Source : Webster's Revised Unabridged Dictionary (1913)

Defalcation \De`fal*ca"tion\, n. [LL. defalcatio: cf. F.
   d['e]falcation.]
   1. A lopping off; a diminution; abatement; deficit.
      Specifically: Reduction of a claim by deducting a
      counterclaim; set- off. --Abbott.

   2. That which is lopped off, diminished, or abated.

   3. An abstraction of money, etc., by an officer or agent
      having it in trust; an embezzlement.

Source : WordNet®

defalcation
     n 1: the sum of money that is misappropriated
     2: the fraudulent appropriation of funds or property entrusted
        to your care but actually owned by someone else [syn: {embezzlement},
         {peculation}, {misapplication}, {misappropriation}]