Accounting, Business Studies and Economics Dictionary

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Labour - A factor of production consisting of all physical and mental efforts provided by people.

Labour efficiency variance - Difference between the amount of labour time that should have been used and the labour that was actually used, multiplied by the standard rate.

Labour force - The total number of persons employed, plus the number of persons who are unemployed.

Labour force participation rate - The percentage of the population of working age that is actually in the labour force (either working or seeking work).

Labour intensive - Production methods which rely on a large workforce relative to the amount of machinery.

Labour rate (price) variance - Any difference from standard in the average hourly rate paid to workers: Labour Rate Variance = (Actual Rate - Standard Rate) x Actual Hours of Labour Used

Labour turnover - The number of people that leave a business over a period of time as a percentage of the number of people employed.

Laffer curve - A graphical representation of the relationship between tax rates and total tax revenues raised by taxation.

Lagging indicators - Series of indicators that follow or trail behind aggregate economic activity.

Lag time - The length of time in between two events or phenomena which are closely related.  An example of lag time would be the period between the central bank increasing iinterest rates and the economic activity in the economy falling.

Laissez-faire - Literally, "let do"; a policy advocating the minimisation of government intervention in a market economy. Adam Smith's Wealth of Nations represents this doctrine.

Laissez-faire leadership - A leadership style where employees are encouraged to make their own decisions, within limits.

Land (Accounting) - is the value or worth of any real estate assets less the money spent of any improvements, e.g. buildings.

Land (Economics) - The natural resources that are available without alteration or effort on the part of labour. Land as a resource includes only original fertility and mineral deposits, topography, climate, water, and natural vegetation.

Landed costs - The total costs involved when importing goods. They include buying, shipping, insuring and associated taxes.

Landfill - A way of disposing of waste which involves burying it in the ground.

Last in first out (LIFO) - A method of stock valuation which involves issuing more recent deliveries first, so that closing stock is valued at the older and possibly lower purchase price.

Lateral integration – The merging of firms involved in production of similar goods but not in competition with each other.

Latest finish time -  In program evaluation and review technique (PERT), latest time at which an activity must be completed with­out holding up the complete project.

Latest start time - In program evaluation and review technique (PERT), latest time at which an activity must begin without holding up the complete project.

Latest time (LT) - In program evaluation and review technique(PERT), latest time at which an activity can be completed without extending the completion time of the project.

Law of comparative advantage - Trade can benefit all countries if they specialise in the goods in which they have a comparative advantage.

Law of demand - The assertion that market price and quantity demanded in the market vary inversely with one an other, that is, that demand curves are negatively sloped. Assuming all other things being equal (ceteris paribus) .

Law of diminishing (marginal) returns - The hypothesis that if increasing quantities of a variable factor are applied to a given quantity of fixed factors, the marginal product and average product of the variable factor will eventually decrease.

LCM Rule (lower-of-cost-or-market rule) - LCM rule requires an asset be reported in the financial statements of a firm at either the lower of purchase cost or its current market value market value (the lowest of the two should be used).

Leadership styles – Approaches to dealing with people when in a position of authority. See also autocratic , laissez-faire and democratic.

Leading indicators - Series of indicators that tend to predict future changes in economic activity.

Lead time - The time in between placing the order and the delivery of goods.

Leakages - Those parts of national income not used for consumption i.e. net taxes, saving, and imports.

Lean production - An approach to operations management aimed at reducing the quantity of resources used up in production.

Learning curve – A curve showing how a firm's costs of producing at a given rate of output fall as the total amount produced increases over time as a result of accumulated learning of how to make the product efficiently using given equipment.

Learning organisation - A business which facilitates the learning of its members and benefits competitively as a result.

Lease - Legal agreement whereby the lessee uses real or personal property of the lessor for a rental charge.

Leasehold - An the agreement made between the lessee and the lessor which specifies the lessee's different rights and obligations to make use of the leased asset or property for the specific purpose and/or the given time period at a specified amount rent.

Ledger - A book in which entries posted from the journals are re-organised into accounts. In effect, the ledger is a classification and summarization of financial transactions and the basis for the preparation of the balance sheet and income statement.

Legal entity An individual or organisation that has the legal recognition or standing to enter/sign a contract and can be legally sued for failure to carry out or perform the obligations entered into as agreed under the contract.

Legal  liability - 1. obligation with specified terms and conditions by which a defined payment amount in money, goods, or services is to be paid within a defined time period in return for a current benefit. Or 2. responsibility of the accountant to the client and third parties relying on the accountant's work. Accountants can be sued for fraud and negligence in performance of duties.

Legal monopoly - In the United Kingdom, any business with over 25 per cent of the market.

Legal tender - Anything that by law must be accepted for the purchase of goods and services or in discharge of a debt.

Lender of last resort - The role of the Bank of England (central bank) as the guarantor of sufficient liquidity in the monetary system.

Less-developed countries (LDCs) - The lower-income countries of the world, most of which are in Asia, Africa, and South and Central America. Also called under developed countries, developing countries.

Lessee - The party or entity to who the possession/occupation of specific property has been legally conveyed for a given period of time in the return for rent payments.

Lessor - The party or entity who conveys/leases a specified piece of property or other asset to another party or entity for a specified period of time in return for receipt of rental payments.

Letter of credit (LOC) - A legal letter or document that is issued by the buyer’s bank which upon the presentation of any specific required documents the payment should be forth coming. It is the  Usual practice for the seller's bank to confirmby the seller's the protection to be given to a seller that the agreed payment will be made on time if the items specified in the agreement are shipped as agreed, and also protection is given to a buyer that the specified items will be supplied or shipped prior to the payment being made.

Leverage Is a term commonly used in finance and accounting to describe the ability of fixed costs to magnify returns to a firm's owners. Operating leverage, a measure of operating risk, refers to the fixed operating costs found in the firm's income statement. Financial leverage, a measure of financial risk, refers to financing a portion of the firm's assets, bearing fixed financing charges in hopes of increasing the return to its owners. Total leverage is a measure of total risk. The way to measure total leverage is to determine how earnings per share (EPS) is affected by a change in sales.

Leveraged buyout (LBO) – The acquisition of one company by another, typically with borrowed funds. Usually, the acquired company's assets are used as collateral for the loans of the acquiring company. The loans are paid back from the acquired company's cash flow. Another possible form of leveraged buyout occurs when investors borrow from banks, using their own assets as collateral to acquire the other company.

Leverage ratios - Measure the relative different contributions of the stockholders as compared to the  creditors, and also the entity's ability to pay its financing charges. It is the value of entity's total debt compared to the total value of the entity.

Levy - To impose and collect a charge.

Liability – The amount payable in dollars (e.g., accounts payable) or future services to be rendered (e.g., warranties payable).

Liabilities - Items owed by the business. .Long term liabilities are long term borrowings which do not have to be repaid within one year. Current liabilities are amounts owed by the business which must be repaid within one year.

Liberalism - The political philosophy according to which the government should choose policies deemed to be just, as evaluated by an impartial observer behind a "veil of ignorance".

Libertarianism - The political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income

License - A legal document giving official permission to do something.  Import licenses are often a from of protection.

Lien - The right of a party, typically a creditor, to hold, keep possession of, or control the property of another to satisfy a debt, duty, or liability .

Life-cycle theory - A hypothesis that relates the household's actual consumption to its expected lifetime income rather than (as in early keynesian theory) to its current income.

Life expectancy at birth - The average number of years new-born babies can be expected to live if health conditions remain the same. It is a good indicator of health and medical care.

LIFO (last-in, first-out) -  A method of valuing inventory using an a cost flow approach where the last goods purchased by the firm are then assumed to be the first goods that will be sold by the firm so that the value ending inventory will consist of the value of the first items purchased.

LILO (last In last out) - A method of valuing stock using an inventory cost flow whereby the last goods purchased are assumed to be the last goods sold so that the ending inventory consists of the last goods purchased.

Limit pricing - Setting a selling price just below the level at which other sellers would find it profitable to enter a market. Used as a barrier to entry.

Limitation - Under contract law refers to a certain limited period of time specified by law after which time any legal actions, suits, or other prosecutions will not be considered by the courts.

Limited liability The limitation of the financial responsibility of an owner (shareholder) of a corporation to the amount of money that the shareholder has actually invested in the firm by purchasing its shares.

Limited partner - A partner in a firm who has no recognised management level authority and therefore whose liability has been restricted by the partnership to the amount of their investment.

Limited partnership - A form of business organisation in which the firm has two classes of owners: general partners, who take part in managing the firm and are personally liable for all of the firm's actions and debts, and limited partners, who take no part in the management of the firm and risk only the money that they have invested.

Line authority - The power to give orders to subordinates. It contrasts with staff authority, which is the authority to advise but not com­mand others. Line managers are responsible for attaining the organisation's goals as efficiently as possible. production and sales managers typically exercise line authority.

Line graph - A line which shows the relationship between two variables.

Line management - The administration and management of the firms line functions. The administration of any activities which contribute directly to the firm's production.

Line managers - Managers with direct authority over subordinates in their departments; they are able to take decisions in their departmental area.

Line of best fit – A line plotted through a series of points which balances those on one side with those on the other, and best represents the slope of the points.

Line of credit - Bank's commitment to make loans to a company for a specified maximum amount for a given period of time, typically one year. There is usually no commitment fee charged on the unused line. However, a compensating balance requirement often exists.

Liquid - To maintain sufficient or enough assets in the form of cash (or cash like) or any other assets that can easily be converted to cash in order to satisfy an entity's current liabilities.

Liquid asset Refers to cash (or cash like) and any other asset that can easily sand quickly be converted/changed into cash (e.g., cash, and other easily-convertible assets).

Liquidation - Is used to refer to the process of selling of the total assets of a person or entity who is a debtor and then the use of any proceeds raised by the sale of to pay off outstanding creditors. Or 2) Declared by a court when a company is unable to meet its debts.

Liquidation value - Liquidation value is often very different from the book value because it uses the value of the entity's assets at the time of liquidation, which is often much lower than either the market or book value of those assets. The entity's liabilities will then be deducted from the stated liquidation amount or value of the total assets in order to determine the correct liquidation value of the entity

Liquidity - The ease with which an asset can be converted into cash without loss.

Liquidity preference (LP) function - The function that relates the demand for money to the rate of interest. Also called demand for money function.

Liquidity problems - Difficulties that arise because of the lack of assets that can easily be converted into cash to make immediate payments.

Liquidity preference - The demand for holding assets in the form of money.

Liquidity ratio (Economics) -The proportion of a bank's total assets held in liquid form.

Liquidity ratio (Accounting) -  Cash ratio.

Liquidity trap - A situation in which prevailing interest rates are low and savings rates are high. As a result, monetary policy is ineffective.

Listed company - A public company which is listed or quoted on a specific or may different stock exchange/s.

Listed investments - Refers to the investments which have been listed and/or quoted on the stock exchange.

Living standards – The amount of goods and services available per person. Living standards are limited by a country's ability to produce. Potential national output depends on the country's resources". technology and productivity.

Loan - An agreement in which the owner of specific assets (the lender) agrees to allow another entity/individual (the borrower) to have use of  the specific assets for a stipulated period of time. In return, the borrower has agreed that they will pay the lender interest and also will return the specified assets or cash at the completion of the time period agreed.

Lock-outs - Union members are temporarily laid off until they are prepared to agree to the firm's conditions.

Logarithmic scale - A scale in which equal proportional changes are shown as equal distances (for example, 1 inch may always represent doubling of a variable, whether from 3 to 6 or 50 to 100). Also called log scale or ratio scale.

Logging - The practice of recording data, in some medium, sequential input, often in a time associated format.

Logrolling - The political practice in which a voter agrees to support another's programs in exchange for support for his or her own.

Long run - That time period in which all factors of production can be varied.

Long-run aggregate supply - The relationship between the aggregate quantity of final goods and services (real GNP) supplied and the price level (the GNP deflator) when there is full employment - that is when unemployment is at its natural rate.

Long-run aggregate supply (LRAS) curve - A curve showing the relationship between the price level of final output and the total quantity of output supplied when all markets have fully adjusted to the existing price level; a vertical line at Y = E.

Long-run average cost (LRAC) curve - The curve relating the least-cost method of producing any output to the level of output when all inputs can be varied.

Long-run Phillips curve - Shows the relationship between inflation and unemployment when the actual inflation rate equals the expected inflation rate.

Long-run profit maximisation - An alternative theory of the firm which assumes that managers aim to shift cost and revenue curves so as to maximise profits over some longer time period.

Long-run shut-down point - This is where the AR curve is tangential to the long-run average cost (LRAC) curve. The firm can just make normal profits. Any fall in revenue below this level will cause a profit-maximising firm to shut down once all costs have become variable.

Long-run supply curve - The supply curve that describes the response of the quantity supplied to a change in price after all technologically possible adjustments have been made.

Long term - 1. long period or length of time. In securities a bond of ten years or more is considered long term. Or 2. it may refer to strategic goals and plan whereas short term refers to operational goals and plans. Or 3. in accounting  thought a period of in excess of 12 months is considered long term, e.g. long-term liabilities. or 4. in economics long term is where al factors are considered variable.

Long term debt - Monies owed for a period exceeding one year.

Long term debt to equity - Shows the relationship between the long-term capital that has been contributed from the creditors as compared to that contributed by the owners.

Long term liabilities - Are liabilities that do not fall due in the current accounting period.  Normally liabilities that have to be paid back in more than one year.

Lorenz curve - 1. a graph showing the extent of departure from equality of income distribution. Or 2) a type of cumulative frequency curve which shows the disparity between equal distribution and actual distribution. See gini coefficient.

Loss -  Finance, is when the expenses of an entity exceed sales or revenues of the entity, i.e. items are sold for less than they cost the firm.

Loss leaders - Products with prices set deliberately below average total cost to attract customers who will then buy other; more profitable, products.

Lot - 1. a group of specific items which may purchased or sold at the same time. Or 2. when multiple different shares are held or possibly traded together. or 3. A specific parcel/piece of land.

Low-income Developing Countries - Countries with a low standard of living such that many people cannot meet even their basic needs. These include some of the most populous countries in the world covering approximately 3 billion people.

Lump sum - An agreed upon amount of money, which is to be all paid at one time in complete and final settlement of a claim or outstanding bill.

Lump-sum tax - A tax that is the same amount for every person.


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If you wait to do everything until you're sure it's right, you'll probably never do much of anything.
William Borden