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Accounting Terminology

Raw Materials: Refers to the materials bought by a manufacturing business in order to manufacture its products.

Real Accounts: These are accounts which deal with money such as bank and cash accounts. They also include those dealing with property and investments. In the case of bank and cash accounts they can be held in the nominal ledger, or balanced in a journal (e.g. the cash book) where they can then be looked upon as a part of the nominal ledger when compiling a balance sheet. Property and investments can be held in subsidiary ledgers (with associated control accounts if necessary) or directly in the nominal ledger itself.

Realization Principle: The principle whereby the value of an asset can only be determined when it is sold or otherwise disposed of, i.e. its 'real' (or realized) value.

Realized Gains and Losses: Gains and losses resulting from the sale of securities in an arm's length transaction.

Receipt: A term typically used to describe confirmation of a payment.

Receivables: Claims for money, goods, or services.

Recourse: The right to seek payment on a discounted note from the payee if the maker defaults.

Reconciling: The procedure of checking entries made in a business's books with those on a statement sent by a third person (e.g. checking a bank statement against your own records).

Recovery Period: The time period designated by Congress for depreciating business assets.

Recurring Payments: Payments which must be made on a regular basis in the same amount. An example would be a monthly loan payment to the bank.

Redemption Value: The price, stated in the contract, to be paid by a company to repurchase preferred stock.

Refund: An amount paid back or credit allowed because of an over-collection or because of the return of an object sold.

Registered Bonds: Bonds for which the names and addresses of the bondholders are kept on file by the issuing company.

Reimbursements: Repayments of amounts remitted on behalf of another party.

Reinstate: If a check has incorrectly had its status changed from "outstanding" to "reconciled", the status may be changed back to "outstanding".

Relative Fair Market Value Method: A way of allocating a lump-sum or "basket" purchase price to the individual assets acquired based on their respective market values.

Relieve: To decrement an inventory account. When goods are sold, the inventory accounting records are relieved.

Replacement Cost: The amount of cash or other consideration that would be required today to obtain the same asset or its equivalent.

Reserve for Bad Debts: Also called allowance for bad debts, it is an estimate of uncollectable customer accounts. It is known as a "contra" account because it is listed with the assets, but it will have a credit balance instead of a debit balance.

Residual Income: The amount of net income an investment center is able to earn above a specified minimum rate of return on assets.

Retail Inventory Method: A procedure for estimating the dollar amount of ending inventory; the ending inventory at retail prices is converted to a cost basis by using a ratio of the cost and the retail prices of goods available for sale.

Retained Earnings: The portion of a corporation's owners' equity that has been earned from profitable operations and not distributed to stockholders.

Retainer: A sum of money paid in order to ensure a person or company is available when required.

Retention Ratio: The proportion of the profits retained in a business after all the expenses (usually including tax and interest) are taken into account.

Return on Investment (ROI): A measure of operating performance and efficiency in utilizing assets computed in its simplest form by dividing net income by average total assets.

Return on Sales Revenue: A measure of operating performance; computed by dividing net income by total sales revenue.

Return on Stockholders' Equity: A measure of overall performance from a stockholder's viewpoint; includes management of operations, uses of assets, and management of debt and equity, and is computed by dividing net income by average stockholder's equity.

Return on Total Assets: An overall measure of the return to both stockholders and creditors; includes operating performance and asset turnover.

Revenue Recognition Principle: The idea that revenues should be recorded when (1) the earnings process has been substantially completed and (2) an exchange has taken place.

Revenues: The sales and any other taxable income of a business.

Reversing Transactions: Recurring period-end transactions that are recorded in the books and regenerated from scratch each period. This requires that the adjustment booked at the end of the preceding period be removed from the books so that only the current period's adjustment appears.

ROI (Return on Investment): A measure of operating performance and efficiency in utilizing assets computed in its simplest form by dividing net income by average total assets.