AJAX progress indicator
  • ABC/activity based costing
    Alternative costing method for strategic management; divides production into activities, defines costs for activities, and allocates costs to objects based on activity consumption
  • absorption costing
    Also known as full costing -- a costing method where inventory absorbs direct costs and variable and fixed factory overhead
  • accelerated depreciation methods
    Several alternative depreciation approaches that result in relatively more depreciation in early years of use, and smaller amounts during later years
  • account
    A record that is kept for each asset, liability, equity, revenue, expense, and dividend component of an entity
  • accounting
    A set of concepts and techniques that are used to measure and report financial information about an economic unit
  • accounting changes
    Changes from one acceptable method of accounting to another acceptable method; like straight-line depreciation to a declining balance approach
  • accounting cycle
    The procedures needed to process transactions through an accounting system; including journalization, posting, adjusting, and preparing financial statements
  • accounting equation
    A financial relationship at the heart of the accounting model: Assets = Liabilities + Owners' Equity
  • Accounting Principles Board
    The private sector group charged with developing accounting standards from 1959 to 1973; primary authoritative pronouncements were known as "opinions"
  • accounting rate of return
    A project evaluation tool that focuses on accounting income rather than cash flows; average annual increase in income by the amount of initial investment.
  • Accounting Standards Codification
    Research tool deemed to be the primary authoritative source and reference guide on accounting standards
  • Accounting Standards Update (ASU)
    The official notification issued by the Financial Accounting Standards Board of a new or modified accounting rule
  • accounts payable
    Amounts due to suppliers relating to the purchase of goods and services on credit
  • accounts receivable
    Amounts due from customers from credits sales of products or services; "trade receivables"
  • accrual
    Expenses and revenues that gradually accumulate throughout an accounting period
  • accrual basis
    The accounting process whereby revenues are measured and recorded as earned, while expenses are recorded as incurred
  • accrued expenses
    Unpaid expenses that have already been incurred
  • accrued revenues
    Revenues that have been earned and recorded, but are not as yet collected
  • achievable standards
    A standard that takes into account normal spoilage and inefficiency; intended to allow workers to reach the established benchmarks
  • activity
    An event that gives rise to the consumption of resources
  • activity cost pool
    The costs assigned to a particular activity
  • activity driver
    Event that causes consumption of an activity
  • activity-based costing
    (ABC) A costing system for situations where overhead is high and/or a variety of products are produced; costs are traced to activities and then activities are allocated to production
  • adjusted trial balance
    A trial balance prepared after adjusting entries have been prepared and posted to the ledger
  • adjusting process
    To analyze account balances and update them at the end of an accounting period to reflect the correct measure of revenues and expenses
  • aging of accounts receivable
    Analysis used to estimate the uncollectible accounts; involves stratification of receivables based upon age
  • all-inclusive approach
    A concept of income by which virtually all nonequity-based transactions and events are captured and reported in the income statement; the preferred approach for income theory
  • allowance method for uncollectibles
    A method that estimates uncollectibles as a portion of total receivables and establishes an offsetting contra allowance account
  • American Institute of Certified Public Accountants
    (AICPA) an organization whose members are CPAs interested in advancing the accounting profession
  • amortization
    The process used to allocate the cost of an intangible asset to the accounting periods benefited
  • amortized cost method
    The approach mandated for held-to-maturity securities; investments are reported at their cost with any premium or discount amortized over the life of the investment
  • annuities
    Streams of level (i.e., the same amount each period) payments occurring on regular intervals
  • annuity
    Level streams of payments; with each payment being the same, and occurring at a regular interval
  • annuity due
    Also known as an annuity in advance; involves a level stream of payments, with the payments being made at the beginning of each time period
  • assets
    The economic resources owned by an entity; entailing probable future benefits to the entity
  • auditing
    The examination of transactions and systems that underlie an organization's financial statements with the goal or reporting thereon
  • available-for-sale securities
    Investments that are neither "held-to-maturity" or "trading;" a default category that is accounted for at fair value with changes in value recognized in other comprehensive income
  • B2B
    (Business to Business) A system that enables data interchange between companies; sometimes sufficiently robust to permit automatic inventory replenishment, etc.
  • balance sheet
    A financial statement that presents a firm's assets, liabilities, and owners' equity at a particular point in time
  • balanced scorecard
    A set of performance measures that are congruent with assessing improvement in financial, customer, and business process outcomes
  • bank reconciliation
    A control procedure to establish and verify the correct cash balance via identification of errors, irregularities, and adjustments
  • bank statement
    The document received from a bank which summarizes deposits and other credits, and checks and other debits to a bank account
  • basic EPS
    The simplest earnings per share number; earnings available to common shares divided by weighted average shares, without factoring in potential dilution
  • batch-level activity
    Activities that relate to each batch of production; independent of the number of units within that batch
  • benchmarking
    Measuring products or processes against industry standards, an essential part of total quality management
  • betterment
    Expenditures that improve or increase the service potential of an asset even beyond its original new condition; such costs may be capitalized by increasing the asset's cost
  • big data
    Electronically warehoused information, capable of being mined and analyzed, containing the “who, what, when, where, and why” of all business activity
  • bonds payable
    An obligation divided into transferable units requiring the issuer to make periodic interest payments and an eventual repayment of the face amount
  • book value
    Cost minus accumulated depreciation; the net amount at which an asset is reported on the balance sheet
  • book value per share
    Common stockholders' equity divided by common shares outstanding, to indicate stockholders' equity per share
  • boot
    Term used to describe additional monetary consideration that may accompany an exchange transaction
  • bottom-up participative budget
    A budget approach driven by the direct participation of lower-level employees
  • break-even point
    The level of activity where revenues equal total expenses, producing a zero net income; also the point where the contribution margin is said to cover fixed costs
  • budget
    A planning tool that outlines the financial plans for an organization; there are various types of budgets -- operating, capital, and financial
  • budget committee
    A group of senior managers from each business unit charged with leading the budget preparation and review process
  • budget slack
    The influence of behavior to "pad" a budget via misstating expected revenues and/or expenses; to create more favorable budget vs. actual performance appraisals
  • callable bond
    A bond that provides the issuer an option to reacquire the bonds before scheduled maturity at a preset price
  • callable preferred
    Preferred stock that can be repurchased by issuer for a preset price
  • capacity utilization
    The degree to which an organization's output capabilities are being deployed or utilized
  • capital expenditure decision
    Also known as capital budgeting; planning and decision making related to longer term projects and expenditures
  • capital expenditures
    Ordinary and necessary costs incurred to place an item of property, plant, or equipment in its condition for intended use; such amounts are included in the asset account
  • capital lease
    A lease that effectively transfers the risks and rewards of ownership to the lessee
  • capital stock
    A non-specific reference to the ownership interests of shareholders in a corporation
  • cash
    Items acceptable to a bank for deposit and free from restrictions for satisfying current debts; includes coins, currency, bank deposits, etc.
  • cash basis
    An accounting approach where revenue is recorded when cash is received (no matter when "earned"), and expenses are recognized when paid (no matter when "incurred")
  • cash budget
    An essential budget component detailing planned cash receipts, disbursements, and financing actions
  • cash discount
    A reduction in invoice price offered to customers to encourage prompt payment of invoices
  • cash equivalents
    Short-term interest-earning financial instruments that are deemed to be highly secure and will convert back into cash within 90 days
  • centralized decision making
    A business style where top leaders make and direct most important decisions
  • certified public accountant
    An individual who is licensed by a state to practice public accounting
  • CFM
    Certified Financial Manager; a professional designation of competency in the field of financial management that is issued by the Institute of Management Accountants
  • change in accounting estimate
    A revision of assumptions used in a related accounting calculation (e.g., change in estimated useful life of an asset); handled prospectively by revising current and future periods
  • chart of accounts
    A listing of the accounts of an entity, along with any identification coding
  • closing process
    The process by which temporary accounts are "zeroed" out and the effects transferred to retained earnings
  • CMA
    Certified Management Accountant; a professional designation of competency in the field of management accounting that is issued by the Institute of Management Accountants
  • commercial substance
    The quality of an exchange transaction such that it changes the future cash flow potential of the entity
  • commitments
    Promises to engage in some future action; not necessarily creating a recordable accounting liability but potentially necessitating enhanced disclosure
  • committed fixed cost
    Costs that arise from an organization's commitment to engage in operations; unavoidable elements like depreciation, rent, insurance, property taxes
  • common fixed costs
    Fixed costs that are incurred to support more than one business unit
  • common stock
    The residual equity interest in a corporation; last in liquidation but usually receiving the full benefits of any corporate growth
  • comparability
    An enhancing quality of accounting such that even though different companies may use different accounting methods, there is still sufficient basis for valid comparison
  • compensated absences
    Term to describe paid time off; vacations, sick leave, etc.
  • compensating balance
    An amount that must be left on deposit and cannot be withdrawn
  • complex capital structure
    Companies with options, warrants, or convertible bonds and stocks that may result in the issuance of additional shares
  • compound interest
    Interest calculations that provide for periodic inclusion of accumulated interest into the base on which interest is calculated; "interest on the interest"
  • comprehensive income
    Net income plus items of other comprehensive income (e.g., market value adjustments of available for sale securities)
  • conservatism
    A general principle of accounting measurement; when in doubt, understate assets and income and overstate liabilities
  • consignment
    To place inventory in the custody of another party without requiring them to purchase it, as a sales agent
  • consistency
    An enhancing quality of accounting such that deviations in outcomes from period to period should be the result of deviations in underlying performance (not accounting quirks)
  • consolidation
    To prepare financial reports for a parent and subsidiary company as a single economic unit
  • contingent liabilities
    Events that may or may not give rise to an actual liability because the outcome is uncertain; examples include lawsuits, environmental damage issues, and so forth
  • continuous budget
    A budget that is constantly updated; as one month/quarter is completed another is added to the set the projections
  • contra asset
    An account that is subtracted from a related account -- contra accounts have opposite debit/credit rules
  • contribution income statement
    An internal report that identifies each segment's controllable elements; the contribution margin, controllable fixed costs, uncontrollable fixed costs, and segment margin
  • contribution margin
    Revenues minus all variable expenses, whether related to production or selling and administration (not to be confused with gross profit)
  • control account
    The total of all subcomponent account records for an account; e.g., the sum of all individual accounts receivable
  • controller
    The primary person responsible for the cost and managerial accounting functions
  • conversion cost
    Cost components needed to change raw materials to finished goods, specifically direct labor and manufacturing overhead
  • convertible bond
    A bond that may be converted by the holder into stock of the issuing company
  • convertible preferred
    Preferred stock that can be exchanged for common stock at some preagreed ratio
  • corporation
    A form of business organization where ownership is represented by divisible units called shares of stock
  • cost accounting
    The process by which an organization's cost is collected, assigned, and interpreted
  • cost center
    An area of responsibility under the control of a manager who is responsible for costs incurred within the unit; the unit generally has little revenue function
  • cost driver
    The factor that is viewed as causing costs to be incurred within an organization
  • cost flow assumption
    An assumption about how costs are assigned to inventory in the accounting records
  • cost object
    The output for which costing information is to be determined under ABC; can be product or service related, or customer, market, etc.
  • cost of goods manufactured
    The amount of cost attributable to goods reaching the end of production; beginning work in process (wip) + (direct materials, direct labor, manufacturing overhead) - ending wip
  • cost of goods sold
    The total cost attributed to units of inventory actually sold during a period
  • cost of production report
    A report used in a process costing environment to tabulate the costs incurred within a particular stage/department
  • cost-volume-profit analysis
    (CVP) Analysis focusing on the interplay of pricing, volume, variable and fixed costs, and product mix
  • coupon bond
    A bond that has detachable coupons that are exchanged for interest payments; historically popular but falling into disuse
  • CPA
    An individual who is licensed by a state to practice public accounting
  • credit
    The nature of an action to an account to indicate an increase (liabilities, equity, and revenue) or decrease (assets, expenses, and dividends); usually right-justified in an entry
  • credit memorandum
    A seller-prepared document evidencing an approved return of merchandise for credit against an account
  • cumulative preferred
    Preferred stock that is entitled to a periodic dividend, and those dividends must be paid (eventually) before any monies can be distributed to common stockholders
  • current assets
    Assets that will be converted into cash or consumed within one year or the operating cycle, whichever is longer
  • current liabilities
    Obligations that will be liquidated within one year or the operating cycle, whichever is longer
  • current operating approach
    A concept of income where income is limited to transactions related to central ongoing operations; not an acceptable approach for income theory
  • current ratio
    A measure of liquidity, calculated by dividing current assets by current liabilities
  • customer-level activity
    Activities that relate to each customer; independent of the volume of goods and services provided to the specific customer
  • dashboard
    Customized business software that delivers key real time business data in an easily monitored layout
  • database
    An information storehouse, usually electronic, that can be queried to extract data meeting certain parameters. Enables singular data entry and multiple data output.
  • debenture bond
    A bond that lacks specific collateral; payment is only assured by the general faith and creditworthiness of the issuer
  • debit
    The nature of an action to an account to indicate an increase (assets, expenses, and dividends) or decrease (liabilities, equity, and revenue); usually left-justified in an entry
  • debit memorandum
    A purchaser-prepared document evidencing a return of merchandise to a seller
  • decentralized decision making
    A business style where top leaders concentrates on strategy, and leaves day-to-day operation and decision-making tasks to lower-level personnel
  • declining balance depreciation method
    An accelerated depreciation method by which a constant rate (that is a multiple of the straight-line rate) is multiplied by each period's beginning (constantly declining) book value
  • defined benefit plan
    A type of pension plan where the benefits are a function of years of service, pay, and age; the ultimate employer cost is not known in advance
  • defined contribution plan
    A type of pension plan where the benefits are based on amounts in trust for the benefit of the employee; employer contributions are usually a fixed percentage of pay
  • depletion
    The process used to allocate the cost of a natural resource asset to the accounting periods benefited
  • deposits in transit
    Receipts entered on company records but not yet posted by the bank
  • depreciable base
    Cost minus salvage value; the amount of cost that will be allocated to the service life
  • depreciation
    The process used to allocate the cost of a long-lived property to the accounting periods benefited
  • derivatives
    Investments accounted for a fair value that generally derive their value from some other item; examples include commodity futures, options, and so forth
  • diluted EPS
    An earnings per share number; adjusted to reflect the potential effect of dilutive securities
  • dilutive securities
    Options, warrants, convertible bonds, convertible stocks, and other items that have the potential to increase the number of shares outstanding
  • direct approach
    The preferred method for preparing the statement of cash flows; operating cash flows are presented according to their direct source (e.g., cash received from customers)
  • direct costs
    A cost easily traced to a specific job; generally direct material and direct labor
  • direct labor
    Gross wages paid to those who physically and directly work on the goods being produced
  • direct labor budget
    A budget that details expected direct labor needs, along with the related costs of labor
  • direct labor efficiency variance
    A variance comparing standard hours of direct labor to the actual hours worked; measured at the standard rate per hour [(standard hours - actual hours) X standard rate]
  • direct labor rate variance
    A variance that reveals the difference between the standard rate and actual rate for the actual labor hours worked [(standard rate - actual rate) X actual hours]
  • direct material
    The costs of all materials that are an integral part of a finished product and that have a physical presence that is readily traced to that finished product
  • direct material purchases budget
    A budget that details expected direct material purchases, along with the related cash payments
  • direct method/allocating service cost
    An allocation process whereby service department costs are assigned directly to productive departments (compare to step method)
  • direct write-off method
    A simple, non-GAAP, method that expenses uncollectible accounts only as they are determined to be uncollectible and are written off
  • discontinued operations
    The special income statement reporting of the impact of disposing or abandoning of a component of a business
  • discount on bonds
    The difference between face value and issue price of a bond, where the issue price is less; causes the effective yield to be higher than that stated
  • discretionary fixed cost
    Fixed cost resulting from yearly spending decisions; proper planning can result in avoidance of these costs as necessary (e.g., advertising and training)
  • dishonoring a note
    To fail to pay a note at maturity
  • dividend payout ratio
    Dividend per share divided by earnings per share
  • dividend rate
    Dividend per share divided by stock price; also called dividend yield
  • dividends
    Amounts paid from profits of a corporation to shareholders as a return on their investment in the stock of the entity
  • dividends in arrears
    An omitted dividend on cumulative preferred stock that must eventually be paid before any monies can be distributed to common stockholders
  • double-declining balance depreciation
    An accelerated depreciation method by which a constant rate (that is 200% of the straight-line rate) is multiplied by each period's beginning (constantly declining) book value
  • earnings
    A concept that relates to income from continuing operations plus/minus discontinued operations
  • Earnings per share
    EPS; generally understood as the amount of income for each share of stock, but is actually better refined as basic and diluted EPS (see those definitions)
  • EBIT
    An analyst's calculation to reflect "earnings before interest and taxes"
  • EBITDA
    An analyst's calculation to reflect "earnings before interest, taxes, depreciation, and amortization"
  • economies of scale
    Efficiencies associated with increases in volume
  • effective-interest amortization
    A theoretically preferable method for amortizing premiums and discounts on bonds; interest expense is a constant percentage of the bonds ever-changing carrying value
  • employee
    A person who works for a specific business and whose activities are directed by that business
  • encumbrance
    A budgetary restriction occurring in advance of a related expenditure
  • entity assumption
    Accounting information should be presented for circumscribed distinct economic units
  • entity-sustaining activity
    Activities that relate to an entity's ability to operate; independent of business volume
  • equity method
    Method to account for stock investment when significant influence is present; changes in equity of the investee are recognized by the investor on a pro rata basis
  • equivalent units
    A measure of physical units expressed in terms of finished units
  • ERP
    (Enterprise Resource Package) Comprehensive database software that tracks an almost endless array of business and accounting data
  • ex-dividend
    The event (date) when a transfer of stock ownership between shareholders will occur without the right for the purchaser to receive any previously declared dividends
  • exchange transaction
    Trading one asset for another; to be booked at fair value if the transaction has commercial substance
  • expenses
    The costs incurred in producing revenues
  • F.O.B. destination
    Free on Board destination; meaning the transfer of ownership of inventory will occur when the goods reach their destination and the seller will incur the freight charges
  • F.O.B. shipping point
    Free on Board shipping point; meaning the transfer of ownership of inventory will occur when the goods are shipped and the purchaser will incur the freight charges
  • factory overhead budget
    A budget that details the anticipated factory overhead, including calculations related to the allocation of such amounts
  • fair value accounting
    Sometimes called "mark-to-market;" to record an investment at its fair value and recognize changes in value as they occur
  • faithful representation
    A fundamental quality of accounting such that information must be truthful; complete, neutral, and free from error
  • FICA
    Federal Insurance Contributions Act (also known as social security and Medicare); establishes a tax that employers must withhold and match for government-based retiree benefit
  • financial accounting
    An area of accounting that deals with external reporting to parties outside the firm; usually based on standardized rules and procedures
  • Financial Accounting Standards Board
    An organization charged with producing standards for financial reporting in the USA
  • financial statements
    Core financial reports that are prepared to represent the financial position and results of operations of a company
  • financing activities
    A cash flow category; including receipts from stock issues, bonds, notes and loans, -- and payments for loan repayment, acquisitions of treasury stock, and dividend distributions
  • finished goods
    Finished goods represent the cost of completed products awaiting sale to a customer
  • first-in, first-out
    FIFO; An inventory cost flow assumption based on the notion that the earliest costs are to be assigned to units sold
  • fiscal year
    A one-year accounting period that does not correspond to a calendar year
  • fixed cost
    A total cost that is the same regardless of volume; total cost is constant and per unit cost decreases with volume increases
  • fixed overhead spending variance
    A fixed overhead variance that compares actual fixed overhead to the budgeted fixed overhead
  • fixed overhead volume variance
    A fixed overhead variance that compares the budgeted fixed overhead to the fixed overhead that is applied to production based on standard fixed overhead per unit of output
  • flexible budget
    A budget that covers a range of potential outcomes by relating expense levels to the potential revenues
  • Form 1099
    A form required to be issued to an independent contractor reporting amounts paid; to assist with tax compliance issues (this form used to report other payments like interest, etc.)
  • full disclosure principle
    All relevant facts that would influence investors' and creditors' judgments about the company are disclosed in the financial statements or related notes
  • FUTA
    Federal Unemployment Tax levied on employer to provide funds for unemployed workers; rate is dependent on existence of SUTA and employer history of layoffs, etc.
  • future value
    Or "compound interest;" amount that a current payment (or stream of payments) will grow in time; includes interest on previous interest based on frequency of compounding
  • GAAP
    Generally accepted accounting principles -- encompass the rules, practices, and procedures that define the proper execution of accounting
  • general ledger
    A record of the accounts comprising financial statements, and their respective balances
  • going-concern assumption
    In the absence of evidence to the contrary, accountants assume that a business will continue to operate well into the future
  • goods available for sale
    A calculated amount corresponding to the beginning inventory plus net purchases; represents the total pool of inventory available during a period from which sales can occur
  • goods in transit
    Goods in the process of being transported to the buyer; ownership is based on freight terms
  • goodwill
    The excess of the purchase price of an acquired company over the fair value of the identifiable net assets acquired
  • gross method
    A method of recording purchases of inventory at invoice price
  • gross pay
    Also known as gross earnings; this it is the total amount earned by an employee before any deductions
  • gross profit
    A calculated amount corresponding to net sales minus cost of goods sold
  • gross profit method
    A technique that purports to estimate inventory and cost of goods sold by applying historic percentage relationships to observable sales information
  • held-to-maturity investments
    Investments purchased with intent to hold to maturity; usually investment in debt; accounted for by amortized cost method
  • high-low method
    A simple means for separating costs into fixed and variable components, based upon the difference between costs at the highest and lowest observed levels of activity
  • historical cost principle
    The concept that many transactions and events are to be measured and reported at acquisition cost
  • ideal standards
    A standard that could only be achieved under perfect operating conditions; such standards are rarely expected to be achieved
  • IMA
    Institute of Management Accountants; a professional association for management accountants that sponsors the CMA and CFM designations
  • impairment
    When the carrying amount of an asset is not recoverable from its future cash flow
  • income statement
    A financial statement that summarizes the revenues, expenses, and results of operations for a specified period of time
  • income summary
    A non-financial statement account used only to facilitate the closing process by summarizing and zeroing-out the revenue and expense accounts
  • income taxes
    Taxes that are based on the amount income; for employees such amounts must be withheld by employers and remitted to the government
  • incremental budgeting
    A budgeting approach where the prior year experience sets a base line for a new budget; changes are made based on new information but the base need not be rejustified in detail
  • independent contractor
    One who performs a designated task or service for a company, and the company has the right to control or direct only the result of the work done
  • indirect approach
    An alternative method for preparing the statement of cash flows; operating cash flows are presented as a reconciliation of income to cash from operating activities
  • indirect costs
    A cost not easily traced to a specific job; generally categorized as factory or manufacturing overhead
  • initial public offering
    The first time stock in a corporation is offered to the investing public; registration and other requirements must be met; proceeds may flow to the corporation or private shareholders
  • intangible asset
    Long-term asset that lacks physical existence; contract rights, copyrights, patents, trademarks, etc.
  • interest
    The charge imposed on the borrower of funds for the use of money
  • internal auditor
    A person within an organization who reviews and monitors the controls, procedures, and information of the organization
  • internal rate of return
    Also known as time-adjusted rate of return or IRR; discount rate causing present value of cash inflows to equal present value of the cash outflows
  • International Accounting Standards Board
    An organization charged with producing accounting standards with global acceptance
  • International Financial Reporting Standards (IFRS)
    The specific accounting rules developed by the International Accounting Standards Board
  • intraperiod tax allocation
    Separately reported items like discontinued operations, prior period adjustments, and other comprehensive income, are to reported net of their specifically related tax effects
  • inventoriable cost
    Product costs that attach to inventory
  • inventory
    Goods held for resale to others
  • investee
    The company in which another has an investment
  • investing activities
    A cash flow category; including receipts from disposal of investments and long-term assets -- and payments to acquire long-term assets and investments
  • investment center
    A evaluative unit where managers are accountable for cost and profit outcomes, including consideration of the amount of capital that is deployed to achieve those outcomes
  • invoice price
  • issue price
    The amount a company receives in exchange for the initial issue of debt or other financial instrument
  • job cost sheet
    A document representing a compilation of cost data for a specific job
  • job costing method
    A costing approach whereby actual labor and material is tracked for each job or product
  • journal
    A chronological listing of the transactions and events of an organization, in debit/credit format
  • journalizing
    The process of recording transactions and events into the journal
  • junk bond
    A bond that is issued by a company of low credit worthiness, and entails substantial risk of nonpayment; generally offers a high interest rate to compensate for the high risk
  • just in time inventory
    Raw materials are received from supplies just as they are needed in the production process
  • Kaizen
    Japanese term used to describe a blitz like approach to study processes and install efficiency within an organization
  • Kanban
    Japanese term which means some form of signal that a particular inventory is ready for replenishment
  • land improvements
    Includes the cost of parking lots, sidewalks, landscaping, irrigation systems, and similar expenditures that are incurred to better land
  • last-in, first-out method
    LIFO; An inventory cost flow assumption based on the notion that the most recent costs are to be assigned to units sold
  • lean manufacturing
    Indicative of an environment where waste has been trimmed; entails a focus on standardization, speed, and quality, without compromising responsiveness to customer demand
  • lease/lessee and lessor
    Periodic payment from the user (lessee) of an asset to an owner (lessor) of the asset
  • legal capital
    Usually the par value of the stock of a corporation
  • lessee
    Periodic payment from the user (lessee) of an asset to an owner (lessor) of the asset
  • lessor
    Periodic payment from the user (lessee) of an asset to an owner (lessor) of the asset
  • liabilities
    Amounts owed by an entity to others
  • liquidity
    The ability of a firm to meet its near-term obligations as they come due
  • list price
    An established price determined by reference to a catalog or general price list; before any discounts
  • long-term investments
    Investments made for long-term holding purposes; including land for speculation, securities of other companies, etc.
  • long-term liabilities
    Any obligation that is not current, and include bank loans, mortgage notes, and the like
  • lower of cost or net realizable value
    To report inventory at the lower of its cost or net realizable value
  • lump-sum purchase
    A single price paid for a package of assets; the purchase price must be allocated to each of the components
  • M2M
    (Machine to Machine) enables connected devices to communicate with each other
  • maker
    The party creating the note and agreeing to make payment
  • management by exception
    A management focus of attention on areas where corrective measures appear necessary
  • managerial accounting
    An area of accounting concerned with reporting results to managers and others who are internal to an organization
  • manufacturing overhead
    All costs of manufacturing other than direct materials and direct labor (also called factory overhead)
  • market-level activity
    Activities that relate to the number of markets in which an entity operates; independent of the number of products, customers, etc.
  • master budget
    Also known as the comprehensive budget; an integrated set of articulated budgets relating to numerous operational subcomponents (labor, material, overhead, SG&A, etc.)
  • matching principle
    To associate expenses with revenues, and record them in simultaneous accounting periods
  • materiality
    A matter of accounting judgment; when amounts involved are slight, expediency may dictate waiving the technically correct alternative in lieu of a simpler approach
  • materials price variance
    A variance that reveals the difference between standard price for materials purchased and amounts actually paid for those materials [(standard price - actual price) X actual quantity]
  • materials quantity variance
    A variance comparing standard quantity to actual quantity of materials; variation is measured at the standard price per unit [(standard quantity - actual quantity) X standard price]
  • materials requisition form
    Form showing what material has been removed from the raw materials stock and put into production
  • maturity date
    The date on which a note and related interest are due to be paid
  • maturity value
    The amount due at maturity of a note; includes principal and interest
  • method of least squares
    A complex means for separating costs into fixed and variable components, based upon minimizing the variances between all observations and the resulting assumed cost function
  • mixed costs
    A cost that has both fixed and variable components
  • Modified Accelerated Cost Recovery System
    A "depreciation" approach common to the tax code; generally permits more rapid "recovery" of asset cost than GAAP approaches; MACRS - pronounced "makers"
  • modified cash basis
    Like the cash basis, except that certain large expenditures for durable assets may be recorded as assets initially
  • monetary unit assumption
    Accounting measures transactions and events in units of money, in contrast to some other unit of measure (e.g., acres of land)
  • moving-average method
    Under the perpetual inventory system; to recompute running average cost with each purchase transaction
  • multiple-step income statement
    A complex income statement with sections that segregate cost of goods sold calculations and other components of income and expense; enables enhanced evaluations of data
  • natural business year
    Applicable to certain businesses that have a seasonal business pattern, and an attempt is made to establish an accounting fiscal year to match
  • natural resources
    Oil and gas reserves, mineral deposits, thermal energy sources, and standing timber are just a few examples of such assets that a firm may own
  • net income
    Income from continuing operations plus/minus discontinued operations, but before items of “other comprehensive income”
  • net loss
    The excess of expenses over revenues for a designated period of time
  • net method
    A method of recording purchases of inventory at invoice price less available cash discounts
  • net pay
    Also known as net earnings; this is the gross pay less all applicable deductions ("take home pay")
  • net present value
    Or NPV, a method of evaluating capital projects that uses a predetermined interest rate to determine the present value of an investment's net cash inflows and outflows
  • net realizable value (NRV)
    (inventory) Estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal, and transportation
  • net realizable value (receivables)
    The amount of cash expected to be collected on outstanding accounts receivable; accounts receivable minus the allowance for uncollectibles
  • nominal accounts
    Accounts that will be reset to a zero balance with each new accounting period; revenue, expense, and dividend accounts (also called "temporary" accounts)
  • nonredeemable bond
    A bond that cannot be paid off before scheduled maturity
  • nonrefundable bond
    A bond that cannot be paid off with the proceeds of a new debt issue
  • nontrade receivables
    Amounts due from transactions and events not directly related to sales of products or services
  • notes payable
    Formal short-term borrowings usually evidenced by a specific written promise to pay
  • notes receivable
    A written promise from a client or customer to pay a definite amount of money on a specific future date
  • NSF check
    Non-sufficient funds check; a customer check returned for lack of funds (a "hot check")
  • operating activities
    A cash flow category; generally related to transactions that enter into the determination of income -- items that are not investing or financing
  • operating cycle
    The period of time it takes to convert cash back into cash (i.e., purchase inventory, sell the inventory on account, and collect the receivable)
  • operating expenses
    General expense category for selling and administrative costs
  • operating lease
    A lease where the lessee makes periodic payments for periodic use of an asset, but does not assume the ultimate risks and rewards of owning the asset
  • opportunity cost
    The cost of a foregone alternative; may include lost revenue
  • ordinary annuity
    Also known as an annuity in arrears; involves a level stream of payments, with the payments being made at the end of each time period
  • other assets
    The category of a classified balance sheet for reporting assets that are not logically attached to one of the other specific sections
  • other comprehensive income
    An account for changes in value of available for sale securities; not part of net income but is included in the broader concept of total comprehensive income
  • outsourcing
    Utilization of independent parties to manufacture products (sometimes known as make-or-buy) or manage data processing, tech support, payroll services, etc.
  • outstanding checks
    Checks entered on company records but not yet cleared by the bank
  • overapplied overhead
    Applied overhead exceeds the actual amount; usually viewed as a favorable outcome, because less has spent than anticipated for the level of achieved production
  • overhead application rate
    A rate used to apply manufacturing overhead to output; estimated factory overhead for a period divided by the estimated application base
  • owner investments
    Resources provided to an organization by a person in exchange for a position of ownership in the organization
  • owners' equity
    The residual of assets minus liabilities, representing the collective interest or position of the entity's owners
  • paid-in capital in excess of par
    The amount by which a stock's issue price exceeds its par value; also referred to as "additional paid-in capital"
  • par value
    Par value is a is a technical provision establishing the “legal capital” of the firm and is frequently associated with common and preferred stock to satisfy statutory requirements
  • par value on bonds
    The face or contract amount of a bond; the amount to be repaid at maturity along with any interest
  • partnership
    A non-corporation representing an association of two or more persons organized to carry out a business plan for a profit motive
  • payback method
    Easy method for evaluating capital projects; calculated by dividing the initial investment by the annual cash inflow
  • payee
    The party to whom a note is made payable
  • PCAOB
    Public Company Accounting Oversight Board -- a private-sector, non-profit corporation charged with overseeing the auditors of public companies
  • pension plan
    A general term to describe some form of arrangement for continuing payments to retirees
  • period cost
    A cost not attributable to the acquisition or manufacture of inventory; expensed as incurred
  • periodic inventory system
    An inventory system that utilizes a Purchases account and does not update inventory with each sale; inventory is updated by physical count at the end of accounting periods
  • periodicity assumption
    An accounting assumption that purports to divide a continuous business process into measurement intervals, such as months, quarters, and years
  • perpetual inventory system
    A "real-time" inventory system that updates inventory records with each purchase and sale
  • petty cash
    A fund established for making small payments that are impractical to pay by check; also known as imprest cash fund
  • physical inventory
    The process of counting inventory actually on hand
  • post-closing trial balance
    Reveals the balance of accounts after the closing process, and consists of balance sheet accounts only
  • posting
    The process of transferring journal entry effects into the respective general ledger accounts
  • preemptive right
    A right that may or may not be provided to shareholders enabling them with a first right of refusal to buy any additional shares offered by a corporation
  • preferred stock
    A class of stock that generally benefits from a stipulated periodic dividend and priority in liquidation; but, usually lacking in upside participation in corporate growth
  • premium on bonds
    The difference between face value and issue price of a bond, where the issue price is more; causes the effective yield to be lower than that stated
  • prepaid expenses
    Goods or services purchased in advance of their consumption
  • present value
    Also known as discounting; determines the current worth of cash to be received in the future
  • price earnings ratio
    The per share market value of a stock divided by its earnings per share
  • prime cost
    Product costs that are direct in nature; direct materials and direct labor
  • principal
    The basic stated amount of a note on which interest is usually calculated; generally relating to the amount borrowed
  • principles-based
    The idea that accounting standards should articulate broad-based principles rather than specific and detailed rules
  • prior period adjustment
    To correct errors from prior years; prior financial statements are retroactively changed to make them correct
  • pro forma financial statements
    "As if" budgeted financial statements
  • process costing
    Process costing is a method to allocate the total costs of production to homogenous units produced via a continuous process that usually involves multiple steps or departments
  • process costing methods
    A product costing method particularly well suited to situations where production occurs in a continuous process; costs are pooled and assigned to aggregate output
  • product cost
    Costs that attach to a product; the summation of direct materials, direct labor, and factory overhead
  • product-level activity
    Activities that relate to the number of products produced; independent of the number of units produced
  • production budget
    A budget that details planned levels of production; takes into account sales and inventory build/decline
  • profit center
    Business unit that has control over both costs and revenues and is therefore evaluated on the profit outcomes
  • proof of cash
    A detailed bank reconciliation that verifies not only beginning and end balances, but also validates deposits and withdrawals during the month
  • property, plant, and equipment
    Assets with long lives that will be used in an entity's production processes; land, buildings, and equipment
  • prospectus
    The documentation describing financial and business aspects of an initial public offering
  • public accounting
    Accounting activities provided by a person to the general public, typically relating to audit, tax and similar services
  • purchase discounts
    A cash discount available on purchases of merchandise on account; encourages prompt payment
  • quick ratio
    An extreme measure of liquidity, calculated by dividing quick assets (cash, short-term investments, and accounts receivable) by current liabilities
  • raw materials
    The components that will be used in manufacturing units that are not yet started -- also known as direct materials
  • real accounts
    Asset, liability, and equity accounts; balances are carried forward from the end of one period into the beginning of the next period
  • registered bond
    A bond for which ownership records are maintained, and interest is paid to the registered owner
  • relevancy
    A fundamental quality of accounting such that information should be timely and bear on the decision-making process by possessing predictive or confirmatory (feedback) value
  • relevant cost
    Items where future costs and revenues are expected to differ for the alternative decisions under consideration
  • relevant range
    The level of activity for which assumptions underlying CVP are expected to hold true
  • remeasurement
    One of two approaches for converting the financial statements of a foreign affiliate to the reporting currency
  • replacement
    A restoration of an asset, at least partially, to its original condition; such costs may be capitalized by reducing accumulated depreciation
  • residual income
    An internal assessment technique that adjusts income for a presumed cost of capital (or other threshold rate of return); operating income - (operating assets X cost of capital)
  • residual value
    Amount expected be realized at the end of an asset's service life; "salvage value"
  • resource
    The elements consumed by activities and cost objects
  • resource driver
    The concept that activities create the need for resources which will be consumed in the production process
  • responsibility center
    The part of an organization under the control of a manager
  • restatement
    The financial statements of prior periods are redone to reflect the correct amounts
  • retail inventory method
    An inventory costing technique used by retailers that extrapolates inventory values by applying cost-to-retail percentages to known sales and purchase transactions
  • retained earnings
    The excess of a corporation's income over its dividends
  • retrospective adjustment
    Revision of the financial statements for prior periods to reflect the application of a current change in accounting method
  • return on assets ratio
    A ratio comparing income (net income plus interest) to the average total assets
  • return on equity ratio
    A ratio comparing income (net income minus preferred dividends) to the average total equity
  • return on investment
    ROI: A model consisting of a margin component (Operating Income/Sales) and turnover component (Sales/Average Assets); reduces to Operating Income/Average Assets
  • revenue
    Inflows and other benefits received in exchange for the providing of goods and services
  • revenue expenditure
    Not a capital expenditure; to be expensed as incurred
  • revenue recognition
    The point at which revenue is recognized in the accounting records; ordinarily the point of sale
  • reversing entry
    Optional accounting procedure which may prove useful in simplifying record keeping; a journal entry to "undo" an adjusting entry
  • RFID
    (radio frequency identification) Micro processes embedded in inventory that emit radio frequency signals that enable a computer to automatically track inventory
  • rules-based
    The idea that accounting standards must be very specific to provide adequate guidance and drive consistency in reporting
  • sales budget
    A budget that details anticipated sales levels
  • sales discounts
    A cash discount offered to customers to encourage prompt payment of invoices
  • Sarbanes-Oxley Act
    "SOX" -- Legislation that imposes stringent controls over reporting and auditing; created the Public Accounting Oversight Board
  • scattergraph
    A simplistic mapping of observed data points, where a line is "visually" drawn to represent the estimated cost function
  • scorecards (balanced)
    A system for evaluating elements that are important to the organization and under the control of an employee holding that position
  • secured bond
    A bond that provides specific assets as collateral to help assure the payment stream
  • Securities and Exchange Commission
    "SEC" -- regulatory body with which public companies must file and report
  • segment
    A business unit for which separate financial information is evaluated by an operating decision maker who allocates resources and judges performance of the unit
  • serial bond
    A bond issue that has multiple repayment dates, rather than the entire issue maturing at one fixed maturity date
  • service life
    The period of time that a depreciable asset will be in use by an entity; the time interval over which the asset will be depreciated
  • SG&A
    Selling, general, and administrative costs; the period costs of the business
  • SG&A budget
    A budget that details anticipated selling, general, and administrative costs
  • significant influence
    The ability to sway management and decision making of another entity, but generally not enough to assert absolute control
  • simple interest
    Interest calculations that do not provide for periodic inclusion of accumulated interest into the base on which interest is calculated
  • single-step income statement
    A simple income statement with a section for all revenues and another for all expenses; there is no direct association between specific revenue and expense components
  • sinking fund bond
    A bond issue that requires periodic setting aside of monies into a separate fund to provide for eventual repayment of the debt at maturity
  • Six Sigma
    A trademarked quality management system developed by Motorola; driven by pursuit of statistical results that reflect near perfection in production and processing
  • sole proprietorship
    A non-corporation business owned by a sole individual
  • source document
    A document evidencing a transaction or event and potentially providing for the initiation of a journal entry
  • special order
    A customer order that is outside of the normal pricing and terms
  • specific identification method
    Inventory costing method where the actual cost of each unit of merchandise is tracked and used for accounting purposes
  • stable currency assumption
    An accounting assumption that presumes the currency is not impacted over time by inflation
  • standard cost
    A measure of what costs should be incurred to achieve the observed output
  • standards
    Benchmarks against which actual productive activity is compared
  • statement of cash flows
    A financial statement that summarizes the cash flows relating to operating, investing, financing, and noncash investing/financing activities of an entity
  • statement of retained earnings
    A financial statement that discloses changes in retained earnings during a designated period of time; those changes usually attributable to income and dividends
  • statement of stockholders' equity
    A financial statement that is often presented in lieu of a statement of retained earnings and other disclosures about equity accounts
  • static budget
    A budget that does not anticipate alternative outcomes; estimated sales and expenses are fixed and establish the relevant benchmarks
  • step cost
    A cost function that is fixed over a range, and then increases by a measured step to a new level at the next higher increment of activity
  • step method/allocating service cost
    An allocation process whereby some service department costs may be assigned to other service departments as part of a sequential methodology
  • stock
    Transferable units of ownership in a corporation
  • stock dividend
    A noncash corporate activity to provide shareholders with additional shares in proportion to existing ownership; makes for more shares outstanding, but does not change total equity
  • stock split
    A corporate action to increase the number of shares and reduce the par per share by a stipulated ratio (e.g., 2 for 1)
  • straight-line amortization
    A method for amortizing premiums and discounts on bonds; the premium or discount is spread uniformly over the life of the bond as an adjustment of interest
  • straight-line depreciation
    A simple depreciation method by which the depreciable base is spread uniformly over the service life
  • subsidiary account
    A subcomponent account record providing individual balance details; e.g., the record for one customer out of a group of customers comprising all accounts receivable
  • sunk cost
    Historical amount expended on a project or object; not relevant to current decisions or future actions
  • SUTA
    State Unemployment Tax levied on employer to provide funds for unemployed workers; rate is adjusted for employer history of layoffs, etc.
  • T-account
    An abstract representation of an account, with the left side of the "T" representing debits and the right side credits
  • target income
    A level of income that is to be obtained; CVP projects activity levels necessary to achieve this benchmark
  • temporary accounts
    Accounts that will be reset to a zero balance with each new accounting period; revenue, expense, and dividend accounts (also called "nominal" accounts)
  • theory of constraints
    (TOC) Efficiency is improved by seeking out and eliminating constraints within the organization
  • time value of money
    Conceptual notion holding that money to be received sooner is worth more than money to be received later From Chapter 24: In the context of capital budgeting, assume two alternative investments have the same upfront cost. Investment Alpha returns $100 per year for each of the next (...)
  • timeliness
    An enhancing quality of accounting such that information is available in sufficient time to be capable of influence
  • top-down mandated budget
    A budget approach where upper level management establishes parameters under which the budget is to be prepared
  • total paid-in capital
    The sum of legal capital plus paid-in capital in excess of par
  • total quality management
    (TQM) A process for continuous improvement by focusing on customer service and systematic problem solving via teams made up of front-line employees
  • traceable fixed costs
    Fixed costs that would not exist if the unit under evaluation ceased to exist
  • trade discount
    A reduction from list price that is not entered in the accounting records; customarily offered in "setting" the invoice amount
  • trade receivables
    Amounts due from customers from credits sales of products or services
  • trading securities
    Investments acquired with the intent of generating profits by reselling the investment in the very near future; classified as current assets
  • transfer pricing
    The system of setting prices at which goods are exchanged between affiliated units; usually involving cross-border transactions
  • translation
    One of two approaches for converting the financial statements of a foreign affiliate to the reporting currency
  • treasury stock
    Shares of a company's own stock that it has reacquired
  • trial balance
    A listing of account balances from the ledger, used to test the equality of debits and credits
  • underapplied overhead
    Applied overhead is less than the actual amount; usually viewed as a unfavorable outcome, because more has spent than anticipated for the level of achieved production
  • understandability
    An enhancing quality of accounting such that information is clear and concise to those with reasonable business knowledge
  • unearned revenue
    Revenue that has been collected in advance of providing goods and services to "earn it;" reported as a liability until earned
  • unit-level activity
    Activities that relate to the number of units of output; each additional unit of production requires another activity
  • units-of-output depreciation
    A depreciation approach where the depreciable base is allocated to the expected total units of output; mileage, hours, etc.
  • variable cost
    A per unit cost that is the same regardless of volume; total variable cost increases with volume increases
  • variable costing
    A costing method where inventory absorbs direct costs and variable factory overhead; the income statement identifies the contribution margin
  • variable overhead efficiency variance
    A variance that reflects the level of efficiency associated with the application of variable overhead to production
  • variable overhead spending variance
    A variance that reflects the difference between actual variable overhead and standard variable overhead associated with the actual units of the application base
  • variances
    Deviations from the norm that may provide warning signs of situations requiring corrective action by managers
  • verifiability
    An enhancing quality of accounting such that different knowledgeable and independent observers reach similar conclusions
  • W-2
    An annual statement provided to employees stating the amount of earnings and withholdings; assists employee in preparing their own tax returns
  • W-4
    A form filled out by an employee stating the amount of exemptions to which they are entitled for tax purposes; such exemptions bear on the amount of income tax withholdings
  • warranty liability
    A liability that is recorded for the future costs of claims that are anticipated because of product warranty agreements
  • weighted-average inventory method
    Under the periodic inventory system; inventory cost is based on the average cost of units purchased giving consideration to the quantities purchased at different prices
  • weighted-average process costing
    A process costing technique where all units of production are assigned the same cost; determined by blending of current period costs with beginning inventory cost
  • work in process
    Goods that are in production but not yet complete; an accumulation of monies spent on direct material, direct labor, and applied manufacturing overhead
  • workers compensation insurance
    Insurance paid by the employer to cover work related injuries sustained by employees
  • working capital
    The difference between current assets and current liabilities
  • zero-based budgeting
    A budget approach where each expenditure item must be justified for each new budget period