mba management accounting notes

Labor banks -- banks owned by labor unions and their members.

Laissez-faire -- the theory that government should have as little influence as possible in the nation's economy.

Land contract -- a type of mortgage in which the seller retains the original loan and the buyer makes monthly payments to the seller to cover the amount of the original loan and any new mortgage. No transfer of title occurs until the loan is fully paid, and thus no equity is established until the debt is completely paid off. Most loans of this type have below-market interest rates and a balloon payment of principal at the end of the term.

Land development loan -- an advance of funds, secured by a mortgage, to finance the making, installing, or constructing of the improvements necessary to convert raw land into construction-ready building sites.

Land flip -- a technique to artificially increase the book value of a parcel of land. The land is sold several times in quick succession among persons acting in concert, with the price increasing each time the land is sold. In a land flip, multiple sales of the same property can occur within a few days.

Landlord -- the owner or lessor or real property.

Late charge -- a penalty fee imposed by a lender for delinquent payments.

Lease -- a contract by which the owner grants the right to possess and use real estate or equipment to another, and which sets forth the terms of payment and other conditions.

leasehold -- an interest in an estate held by a tenant who possesses certain rights of occupancy and use by virtue of renting the real property, even though the tenant does not hold title to the property.

Lease-purchase -- a method of acquiring ownership of property whereby all or a portion of rent payments made under terms of a lease may be subsequently applied to the purchase price.

legal entity -- any individual, partnership, proprietorship, corporation, association or other organization that has, in the eyes of the law, the capacity to make a contract or an agreement and the abilities to assume an obligation and to pay off its debts. A legal entity, under the law, is responsible for its actions and can be sued for damages.

Legal tender -- the coin or paper currency required by law to be accepted in payment of obligations.

Lend -- to grant the temporary use of something with the understanding that it will be returned. Lend -- past tense lent -- is the verb. Loan is the noun.

Lending institution -- an organization that makes loans.

Lending policy -- an institution's statement of its basic lending philosophy, including standards, guidelines, and limitations that are to be observed and adhered to in the process of deciding whether to grant a loan. The policy must adhere to applicable law and regulations.

Leniency clause -- a provision written into a promissory note spelling out the lender's willingness to adjust loan payments temporarily if a borrower is experiencing severe financial difficulties through no personal fault.

Lent -- past tense of lend.

Lessee -- a person, business or other organization that is granted the use and possession of property in return for payment of rent. When real estate is rented, the lessee is known as the tenant.

Lessor -- the owner of property who allows another to use and possess it in return for payment of rent. When real estate is rented, the lessor is known as the landlord.

Letter of credit -- a document issued by a financial institution on behalf of a buyer stating the amount of credit the buyer has available, and that the institution will honor drafts up to that amount written by the buyer. It gives the buyer the prestige and financial backing of the issuing institution and satisfies the requirements of the seller in completing the transaction. The accepting institution has a prior agreement as to how the buyer will pay for the drafts as they are presented.

Level payment mortgage -- a mortgage that provides for a constant, fixed payment at periodic intervals during its term. Part of each payment consists of interest with the balance of the payment used to reduce the principal. See constant payment.

Leverage -- (1) the use of borrowed money to increase the return on a cash investment. For leverage to be profitable, the rate of return on the investment must be higher than the cost of the borrowed money. (2) the use of a relatively small amount of capital to control a large dollar amount of a commodity or cash instrument by buying on margin. In the futures market, the margin is a good faith performance bond. In the cash market, the margin is an actual down payment. (3) the effect on the earnings per share of the common stock of a company when large sums must be paid for bond interest or preferred stock dividends before earnings are paid to holders of common stock.

Leverage ratio -- the ratio of tier 1 (core) capital to adjusted total assets.

Liability -- an item of value that is part of the overall debt or obligation of a person or business. For example, a mortgage is a liability of the homeowner/borrower, but the same mortgage is an asset of the savings and loan/lender. At savings institutions, savings deposits and all borrowed money are considered liabilities. Net worth, or regulatory capital, is accounted for as a liability because it is an obligation of the institution to its owners. See asset.

LIBOR -- see London Interbank Offered Rate.

Lien -- a claim by one person on the property of another person making the property security for the payment of a debt. A mortgage is a lien against a house. If the mortgage is not paid on time, the house can be seized to satisfy the lien.

Lien holder -- a person or institution holding a mortgage or having a legal claim on the specific property of another person as security for a debt.

Lien theory -- an assumption of real estate law, which holds that a mortgage conveys to the lender a claim to, or lien on, the mortgaged property.

lien waiver -- a document signed by a contractor, subcontractor, or other supplier of goods or services stating that the supplier has been paid for the work performed or goods supplied and waiving the supplier's right to file a claim against the property.

Life estate -- a freehold estate giving a beneficiary all property rights except the right to sell. The right to the estate is terminated upon the death of the beneficiary.

Life insurance Company -- a type of financial intermediary that shares the financial risk of untimely death among its participants. The participants buy policies for which they pay stated, periodic premiums and are guaranteed a minimum payment to designated beneficiaries at the time of the policyholder's death. Policyholders may also use their policies to build up cash savings.

LIFO -- an acronym for last in first out. As applied to the thrift industry, it is an accounting method to determine interest earned on savings accounts whereby any withdrawals are deemed to be taken from the most recent deposits. As applied to business in general, LIFO refers to a method of establishing the value of inventories whereby the price of the last incoming shipment of a particular item is used to place an inventory value on all shipments of the item in a given period. Also see FIFO.

Life of loan -- the agreed upon length of time in which a loan must be repaid.

Life of loan cap -- the limit beyond which the rate of interest may not rise throughout the term of an adjustable rate loan.

limited partnership -- a partnership that consists of at least one general partner who is fully personally liable for the debts of the partnership, and one or more limited partners who are each liable only for the amount of their own investment.

Line of credit -- a preestablished loan authorization with a specified borrowing limit extended by a lending institution to an individual or business based on creditworthiness. A line of credit allows borrowers to obtain a number of loans without re-applying each time as

long as the total of borrowed funds does not exceed the credit limit.

Link -- a unit of land measurement. One link equals 7.92 inches or 0.66 feet. There are 100 links of equal length in a surveyor's chain.

Linked financing -- the practice of depositing money into a savings institution or a bank with the understanding that the institution will make a corresponding loan to a borrower specified by the depositor.

Liquid assets -- the total amount of funds that are in the form of cash or can quickly be converted to cash. These include (1) cash; (2) demand deposits; (3) time and savings deposits; and (4) investments capable of being quickly converted into cash without significant loss, either through their sale or through the scheduled return of principal at the end of a short time remaining to maturity.

Liquidation -- the process of terminating a business including selling assets to obtain cash and using the cash to discharge liabilities.

Liquidity -- a measure of the ability of an individual, business, or institution to convert assets to cash without significant loss at a particular point in time.

Liquidity base -- the amount of money in a thrift institution's net withdrawable accounts, less the unpaid balance of any loans secured by those savings, plus short-term borrowings.

Liquidity ratio -- a comparison, expressed as a percentage, of an institution's liquid assets to its unpledged net withdrawable accounts.

Listing -- a written authorization by the owner to sell or lease real property.

Litigant -- a person engaged in a lawsuit.

Litigation -- the act of engaging in and proceeding with a lawsuit.

Loaded couponing -- the practice of a lender including the cost of mortgage insurance in the interest rate stated in the loan note, rather than listing it as a separate monthly charge. The practice permits a lender to cancel the mortgage insurance at a later date, while continuing to collect the monthly insurance premium from the homeowner/borrower. The practice was prohibited in 1985 by the Federal Home Loan Mortgage Corporation.

Load fund -- a type of mutual fund that charges a sales commission when an investor buys shares. See no load fund.

Loan -- a sum of money transferred to another for temporary use, to be repaid with or without interest according to terms of the loan agreement written in the accompanying bond, note, mortgage or other document of indebtedness. Loan is the noun. Lend (past tense lent) is the verb.

Loan application -- (1) a request to a lending institution for an advance of funds. (2) the form on which data about the loan and about the prospective borrower are recorded.

Loan application register (LAR) -- a register that lists all loan applications taken by a savings association.

Loan origination -- the steps by a lending institution up to the time a loan is placed on its books, including solicitation and processing of applications and loan closing.

Loan origination fee -- the initial service charge imposed by a lending institution on a borrower for placing a loan on the institution's books.

Loan participation -- (1) the buying of portions of outstanding loans by investors, who then participate on a pro rata basis in collecting interest and principal payments. (2) the sharing by two or more lenders in the ownership of a loan or package of loans.

Loan portfolio -- the total of all the loans that a financial institution, or other lender, holds at a given time.

Loan proceeds -- the net amount of funds that a lending institution disburses under terms of a loan, and which the borrower then owes.

Loan processing -- all the steps taken by a lending institution from the time a loan application is received to the time the loan is closed and placed on the books, including taking the application, conducting the credit investigation, evaluating the loan terms and other steps.

Loan-related assets -- the sum of mortgage and nonmortgage loans.

Loan servicing -- the acts performed to collect and process loan payments during the life of a loan. They include billing the borrower; collecting payments of principal, interest, and payments into an escrow account; disbursing funds from the escrow account to pay taxes and insurance premiums; and forwarding funds to an investor if the loan has been sold in the secondary market.

Loan settlement statement -- a document prepared for and presented to the borrower at the loan closing showing all disbursements to be made, such as payment to the seller.

loan terms -- the specifications in a loan agreement that prescribe the loan amount, interest rate, length of time in which to repay the loan, and any other enforceable agreements entered into by the borrower and lender to effect the advance of funds.

Loan-to-value ratio -- the relationship, expressed as a percent, of the amount of money loaned to the appraised value of the real estate pledged as security for the loan. For example, an $85,000 loan on a $100,000 house would have a loan-to-value ratio of 85 percent.

Loan workout -- a series of steps taken by a lender with a borrower to resolve the problem of delinquent loan payments. Steps can include rescheduling loan payments into lower installments over a longer period of time so that the entire outstanding principal is eventually repaid.

Loans in process -- all loans on which an institution has made a firm commitment to lend money but not yet disbursed the entire proceeds.

Lock box service -- a service performed by a vendor in which customers' incoming payments are picked up from a Post Office box and processed.

Lock-in period -- the portion of the term of a mortgage loan during which the loan cannot be paid off earlier than scheduled.

London Interbank Offered Rate (LIBOR) -- the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. LIBOR is used as a base index for setting rates of some adjustable rate financial instruments.

Long -- refers to the ownership of stock, futures, cash commodities or financial instruments, specifically to the purchase of such securities with the intention of holding them in anticipation of a price increase. "I am long 100 Freddie Mac," means the investor owns 100 shares of Freddie Mac stock. See short.

Long hedge -- the purchase of futures contracts to compensate for a rise in the price of a commodity or financial instrument. A long hedge is often used to lock in the yield (or cost) of an anticipated cash market purchase or to "shorten" the maturity of a liability.

Loophole certificate -- a certificate of deposit for which part of the deposited funds have been lent by the issuing institution to the certificate holder.

Loss -- (1) the situation in which money received from the sale of an item is less than the money previously spent to buy the item. (2) the excess of costs and expenses over income. (3) a category of classified assets. See classification of assets.

Lot -- a measured parcel of land having fixed boundaries as shown on the recorded plat.

Lower of cost or market (LOCOM) -- an accounting method used to establish the dollar amount at which assets are recorded on a savings association's books. The amount established is the lower of the cost of the asset or the current market value. Under this method, assets must be written down if the market value falls below the cost. They may also be written up but not above their amortized cost.

Lump-sum distribution -- the withdrawal of an individual's pension benefits or retirement savings all at once in one payment.