation 
Factory Overhead 
Gross Profit 

GROSS REVENUES 
normally defined as the total amount of revenues earned from all operational sources of an entity through the sales of products and/or provision of services during an accounting period. This amount will generally be reflected in cash receipts and/or increased in accounts receivable for the period. This figure does not include extra-ordinary income from non-operating activities.

GROUP 
A parent company and all its subsidiaries.

GUARANTEE 
An undertaking by a borrower or a third party to an agreement to meet the commitments of a borrower in total, or in part, as specified in a legal agreement. Guarantees may be in collateral form (pledged assets) or intangible form (personal commitments to repay outstanding sums due to a lender, backed by real estate or financial holdings).

HISTORICAL COSTS 
the original cost incurred at date of acquisition of an asset (goods or service) to the owner. Cost could also be the value of an identical item received through exchange value plus or minus any payment made or such payment received as part of the exchange.

IMPREST FUND 
A fund provided by the Bank from the proceeds of a loan as an advance payment without documentation, against which a borrower may draw for authorized expenditures up to prescribed limits. The Fund is replenished by the Bank against production by the borrower of satisfactory supporting documents, including Statements of Expenditures. See Revolving Fund.

INCEPTION OF THE LEASE 
The earlier of the date of the lease agreement or of a commitment by the parties to the principal provisions of the lease.

INCOME STATEMENT 
A company's financial statement summarizing revenues and expenses in a specific period, also known as a profit and loss statement.

INDIRECT COST 
Expenses of an enterprise which cannot be directly allocated without apportionment to a cost center, e.g. fire insurance on a headquarters building (see Direct Cost).

INFECTED PORTFOLIO A portfolio of investments, any part of which is in arrears (whether principal or interest).
 

INFLATION
refers to increases in the general price level of goods or services over time. A consumer price index is a commonly used measure. For project investment, it usually refers to the increase in base costs of the project arising from general price level increases referred to above. Different inflation rates may be needed to reflect local inflation and foreign inflation rates.

INSTALLMENT LOAN A note repayable in installments (usually in equal months, quarterly or half-yearly amounts) with maturities depending on the nature of the loan.

INTEREST COLLECTED BUT NOT EARNED (Unearned interest) 
Interest that has been collected in advance of the contract to be performed or the consideration to be met.

INTEREST EARNED BUT NOT COLLECTED (Interest receivable)(accruable) 
Interest on loans and investment securities not collected in advance but due and payable at specified future dates.

INTEREST EXPENSE All interest, commitment charges and other charges based on a time value of money payable and accrued in an Income Statement typically comprising interest paid on deposits, on debt, debentures, on notes and on other instruments yielding funds for operations of an enterprise. Fees incurred in raising funds by such instruments normally are excluded from interest expense.

INTEREST INCOME All interest, commitment charges and other charges based on a true value of money held by an enterprise, typically comprising interest and commitment charges collectible on loans and leases or similar instruments intended to yield financial returns on the assets of an enterprise. Fees designed to recover cost of such operations (e.g. loan origination fees) are excluded from interest income).

INTEREST ON LONG-TERM DEBT 
is all interest associated with debt incurred by an enterprise, the repayment of which is due more than one year following the expiration of the fiscal year under review.

INTEREST RATE IMPLICIT IN THE LEASE 
The discount rate that, at the inception of the lease, causes the aggregate present value of the minimum lease payments, from the standpoint of the lessor; and  the unguaranteed residual value; 
to be equal to the fair value of the leased asset, net of any grants and tax credits receivable by the lessor.

INTERNATIONAL ACCOUNTING STANDARDS 
Guidelines established by the International Accounting Standards Committee (IASC) to harmonize and bring direction and uniformity to the international practice of professional accounting in different countries. These standards promulgated by the IASC would not override local regulations laid down by regulatory bodies in the countries concerned (see Parts IV and IX of the Guidelines).

INTERNATIONAL AUDITING GUIDELINES 
General auditing guidelines published by the Auditing Practices Committee of the International Federation of Accountants to harmonize and give direction to the international practice of auditing (see Parts IV and IX of the Guidelines).

INTERNAL CASH GENERATION 
is the gross income from all sources less all operating and administrative expenses, excluding depreciation, interest, other non-cash charges and other charges on debt.

INTERNAL CHECKS 
are the checks on the day-to-day transactions which operate continuously as part of a routine system, whereby the work of one person is proved independently or is complementary to the work of another, the object being the prevention or early detection of errors and fraud; it includes matters such as the delegation and allocation of authority and the division of work, the method of recording transactions and the use of independently ascertained totals against which a large number of individual items can be proved.

INTERNAL CONTROL 
is the whole system of controls (including internal checks), financial and non-financial, established by management in order to carry on the business of an entity in an orderly manner, safeguard its assets and secure as far as possible the accuracy and reliability of its records. Internal control includes internal check and internal audit and also includes such accounting procedures as the regular verification of control accounts for stocks, debtors and creditors with the detailed ledger accounts.

INTERNAL RATE OF RETURN (FIRR) 
See Financial Internal Rate of Return. (See also the Bank's Guidelines on Economic Analysis of Projects and Part V of these Guidelines)

INTERNAL SOURCES OF FUNDS are

Net Income after taxes 
Add depreciation 
Add working capital decreases 
Deduct Debt Service 
Deduct Working Capital increases 
Deduct Dividends 

INVENTORIES 
are tangible property (a) held for sale in the ordinary course of business, (b) in the process of production for such sale, or (d) for incorporation in non-revenue-earning activities, e.g. government department operations. Normally, inventories should be identified in a list of descriptions, quantities and values of stocks of raw materials, or work-in progress, or finished goods, or materials required for operations and maintenance, or movable assets having small characteristics, e.g., furniture, loose tools which are not classified as fixed or movable assets and not held for resale in the course of business. Inventories may be described in some countries as "stock, or work-in-progress". 
A comparator for finished goods in inventory is:

Finished Goods Inventory x 365 days
Cost of Sales
A comparator for raw materials in inventory is:
Average Raw Material Inventory x 365 days
Cost of Raw Material Used
A comparator for inventory turnover is:
Cost of Sales
Average Inventories

INVESTED CAPITAL 
Invested Capital is equity plus long-term debt. When it is used in calculating the return on investment, it is preferable to use the total asset base as Invested Capital. However, when assessing the effectiveness of assets employed it may be preferable to include only the investments in those assets employed in the operations of the enterprise.

INVESTEE An enterprise in whose voting power an interest is held by another company (the investor).

INVESTMENT An asset held by an enterprise for the accretion of wealth through distribution (such as interest, royalties, dividends and rentals), for capital appreciation or for other benefits to the enterprise.

INVESTMENT PROPERTY 
An interest in land or buildings that satisfies the definition of an investment and is not occupied substantially for its own use or operations by the investing enterprise or another enterprise in the same group as the investing enterprise.

INVESTOR 
An enterprise or person holding an interest in the voting power of another company (the investee).

JOINT FINANCING 
Co-financing operation for which there is a common list of goods and services and where the financing of the disbursement for all or certain items are shared between the Bank and the co-lender in agreed proportions.

JOINT VENTURE 
The cooperation of two or more individuals or enterprises in a specific business enterprise, rather than in a continuing relationship as in a partnership.

LEASE 
An agreement whereby the lessor conveys to the lessee in return for rent the right to use an asset for an agreed period of time. A lease may be operating or financing (see Operating Lease and Financing Lease).

LEASE TERM 
The non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, which option at the inception of the lease it is reasonably certain that the lessee will exercise.

LESSEE'S INCREMENTAL BORROWING RATE OF INTEREST 
The rate of interest the lessee would have to pay on a similar lease or, if that is not determinable, the rate that, at the inception of the lease, the lessee would incur to borrow over a similar term and with a similar security the funds necessary to purchase the asset.

LETTERS OF CREDIT
Formal documents in letter form addressed to and authorizing the beneficiary (for example, an exporter) to draw a draft to a stated amounts of money against the accepting bank.

LEVERAGE 
The use of borrowed capital to increase the return of an investment. Also See Gearing -

LINE OF CREDIT An arrangement whereby a financial institution commits itself to lend up to a specified maximum amount of funds during a specified period. The interest rate on the loan is contracted either at the time of contracting or at the time of making the loan. Usually, a commitment fee is charged during the contractual period.

LIQUIDITY 
Refers to an enterprise's cash (or near-cash) position and its ability to meet maturing obligation.

LIQUIDITY COVENANTS 
refers to provisions in an agreement concerned with maintaining adequate financial liquidity of an entity. Typical covenants are:

Current ratio 
Quick ratio 
Dividend Limitation Covenant 

LOAN IN REPAYMENT STAGE 
Loans where the agreement provides that repayments are scheduled to have commenced.

LOAN ORIGINATION FEE 
The fee typically charged by a lender to recover the cost of investigating and granting a request by a borrower for a loan. These fees may be payable in part or in total in advance by a prospective borrower; or they may be recorded at loan signing, either from loan proceeds or as a precondition of loan signing.

LOAN PERIOD 
Total number of years from the Date of Effectiveness of the loan, which normally falls three months after signature, to its last payment or Closing Date (including the Grace Period).

LOCAL COST (sometimes called onshore cost) 
refers to the local currency value of all goods and services of the project, assumed produced within the country. Excludes the value of supplies which are imported into the country, independently of the project and which form the indirect foreign component. 

LONG-TERM ASSETS (Sometimes referred to as non-current assets) 
Any asset, the life or useful value of which extends beyond one twelve month operating cycle (Fiscal Year). The term applies to both tangible and intangible assets. See Fixed Assets, Tangible Assets, and Intangible Assets.

LONG-TERM DEBT (or borrowings) 
means any debt incurred by an entity maturing more than one year from the date of the financial statements.

LONG-TERM INVESTMENT An investment that either is not capable of being readily realized or is intended to be held for twelve months or more.

LONG-TERM ITEMS 
Those assets and liabilities not expected to be realized or settled within one year from the balance sheet date.

MANAGEMENT ACCOUNTING 
the design, installation and operation of financial planning, budgeting and financial accounting systems; with the use of appropriate methods and techniques to monitor and control all aspects of financial operations; and the co-ordination of these systems, methods and techniques with the primary activities of an entity.

MARGINAL REVENUE 
The change in total revenue from the sale of one additional unit.

MARKET VALUE 
As applied to an investment, is the amount estimated to be obtainable from the sale of that investment in an active market.

MARKETABLE 
As applied to an investment, means that there is an active market from which a market value (or some indicator that enables a market value to be calculated) is available.

MINIMUM LEASE PAYMENTS 
The payments over the lease term that the lessee is or can be required to make (excluding costs for services and taxes to be paid by and be reimbursable to the lessor) together with:

in the case of the lessee, any amounts guaranteed by him or by a party related to him; 
or 
in the case of the lessor, any residual value guaranteed to him by either the lessee or a part related to the lessee or an independent third party financially capable of meeting this guarantee. 

MINORITY INTEREST 
That part of the net results of operations, or of net assets, of a subsidiary attributable to shares owned other than by the parent company or another subsidiary.

MONETARY ITEMS 
Money held and items to be received or paid in money. All other assets and liabilities are non-monetary items.

NEGATIVE AMORTIZATION LOANS 
Installment loans having the annuity principal as a basis for computation, whose fixed periodic payments increase from time to time, e.g. annually, bi-annually. Initial installments typically are insufficient to meet the interest accruing on the loan principal and unpaid balances of interest are added to the principal outstanding. As the periodic installments increase in value they become sufficient to meet the interest due and commence reducing the principal outstanding.

NET CASH INVESTMENT(LEASING) 
The balance of the cash outflows and inflows in respect of the lease excluding flows relating to insurance, maintenance and similar costs rechargeable to the lessee. The cash outflows include payments made to acquire the asset, tax payments, interest and principal on third party financing. Inflows include rental receipts, receipts from residual values, and grants, tax credits and other tax savings or repayments arising from the lease.

NET INCOME 
is the gross income from all sources less all operating and administrative expenses, depreciation, interest, and other charges on debt, and taxes.

NET INCOME AFTER TAXES 
is the gross income from all sources less all operating and administrative expenses, depreciation, interest, and other charges on debt, and taxes.

NET INTEREST INCOME 
The surplus (deficit) yielded by deducting interest expense from interest income.

NET INVESTMENT IN THE LEASE 
The gross investment in the lease less unearned finance income.

NET OPERATING INCOME 
Operating Income after income tax

NET PRESENT VALUE (NPV) 
The present (current) value of a project or component determined by applying an appropriate discount rate to the cash outflows and inflows over the life of the investment. See Part III of the Guidelines and the Bank's Guidelines for Economic Analysis of Projects

NET REALIZABLE VALUE 
is the estimated selling price in the ordinary course of business (fair market value) less costs of completion and less costs necessarily to be incurred in order to make the sale. It is often used to determine a measurement of an asset value in terms of the amount of cash (or its equivalent) expected to be derived from the sale of the asset, net of costs required to be incurred as a result of the sale.

NET TANGIBLE ASSETS are:

Total assets (Net of depreciation and Amortization) 
Deduct 
Intangible Assets 
Current Liabilities 
And any other liabilities ranking prior to long-term debt. 

NET VALUE OF FIXED ASSETS  See Valuation of Fixed Assets.

NET WORTH 
The excess of all assets over liabilities. In a company, this represents the net interest of the owners (shareholders), i.e., shareholders' equity.

NOMINAL INTEREST RATE 
The contracted or stated interest rate, undeflated for price-level changes.

NOMINAL PRICES 
Are adjusted prices that reflect any inflation or deflation occurring over time. They are frequently referred to as Current Prices i.e. prices ruling in each successive period. Current prices in this sense should not be confused with Present or Constant Prices.

NON-CANCELLABLE LEASE 
A lease that is cancellable only: (a) upon the occurrence of some remote contingency, (b) with the permission of the lessor, (c) if the lessee enters into a new lease for the same or an equivalent asset with the same lessor, or (d) upon payment by the lessee of an additional amount such that, at inception, continuation of the lease is reasonably certain.

NON-CASH EXPENSES 
Depreciation and amortization for the year and other expenses appearing in an Income Statement which are not subject to cash drawn down, and which should be added to net income in preparing a Sources and Applications of Funds Statement.

NON-OPERATIONAL REVENUES 
normally revenues accruing to an entity from sources other than its principal operational activities. Examples are interest on unused cash balances (for a non-financial institution): surpluses on sale of inventories held for operations; income from disposal of assets. 

NON-PERFORMING ASSET (LOAN, LEASE, EQUITY INVESTMENT) 
A loan (or lease) which is ____days (e.g. 60, 90, 180) or more in arrears with respect to payments of interest or principal, or which has been rescheduled because of a borrower's weakened financial condition. A rescheduled loan (or lease) would become a performing loan or lease only as interest is repaid and the borrower is determined by credit management of a lender to be in an altered, stronger financial condition, capable of servicing the loan (see Accounts Receivable and Accruals). 

A non-performing equity investment is an investment which has ceased or is likely to cease returning dividends on the investment; where the value of the investment is sufficiently depleted to be of no value; where the investee is bankrupt or is making a composition or other appropriate arrangement with creditors; where construction has either failed to start after two years of due date for start or project implementation; or where construction, having commenced, has not proceeded further for a period of two years.

NON-REVENUE-EARNING PROJECTS 
projects for which cost recovery is not generally sought, or which may be partial or indirect. Generally speaking, unless the definition of revenue earning project can be applied, the project should be considered as non-revenue-earning.

OBSOLESCENCE 
refers to an asset having lost its usefulness due to changes in style, technology, legislation, or other causes that have no physical relations to the asset itself.

OFFSET 
A right, normally evidenced in writing, to take possession of any account balances that a guarantor or debtor may have with it to cover the obligations to the bank of the guarantor, debtor, or third party.

OPERATING COSTS See Operating Expenses

OPERATING EXPENSES 
Non-capital expenditures which are incurred as current accounting period charges in operating, maintaining and administering an enterprise from day-to-day. They usually represent expenditures on the physical and human resources necessary to operate and maintain the assets engaged in providing yields. The use of a physical asset is also included in the form of a depreciation or amortization charge.

OPERATING INCOME 
is operating revenues less operating costs including depreciation on fixed assets and financing or interest expenses on current liabilities. The interest expense on long-term debt should not be shown as part of the operating costs in order to ensure comparability in the profitability ratios that relate to the income stream across differently capitalized entities.

OPERATING LEASE 
A lease other than a finance lease; i.e., if substantially all risks and reward incident to ownership are not transferred.

OPERATING LEVERAGE 
refers to the extent to which fixed costs are a component in a firm's cost structure (see also Financial Leverage).

OPERATING RATIO 
is a relationship between gross revenues and operating expenditures.

OPTIONS 
The rights to buy or sell or both buy and see securities of commodities at agreed prices, within a fixed duration of time.

OTHER INVESTMENTS 
Those income producing assets held by an enterprise, the principal objective of which is the accretion of wealth. Such investments would normally represent the short-to medium-term placement of surplus development funds, or of funds retained for liquidity purposes.

OVERHEAD COSTS 
Cost of materials or services which are not directly traceable to a specific product, but which are necessary for the productive or administrative process. Examples of such costs include certain supportive services as janitorial, general office salaries, and apportioned costs of premises shared by multiple activities.

PARALLEL FINANCING 
Co-financing operation in which the bank and the co-lender finance different goods and services or parts of a project 

PARENT COMPANY 
An enterprise that has one or more subsidiaries.

PAST SERVICE COST 
The actuarially-determined cost arising on the introduction of a retirement benefit plan, on the making of improvements to such a plan, or on the completion of minimum service requirements for eligibility in such a plan, all of which give employees credit for benefits for service prior to the occurrence of one or more of those events.

PAY-AS-YOU-GO 
A method of recognizing the cost of retirements benefits only at the time the cash payments are made to employees.

PAYMENTS IN ADVANCE 
expenditure on goods or services in advance of their delivery or use. Normally relate to items for future use, i.e., after a current account period, e.g., annual rentals paid in advance half-way through a fiscal year.

PERMANENT DIFFERENCE 
The differences between taxable income and accounting income for a period that originate in the current period and do not reverse in subsequent periods.

PHYSICAL CONTINGENCIES 
Physical contingency allowances reflect expected increases in the base cost estimates of a project due to changes in quantities and methods of implementation. Physical contingencies should be calculated, and expressed in the appraisal report as percentages of the base costs (See Part III of the Guidelines).

PLAN COMPTABLE (French) uniform plan of accounting for all categories of economic activities in a country.

PORTFOLIO OF INVESTMENTS 
Income producing assets held by a lender, such as a financial intermediary, comprising loans, investments in equity shares (excepting subsidiaries), bonds debentures, leases and other financial instruments. In the case of a DFI, the principal objectives of which are the furthering of national economic development within the country through the provision of finance, and the maintaining of the financial viability of the lender. 

PREPAYMENTS See Payments in Advance.

PRESENT PRICES 
are prices prevailing at the particular point in time.

PRESENT VALUE 
Value of an asset determined by discounting the expected future receipts taking into consideration appropriate interest and/or other probability factors.

PRICE CONTINGENCIES 
Price contingency allowances reflect expected increases in project costs due to changes in unit prices for the various project components/parts beyond the date of the base cost estimates. Price contingencies should be expressed as percentages of the base cost plus physical contingencies, separately for the local and foreign expenditures of the project and for the project as a whole (see Part III of the Guidelines).

PRICES CURRENT See Current Prices.

PRICES CONSTANT See Constant Prices.

PRICES NOMINAL See Nominal Prices.

PRICES REAL See Real Prices.

PRIOR PERIOD ITEMS 
Charges or credits that arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods.

PRODUCTION OVERHEAD 
is comprised of costs incurred for production other than direct materials and labor. Examples are indirect materials and labor, depreciation and maintenance of factory buildings and equipment, and the cost of factory management and administration.

PROFITS GROSS for Manufacturing concern. See Gross Profit.

PROJECT 
An investment undertaken to provide economic benefits, including prospective financial profitability in the private sector.

PROJECTED BENEFIT VALUATION METHODS 
Actuarial valuation methods that reflect retirement benefits based on service both rendered and to be rendered by employees as at the date of the actuarial valuation, and may incorporate assumptions regarding projected salary levels to date of retirement.

PROPERTY AND EQUIPMENT 
Tangible assets that:

are held by an enterprise for use in the operation of its services and may include items held for the maintenance or repair of such assets; 
are held by a lessor for leasing through its portfolio of investments to lessees; 
have been acquired or constructed with the intention of being used on a continuing basis; and 
are not intended for sale in the ordinary course of business. 

PROVISION 
A charge against profits to recognize:

Diminution in value of an asset e.g. doubtful debts, depreciation, equity investments; and 
A known liability, the amount of which cannot be determined with substantial accuracy, e.g. for estimated losses under guarantees. 
In some countries this item is known as a "reserve" but the terms should be kept separate.

PROVISION (OR ALLOWANCE) FOR TAXES PAYABLE 
The amount of taxes currently payable in respect of taxable income for the period.

PUBLIC ACCOUNTANTS 
refers to accountants who offer their professional services to the public, as distinguished from private accountants who are employed by enterprises to operate their specific accounting systems, or accountants in public (government) service.

QUALIFIED AUDIT REPORT 
a statement in an audit report in which the auditor expresses reservations, doubts or exceptions regarding certain item(s) in the report, or draws attention to a limitation in his examination, due to departures from generally accepted accounting principles, or lack of consistency in their application, or significant uncertainties affecting the financial statements, or due to restrictions in the scope of the auditor's examination. See also Disclaimer.

QUICK RATIO 
Relates to cash, marketable securities, accounts receivable, and other amounts readily convertible into cash to current liabilities. This ratio is sometimes preferred to current ratio, because it is a more accurate measure of liquidity.

QUICK RATIO COVENANT 
A Liquidity covenant based on the quick ratio (see Part VI of the Guidelines).

RATE OF RETURN COVENANT 
A Revenue covenant based on the rate of return on net fixed assets in operation ratio (see Part VI of the Guidelines)

RATE OF RETURN ON CAPITAL EMPLOYED 
is a calculation which expresses net income after tax as a percentage of the average funds (equity and long term debt) invested in an entity.

RATE OF RETURN ON GROSS ASSETS 
Net annual income of an enterprise expressed as a percentage of its gross fixed assets in operation i.e. the value of the assets at either historical, current or replacement cost before depreciation.

RATE OF RETURN ON NET FIXED ASSETS IN OPERATION 
Net annual income of an enterprise expressed as a percentage of its net fixed assets in operation i.e. after depreciation (see Part VI of the Guidelines).
 

REAL PRICES 
Expenditures or revenues over a number of years adjusted to eliminate the effect of inflation. The values thus expressed for all years are in prices of the same year. Most economic calculations are made in real prices in order to obtain values and basis of comparisons that eliminate inflation.

RECEIVABLES 
See Accounts Receivable.

RECOVERABLE AMOUNT 
The part of the net carrying amount of an asset that the enterprise can recover the future use of the asset, including its net realizable value on disposal.

RECURRENT EXPENDITURE  
See Current Expenditure.

RELATED PARTY 
Parties are considered to be related if one party has the ability to influence the other party to make financial and operating decisions it might not make in the absence of such influence. Such influence may be exercised through:

control, 
ownership, directly or indirectly, of a substantial interest in the voting power of the enterprise, or 
participation in the policy-making processes of the enterprise, often by representation on the board of directors, but also arising from material intercompany transactions, interchange of key managerial personnel, or dependence on technical information. 

RELATED PARTY TRANSACTION 
A transfer of benefits or obligations between related parties, whether or not consideration is given.

REPAYMENT STAGE 
See Loans in Repayment Stage.

REPLACEMENT COST 
the lowest amount that would have to be paid in the normal course of business to obtain a new asset of equivalent operating or productive capability. Replacement cost (new) is the total estimated current cost of replacing an asset at the end of the new year while depreciated replacement cost is the replacement cost (new) adjustment for the already expired service potential of such assets.

REPORTING CURRENCY 
The currency used in presenting financial statements.

REPURCHASE (OR RESALE) AGREEMENT 
An agreement between seller and buyer that the seller (or buyer) will repurchase (or sell back) bank notes, securities, or both property at the expiration of a period of time, or completion of certain conditions, or both.

RESCHEDULING (OF LOANS) 
A revision of terms of a loan, usually the period of repayment of principal to maturity, including the variation of installment payments, usually to provide a revised schedule acceptable to the borrower and the lender. Unpaid interest may be included in a revised loan amount at rescheduling.

RESERVES 
A charge against income to establish an allowance or provision; or a segregation of part of retained earnings, the purpose of which may be temporary or permanent. Reserves are not normally available for distribution as dividends. Valuation Reserves (depreciation, bad debts, loan losses) are normally charges against income. Legal Reserves established by DFI's to strengthen the equity capital position are normally appropriations of retained earnings.

RESTRUCTURING 
The reconstitution of the assets and/or liabilities of an enterprise with the objective of re-establishing it as a profit-making entity. Restructuring may take many forms, but usually addresses primarily the capital structure of the enterprise. See also Rescheduling.

RETAINED EARNINGS 
Accumulated net income less distribution to stockholders, transfers to paid-in capital accounts, and other reserves.

RETENTIONS 
are funds (accounts payable) temporarily retained by an entity as guarantee that a contractor will complete, or rectify unsatisfactory work, or complete a delivery of goods.

RETIREMENT BENEFIT PLANS 
Arrangements, formal or informal, whereby an enterprise provides benefits for employees on or after termination of service (either in the form of annual income or as a lump sum) when such benefits can be determined or estimated in advance of retirement from the provisions of a document or from the enterprise's practices.

RETROACTIVE FINANCING 
Disbursement by the Bank against specified payments made by borrowers before effectivity of the loan (usually between appraisal and loan effectivity).

RETURN ON EQUITY 
Net income after taxes expressed as a percentage of stockholders' equity.

REVALUATION SURPLUS (OR RESERVE) 
is derived from excess value of assets over the latest value ascribed in the books of account, often following a technical revaluation of the worth of assets, or as a result of indexing or other forms of adjustment to reflect changing prices or inflation. The surplus is normally carried to a reserve and shown as part of the capital structure.

REVENUE 
The gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise. For industries, utilities, parastatals, revenues would represent the yields from sales and services; in the case of a DFI from the provision of loan funds, equity investments in enterprises; from the rendering of banking and allied services, and from the use by others of the DFI's resources yielding interest dividends fees and commissions. Revenue is measured by the charges made to consumers, customers or clients for goods (including loans) supplied and services rendered to them, and by the charges and rewards arising from the use of such resources by them. It excludes amounts collected on behalf of third parties such as certain taxes.

REVENUE COVENANTS  
Typical covenants are:

Rate of Return of Net Fixed Assets 
Self-Financing Ratio or Cash Generation 
Operating Ratio 

REVENUE-EARNING PROJECTS 
are projects which are usually executed, in whole or significant part, by a financially autonomous or semi-autonomous executing agency (such as a corporate business, a public sector enterprise or a public authority), which supplies products or services to customers in return for payment of a price or charge. 

Projects in the following fields are typically revenue-earning; industry; public utilities; railroads; ports (sea and air). Agricultural projects frequently involve revenue-earning components. These may include specialized government agencies, farmer co- operatives, or ad hoc project management units which supply inputs to farmers, e.g. fertilizer distributors; entities engaged in processing and marketing an agricultural output, such as sugar, tea, cotton, rubber, oil, fish, milk, lumber, etc.: nucleus estates around which smallholder production is organized; and agro-industries including grain storage companies and similar industries. 

Rural development projects, urban development projects, health and population projects and similar projects may involve entities which are required to generate revenues by levying user charges to recover housing, public transportation, utilities and other service-related costs (see Non-Revenue Earning Projects).

REVENUE-GROSS 
See Gross Revenue.

REVENUE RECOGNITION 
The accounting policy and principles adopted by an enterprise when recognizing revenue.

REVOLVING FUND 
a fund established for some special purpose from which money is continuously expended, replenished, and again expended up to a defined limit. An ongoing credit facility. Examples are: imprest cash account, working fund 

SELLING EXPENSES 
any expense or charge incurred by an enterprise in the sales and marketing of their product or services. Examples are: salesmen's commission, advertising, etc.

SETTLEMENT DATE 
The date at which a receivable is collected or a payable is paid (see Trade date).

SHARE PREMIUM ACCOUNT 
The surplus arising from the issue of shares by an enterprise for an amount in excess of the par value of the shares (see also Capital Surplus).

SHORT-TERM DEBT (OR BORROWING)
is any debt incurred by an entity and maturing in one year or less from the date on which it was originally borrowed.

SIGNIFICANT INFLUENCE 
Participation in the financial and operating policy decisions of the investee but not control of those policies. An investor may exercise significant influence in several ways, usually by representation on the board of directors but also by participation in policy making processes, material intercompany transactions, interchange of managerial personnel, or dependency on technical information. If the investor holds less than 20% of the voting power of the investee, it should be presumed that the investor does not have the power to exercise significant influence, unless such power can be clearly demonstrated.

SINKING FUND 
A required annual payment that is set apart for the amortization of debt, redemption of preferred stock, protection of an investment in depreciable property, or some other specific purpose. The sinking fund may be held in cash or marketable securities. Typical sinking funds are invested in securities, which, when encashed at the redemption date, will yield (with all accrued interest, capital appreciation, etc.) the amount necessary to redeem the loan or mortgage.

SOURCES AND APPLICATIONS OF FUNDS STATEMENT 
is a statement of changes in financial position which may cover any accounting period (one week, month, 3-months, 6-months, one year) which illustrates, or forecasts, the internal and external sources of funds, their utilization, and cash balances resulting from the inflows and outflows. Normally, such an annual statement forms part of an entity's annual financial statements.

SPOT RATE 
The exchange rate on a particular day for the exchange of foreign currencies on that day.

STATEMENT OF EXPENDITURE 
A Bank authorized form used by a borrower to claim reimbursement of small expenditures from the proceeds of a loan. The borrower retains the original supporting documents (invoices, receipts, etc) for examination at audit or by Bank staff during project review.

SUBSIDIARY 
A company which is controlled by another company (known as the parent company). 

SUNK COST 
Cost arising from a decision made in the past that cannot be revised, and has no direct impact of future investment decisions.

SUPPLEMENTARY INFORMATION (OR SUPPLEMENTARY FINANCIAL STATEMENTS)
Information, which may be in the form of tables or financial statements normally attached to annual or periodic financial statements, with the objective of providing additional(supporting) information to those statements. Supplementary Information may, or may not be submitted for audit, dependant on the auditor's terms of reference.

TANGIBLE ASSETS 
all items of value owned by the entity and having physical characteristics. See Net Tangible Assets.

TAXABLE INCOME (TAX LOSS)
The amount of the income (loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which the provision for taxes payable (recoverable) is determined.

TAX EXPENSE or TAX SAVING 
The amount of the taxes charged or credited in the income statement, excluding the amount of taxes related and allocated to those items not dealt with in the current income statement.

TERMINAL FUNDING 
A method of recognizing the projected cost of retirement benefits only at the time an employee retires.

TIME DEPOSITS 
funds deposited with a bank or savings and loan institutions and having a fixed maturity, e.g., 6 months, 2 years.

TIMING DIFFERENCES 
The differences between the taxable income and accounting income for a period that arise because the period in which some items of revenue and expense are included in taxable income does not coincide with the period in which they are included in accounting income. Timing differences originate in one period and reverse in one or more subsequent periods.

TRADE DATE 
The date on which a liability is incurred or an asset is acquired, i.e. for accounting purposes the date on which a transaction should be recorded (as compared to settlement date, when payment is made or received).

TRANCHE 
A payment (disbursement) or agreed payment by a lender of a portion of an agreed loan commitment.

TREASURY STOCK 
Shares of stock acquired by the issuing company in itself through purchase or gift and is available for resale or retirement (cancellation). This facility is not allowed in many countries.

UNEARNED FINANCE INCOME 
The difference between the lessor's gross investment in the lease and its present value.

UNGUARANTEED RESIDUAL VALUE 
That portion of the residual value of the leased asset (estimated at the inception of the lease), the realization of which by the lessor is not assured or guaranteed solely by a party related to the lessor.

UNREALIZED GAIN 
A gain attributable to a transaction, the proceeds of which cannot be readily realized by an enterprise in the normal cause of business, and which should not be brought into income until realized or in a state of realization that can be recognized as a receivable or accrual.

UNUSUAL ITEMS 
Gains or losses that derive from events or transactions that are distinct from the ordinary activities of the enterprise and therefore are not expected to recur frequently or regularly.

USEFUL LIFE 
Either (a) the period over which a depreciable asset is expected to be used by the enterprise; or (b) the number of production or similar units expected to be obtained from the asset by the enterprise.

VALUATION 
An accounting approach by which the realistic value of an asset or liability is determined for financial reporting purposes. For example, accounts receivable from a transaction may be legitimate, but the customer is bankrupt and unable to pay. Valuation of assets and liabilities may be required in conditions of rapidly changing prices and inflation to better reflect the realistic value of an asset and liabilities in current trading conditions. A valuation would replace the historical cost of an asset or liability if the accounting policies and principles of a country and/or an enterprise so permit.

VALUATION OF FIXED ASSETS 
is the process of determining the current gross value of an entity's fixed assets in service, less the amount of accumulated revalued depreciation. The methods of valuation should be sound and consistently maintained. For purposes of determining the real cost of goods and services produced by an enterprise, historical cost should be retained only when it continues to represent a realistic value of an asset.

VALUATION OF STOCKS OR INVENTORIES 
can be based on the following principles:

First in, first out price (FIFO) 
Last in, first out price (LIFO) 
Replacement price 
Weighted average price of materials in stock 
Standard price formed on the basis of known factors affecting the price of a commodity. 

VALUE TO THE BUSINESS 
lower of (1) current cost and (2) recoverable amount, where recoverable amount is measured at the higher of net realizable value and net present value of future cash flows.

VARIABLE COST 
a cost which varies in proportion (not necessarily constant) to output or performance.

VESTED BENEFITS 
Benefits the rights to which, under the conditions of a retirement benefit plan, are not conditional on continued employment.

WORKING CAPITAL 
The funds required to finance the day-to-day operations of an entity and is usually represented by the excess of current assets (cash, accounts receivables, and marketable securities) over current liabilities (accounts payables, deposits payable, short-term loans); this surplus is sometimes referred to as net working capital.

WORKING RATIO 
most frequently as used in transportation projects. It is the relationship between gross operating revenues from all operational sources to total operating expenses, excluding depreciation and non-cash charges (see definition of Operating Ratio).

WORK-IN-PROGRESS 
is the value of all labor, goods, services in production process as of the end of the accounting period. Construction-in-Progress refers to the value of all labor, goods, services, including interest during construction incorporated in a fixed asset under construction (or not ready for commissioning) as of the end of the accounting period.