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• ABC/activity based costingAlternative costing method for strategic management; divides production into activities, defines costs for activities, and allocates costs to objects based on activity consumption
• absorption costingAlso known as full costing -- a costing method where inventory absorbs direct costs and variable and fixed factory overhead
• accelerated depreciation methodsSeveral alternative depreciation approaches that result in relatively more depreciation in early years of use, and smaller amounts during later years
• accountA record that is kept for each asset, liability, equity, revenue, expense, and dividend component of an entity
• accountingA set of concepts and techniques that are used to measure and report financial information about an economic unit
• accounting changesChanges from one acceptable method of accounting to another acceptable method; like straight-line depreciation to a declining balance approach
• accounting cycleThe procedures needed to process transactions through an accounting system; including journalization, posting, adjusting, and preparing financial statements
• accounting equationA financial relationship at the heart of the accounting model: Assets = Liabilities + Owners' Equity
• Accounting Principles BoardThe private sector group charged with developing accounting standards from 1959 to 1973; primary authoritative pronouncements were known as "opinions"
• accounting rate of returnA 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 CodificationResearch 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 payableAmounts due to suppliers relating to the purchase of goods and services on credit
• accounts receivableAmounts due from customers from credits sales of products or services; "trade receivables"
• accrualExpenses and revenues that gradually accumulate throughout an accounting period
• accrual basisThe accounting process whereby revenues are measured and recorded as earned, while expenses are recorded as incurred
• accrued expensesUnpaid expenses that have already been incurred
• accrued revenuesRevenues that have been earned and recorded, but are not as yet collected
• achievable standardsA standard that takes into account normal spoilage and inefficiency; intended to allow workers to reach the established benchmarks
• activityAn event that gives rise to the consumption of resources
• 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
• activity cost poolThe costs assigned to a particular activity
• activity driverEvent that causes consumption of an activity
• adjusted trial balanceA trial balance prepared after adjusting entries have been prepared and posted to the ledger
• adjusting processTo 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 receivableAnalysis used to estimate the uncollectible accounts; involves stratification of receivables based upon age
• American Institute of Certified Public Accountants(AICPA) an organization whose members are CPAs interested in advancing the accounting profession
• all-inclusive approachA 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 uncollectiblesA method that estimates uncollectibles as a portion of total receivables and establishes an offsetting contra allowance account
• amortizationThe process used to allocate the cost of an intangible asset to the accounting periods benefited
• amortized cost methodThe 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
• annuitiesStreams of level (i.e., the same amount each period) payments occurring on regular intervals
• annuityLevel streams of payments; with each payment being the same, and occurring at a regular interval
• annuity dueAlso 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
• auditingThe examination of transactions and systems that underlie an organization's financial statements with the goal or reporting thereon
• available-for-sale securitiesInvestments in debt 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
• Business to Business(B2B) A system that enables data interchange between companies; sometimes sufficiently robust to permit automatic inventory replenishment, etc.
• balance sheetA financial statement that presents a firm's assets, liabilities, and owners' equity at a particular point in time
• balanced scorecardA set of performance measures that are congruent with assessing improvement in financial, customer, and business process outcomes
• bank reconciliationA control procedure to establish and verify the correct cash balance via identification of errors, irregularities, and adjustments
• bank statementThe document received from a bank which summarizes deposits and other credits, and checks and other debits to a bank account
• basic EPSThe simplest earnings per share number; earnings available to common shares divided by weighted average shares, without factoring in potential dilution
• batch-level activityActivities that relate to each batch of production; independent of the number of units within that batch
• benchmarkingMeasuring products or processes against industry standards, an essential part of total quality management
• bettermentExpenditures 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 dataElectronically warehoused information, capable of being mined and analyzed, containing the “who, what, when, where, and why” of all business activity
• bonds payableAn obligation divided into transferable units requiring the issuer to make periodic interest payments and an eventual repayment of the face amount
• book valueCost minus accumulated depreciation; the net amount at which an asset is reported on the balance sheet
• book value per shareCommon stockholders' equity divided by common shares outstanding, to indicate stockholders' equity per share
• bootTerm used to describe additional monetary consideration that may accompany an exchange transaction
• bottom-up participative budgetA budget approach driven by the direct participation of lower-level employees
• break-even pointThe 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
• budgetA planning tool that outlines the financial plans for an organization; there are various types of budgets -- operating, capital, and financial
• budget committeeA group of senior managers from each business unit charged with leading the budget preparation and review process
• budget slackThe influence of behavior to "pad" a budget via misstating expected revenues and/or expenses; to create more favorable budget vs. actual performance appraisals
• callable bondA bond that provides the issuer an option to reacquire the bonds before scheduled maturity at a preset price
• callable preferredPreferred stock that can be repurchased by issuer for a preset price
• capacity utilizationThe degree to which an organization's output capabilities are being deployed or utilized
• capital expenditure decisionAlso known as capital budgeting; planning and decision making related to longer term projects and expenditures
• capital expendituresOrdinary 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
• financing leaseA lease that effectively transfers the risks and rewards of ownership to the lessee
• capital stockA non-specific reference to the ownership interests of shareholders in a corporation
• cashItems acceptable to a bank for deposit and free from restrictions for satisfying current debts; includes coins, currency, bank deposits, etc.
• cash basisAn 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 budgetA major component of a cash planning system that depicts cash inflows and outflows for a stated period of time
• cash budgetAn essential budget component detailing planned cash receipts, disbursements, and financing actions
• cash discountA reduction in invoice price offered to customers to encourage prompt payment of invoices
• cash equivalentsShort-term interest-earning financial instruments that are deemed to be highly secure and will convert back into cash within 90 days
• centralized decision makingA business style where top leaders make and direct most important decisions
• CPAAn individual who is licensed by a state to practice public accounting
• certified public accountantAn individual who is licensed by a state to practice public accounting
• Certified Financial Manager(CFM) a professional designation of competency in the field of financial management that is issued by the Institute of Management Accountants
• change in accounting estimateA 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 accountsA listing of the accounts of an entity, along with any identification coding
• Chartered Global Management Accountant(CGMA) sponsors a designation that distinguishes professionals who have advanced proficiency in finance, operations, strategy and management
• closing processThe process by which temporary accounts are "zeroed" out and the effects transferred to retained earnings
• Certified Management Accountant(CMA) a professional designation of competency in the field of management accounting that is issued by the Institute of Management Accountants
• commercial substanceThe quality of an exchange transaction such that it changes the future cash flow potential of the entity
• commitmentsPromises to engage in some future action; not necessarily creating a recordable accounting liability but potentially necessitating enhanced disclosure
• committed fixed costCosts that arise from an organization's commitment to engage in operations; unavoidable elements like depreciation, rent, insurance, property taxes
• common fixed costsFixed costs that are incurred to support more than one business unit
• common stockThe residual equity interest in a corporation; last in liquidation but usually receiving the full benefits of any corporate growth
• comparabilityAn enhancing quality of accounting such that even though different companies may use different accounting methods, there is still sufficient basis for valid comparison
• compensated absencesTerm to describe paid time off; vacations, sick leave, etc.
• compensating balanceAn amount that must be left on deposit and cannot be withdrawn
• complex capital structureCompanies with options, warrants, or convertible bonds and stocks that may result in the issuance of additional shares
• compound interestInterest calculations that provide for periodic inclusion of accumulated interest into the base on which interest is calculated; "interest on the interest"
• comprehensive incomeNet income plus items of other comprehensive income (e.g., market value adjustments of available for sale securities)
• conservatismA general principle of accounting measurement; when in doubt, understate assets and income and overstate liabilities
• consignmentTo place inventory in the custody of another party without requiring them to purchase it, as a sales agent
• consistencyAn 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)
• consolidationTo prepare financial reports for a parent and subsidiary company as a single economic unit
• contingent liabilitiesEvents 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 budgetA budget that is constantly updated; as one month/quarter is completed another is added to the set the projections
• contra assetAn account that is subtracted from a related account -- contra accounts have opposite debit/credit rules
• contribution income statementAn internal report that identifies each segment's controllable elements; the contribution margin, controllable fixed costs, uncontrollable fixed costs, and segment margin
• contribution marginRevenues minus all variable expenses, whether related to production or selling and administration (not to be confused with gross profit)
• control accountThe 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 costCost components needed to change raw materials to finished goods, specifically direct labor and manufacturing overhead
• convertible bondA bond that may be converted by the holder into stock of the issuing company
• convertible preferredPreferred stock that can be exchanged for common stock at some preagreed ratio
• corporationA form of business organization where ownership is represented by divisible units called shares of stock
• cost accountingThe process by which an organization's cost is collected, assigned, and interpreted
• cost centerAn 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 driverThe factor that is viewed as causing costs to be incurred within an organization
• cost flow assumptionAn assumption about how costs are assigned to inventory in the accounting records
• cost objectThe output for which costing information is to be determined under ABC; can be product or service related, or customer, market, etc.
• cost of goods manufacturedThe 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 soldThe total cost attributed to units of inventory actually sold during a period
• cost of production reportA 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 bondA bond that has detachable coupons that are exchanged for interest payments; historically popular but falling into disuse
• creditThe 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 memorandumA seller-prepared document evidencing an approved return of merchandise for credit against an account
• cumulative preferredPreferred 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 assetsAssets that will be converted into cash or consumed within one year or the operating cycle, whichever is longer
• current liabilitiesObligations that will be liquidated within one year or the operating cycle, whichever is longer
• current operating approachA concept of income where income is limited to transactions related to central ongoing operations; not an acceptable approach for income theory
• current ratioA measure of liquidity, calculated by dividing current assets by current liabilities
• customer-level activityActivities that relate to each customer; independent of the volume of goods and services provided to the specific customer
• dashboardCustomized business software that delivers key real time business data in an easily monitored layout
• databaseAn information storehouse, usually electronic, that can be queried to extract data meeting certain parameters. Enables singular data entry and multiple data output.
• debenture bondA bond that lacks specific collateral; payment is only assured by the general faith and creditworthiness of the issuer
• debitThe 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 cardTransactions are equivalent to an electronically generated check that results in an almost immediate withdrawal of funds.
• debit memorandumA purchaser-prepared document evidencing a return of merchandise to a seller
• decentralized decision makingA 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 methodAn 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 planA 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 planA 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
• depletionThe process used to allocate the cost of a natural resource asset to the accounting periods benefited
• deposits in transitReceipts entered on company records but not yet posted by the bank
• depreciable baseCost minus salvage value; the amount of cost that will be allocated to the service life
• depreciationThe process used to allocate the cost of a long-lived property to the accounting periods benefited
• derivativesInvestments accounted for a fair value that generally derive their value from some other item; examples include commodity futures, options, and so forth
• diluted EPSAn earnings per share number; adjusted to reflect the potential effect of dilutive securities
• dilutive securitiesOptions, warrants, convertible bonds, convertible stocks, and other items that have the potential to increase the number of shares outstanding
• direct approachThe 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 costsA cost easily traced to a specific job; generally direct material and direct labor
• direct laborGross wages paid to those who physically and directly work on the goods being produced
• direct labor budgetA budget that details expected direct labor needs, along with the related costs of labor
• direct labor efficiency varianceA 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 varianceA 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 materialThe 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 budgetA budget that details expected direct material purchases, along with the related cash payments
• direct method/allocating service costAn allocation process whereby service department costs are assigned directly to productive departments (compare to step method)
• direct write-off methodA simple, non-GAAP, method that expenses uncollectible accounts only as they are determined to be uncollectible and are written off
• discontinued operationsThe special income statement reporting of the impact of disposing or abandoning of a component of a business
• discount on bondsThe 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 costFixed cost resulting from yearly spending decisions; proper planning can result in avoidance of these costs as necessary (e.g., advertising and training)
• dishonoring a noteTo fail to pay a note at maturity
• dividend payout ratioDividend per share divided by earnings per share
• dividend rateDividend per share divided by stock price; also called dividend yield
• dividendsAmounts paid from profits of a corporation to shareholders as a return on their investment in the stock of the entity
• dividends in arrearsAn omitted dividend on cumulative preferred stock that must eventually be paid before any monies can be distributed to common stockholders
• double-declining balance depreciationAn 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
• earningsA concept that relates to income from continuing operations plus/minus discontinued operations
• Earnings per shareEPS; 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)
• EBITAn analyst's calculation to reflect "earnings before interest and taxes"
• EBITDAAn analyst's calculation to reflect "earnings before interest, taxes, depreciation, and amortization"
• economies of scaleEfficiencies associated with increases in volume
• effective-interest amortizationA theoretically preferable method for amortizing premiums and discounts on bonds; interest expense is a constant percentage of the bonds ever-changing carrying value
• employeeA person who works for a specific business and whose activities are directed by that business
• encumbranceA budgetary restriction occurring in advance of a related expenditure
• entity assumptionAccounting 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 methodMethod 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 unitsA measure of physical units expressed in terms of finished units
• Enterprise Resource Packages(ERP) Comprehensive database software that tracks an almost endless array of business and accounting data
• ex-dividendThe 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 transactionTrading one asset for another; to be booked at fair value if the transaction has commercial substance
• expensesThe costs incurred in producing revenues
• F.O.B. destinationFree 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 pointFree 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 budgetA budget that details the anticipated factory overhead, including calculations related to the allocation of such amounts
• fair value accountingSometimes called "mark-to-market;" to record an investment at its fair value and recognize changes in value as they occur
• faithful representationA fundamental quality of accounting such that information must be truthful; complete, neutral, and free from error
• FICAFederal 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 accountingAn area of accounting that deals with external reporting to parties outside the firm; usually based on standardized rules and procedures
• Financial Accounting Standards BoardAn organization charged with producing standards for financial reporting in the USA
• financial statementsCore financial reports that are prepared to represent the financial position and results of operations of a company
• financing activitiesA 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 goodsFinished goods represent the cost of completed products awaiting sale to a customer
• first-in, first-outFIFO; An inventory cost flow assumption based on the notion that the earliest costs are to be assigned to units sold
• fiscal yearA one-year accounting period that does not correspond to a calendar year
• fixed costA total cost that is the same regardless of volume; total cost is constant and per unit cost decreases with volume increases
• fixed overhead spending varianceA fixed overhead variance that compares actual fixed overhead to the budgeted fixed overhead
• fixed overhead volume varianceA 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 budgetA budget that covers a range of potential outcomes by relating expense levels to the potential revenues
• Form 1099A 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 principleAll relevant facts that would influence investors' and creditors' judgments about the company are disclosed in the financial statements or related notes
• FUTAFederal 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 valueThe amount to which an interest-earning amount is expected to grow over a stipulated time period at a given interest rate
• future valueOr "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
• GAAPGenerally accepted accounting principles -- encompass the rules, practices, and procedures that define the proper execution of accounting
• general ledgerA record of the accounts comprising financial statements, and their respective balances
• going-concern assumptionIn the absence of evidence to the contrary, accountants assume that a business will continue to operate well into the future
• goods available for saleA 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 transitGoods in the process of being transported to the buyer; ownership is based on freight terms
• goodwillThe excess of the purchase price of an acquired company over the fair value of the identifiable net assets acquired
• gross methodA method of recording purchases of inventory at invoice price
• gross payAlso known as gross earnings; this it is the total amount earned by an employee before any deductions
• gross profitA calculated amount corresponding to net sales minus cost of goods sold
• gross profit methodA technique that purports to estimate inventory and cost of goods sold by applying historic percentage relationships to observable sales information
• held-to-maturity investmentsInvestments purchased with intent to hold to maturity; usually investment in debt; accounted for by amortized cost method
• high-low methodA 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 principleThe concept that many transactions and events are to be measured and reported at acquisition cost
• ideal standardsA standard that could only be achieved under perfect operating conditions; such standards are rarely expected to be achieved
• Institute of Management Accountants(IMA) a professional association for management accountants that sponsors the CMA and CFM designations
• impairmentWhen the carrying amount of an asset is not recoverable from its future cash flow
• income statementA financial statement that summarizes the revenues, expenses, and results of operations for a specified period of time
• income summaryA non-financial statement account used only to facilitate the closing process by summarizing and zeroing-out the revenue and expense accounts
• income taxesTaxes that are based on the amount income; for employees such amounts must be withheld by employers and remitted to the government
• incremental budgetingA 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 contractorOne 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 approachAn 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 costsA cost not easily traced to a specific job; generally categorized as factory or manufacturing overhead
• initial public offeringThe 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 assetLack physical existence, and include items like purchased patents and copyrights
• intangible assetLong-term asset that lacks physical existence; contract rights, copyrights, patents, trademarks, etc.
• interestThe charge imposed on the borrower of funds for the use of money
• internal auditorA person within an organization who reviews and monitors the controls, procedures, and information of the organization
• internal rate of returnAlso 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 BoardAn 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 allocationSeparately reported items like discontinued operations, prior period adjustments, and other comprehensive income, are to reported net of their specifically related tax effects
• inventoriable costProduct costs that attach to inventory
• inventoryGoods held for resale to others
• investeeThe company in which another has an investment
• investing activitiesA cash flow category; including receipts from disposal of investments and long-term assets -- and payments to acquire long-term assets and investments
• investment centerA 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 priceList price less any trade discounts
• issue priceThe amount a company receives in exchange for the initial issue of debt or other financial instrument
• job cost sheetA document representing a compilation of cost data for a specific job
• job costing methodA costing approach whereby actual labor and material is tracked for each job or product
• journalA chronological listing of the transactions and events of an organization, in debit/credit format
• journalizingThe process of recording transactions and events into the journal
• junk bondA 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 inventoryRaw materials are received from supplies just as they are needed in the production process
• KaizenJapanese term used to describe a blitz like approach to study processes and install efficiency within an organization
• KanbanJapanese term which means some form of signal that a particular inventory is ready for replenishment
• land improvementsIncludes the cost of parking lots, sidewalks, landscaping, irrigation systems, and similar expenditures that are incurred to better land
• last-in, first-out methodLIFO; An inventory cost flow assumption based on the notion that the most recent costs are to be assigned to units sold
• lower of cost or net realizable value
  To report inventory at the lower of its cost or net realizable value
• lean manufacturingIndicative 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 lessorPeriodic payment from the user (lessee) of an asset to an owner (lessor) of the asset
• legal capitalUsually the par value of the stock of a corporation
• lesseePeriodic payment from the user (lessee) of an asset to an owner (lessor) of the asset
• lessorPeriodic payment from the user (lessee) of an asset to an owner (lessor) of the asset
• liabilitiesAmounts owed by an entity to others
• liquidityThe ability of a firm to meet its near-term obligations as they come due
• list priceAn established price determined by reference to a catalog or general price list; before any discounts
• long-term investmentsInvestments made for long-term holding purposes; including land for speculation, securities of other companies, etc.
• long-term liabilitiesAny obligation that is not current, and include bank loans, mortgage notes, and the like
• lump-sum purchaseA single price paid for a package of assets; the purchase price must be allocated to each of the components
• Machine to Machine(M2M) enables connected devices to communicate with each other
• makerThe party creating the note and agreeing to make payment
• management by exceptionA management focus of attention on areas where corrective measures appear necessary
• managerial accountingAn area of accounting concerned with reporting results to managers and others who are internal to an organization
• manufacturing overheadAll costs of manufacturing other than direct materials and direct labor (also called factory overhead)
• market-level activityActivities that relate to the number of markets in which an entity operates; independent of the number of products, customers, etc.
• master budgetAlso known as the comprehensive budget; an integrated set of articulated budgets relating to numerous operational subcomponents (labor, material, overhead, SG&A, etc.)
• matching principleTo associate expenses with revenues, and record them in simultaneous accounting periods
• materialityA 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 varianceA 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 varianceA 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 formForm showing what material has been removed from the raw materials stock and put into production
• maturity dateThe date on which a note and related interest are due to be paid
• maturity valueThe amount due at maturity of a note; includes principal and interest
• method of least squaresA 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 costsA cost that has both fixed and variable components
• Modified Accelerated Cost Recovery SystemA "depreciation" approach common to the tax code; generally permits more rapid "recovery" of asset cost than GAAP approaches; MACRS - pronounced "makers"
• modified cash basisLike the cash basis, except that certain large expenditures for durable assets may be recorded as assets initially
• monetary unit assumptionAccounting measures transactions and events in units of money, in contrast to some other unit of measure (e.g., acres of land)
• moving-average methodUnder the perpetual inventory system; to recompute running average cost with each purchase transaction
• multiple-step income statementA 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 yearApplicable to certain businesses that have a seasonal business pattern, and an attempt is made to establish an accounting fiscal year to match
• natural resourcesOil 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 incomeThe excess of revenues over expenses for a designated period of time
• net incomeIncome from continuing operations plus/minus discontinued operations, but before items of “other comprehensive income”
• net lossThe excess of expenses over revenues for a designated period of time
• net methodA method of recording purchases of inventory at invoice price less available cash discounts
• net payAlso known as net earnings; this is the gross pay less all applicable deductions ("take home pay")
• net present valueOr 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 (receivables)The amount of cash expected to be collected on outstanding accounts receivable; accounts receivable minus the allowance for uncollectibles
• net realizable value (NRV)(inventory) Estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal, and transportation
• nominal accountsAccounts that will be reset to a zero balance with each new accounting period; revenue, expense, and dividend accounts (also called "temporary" accounts)
• nonredeemable bondA bond that cannot be paid off before scheduled maturity
• nonrefundable bondA bond that cannot be paid off with the proceeds of a new debt issue
• nontrade receivablesAmounts due from transactions and events not directly related to sales of products or services
• notes payableFormal short-term borrowings usually evidenced by a specific written promise to pay
• notes receivableA written promise from a client or customer to pay a definite amount of money on a specific future date
• NSF checkNon-sufficient funds check; a customer check returned for lack of funds (a "hot check")
• operating activitiesA 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 expensesGeneral expense category for selling and administrative costs
• operating leasesA 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 costThe cost of a foregone alternative; may include lost revenue
• ordinary annuityAlso 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 assetsThe category of a classified balance sheet for reporting assets that are not logically attached to one of the other specific sections
• other comprehensive incomeAn 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
• outsourcingUtilization of independent parties to manufacture products (sometimes known as make-or-buy) or manage data processing, tech support, payroll services, etc.
• outstanding checksChecks entered on company records but not yet cleared by the bank
• overapplied overheadApplied 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 rateA rate used to apply manufacturing overhead to output; estimated factory overhead for a period divided by the estimated application base
• owner investmentsResources provided to an organization by a person in exchange for a position of ownership in the organization
• owners' equityThe residual of assets minus liabilities, representing the collective interest or position of the entity's owners
• paid-in capital in excess of parThe amount by which a stock's issue price exceeds its par value; also referred to as "additional paid-in capital"
• par valuePar value 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 bondsThe face or contract amount of a bond; the amount to be repaid at maturity along with any interest
• partnershipA non-corporation representing an association of two or more persons organized to carry out a business plan for a profit motive
• payback methodEasy method for evaluating capital projects; calculated by dividing the initial investment by the annual cash inflow
• payeeThe party to whom a note is made payable
• PCAOBPublic Company Accounting Oversight Board -- a private-sector, non-profit corporation charged with overseeing the auditors of public companies
• pension planA general term to describe some form of arrangement for continuing payments to retirees
• period costA cost not attributable to the acquisition or manufacture of inventory; expensed as incurred
• periodic inventory systemAn 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 assumptionAn accounting assumption that purports to divide a continuous business process into measurement intervals, such as months, quarters, and years
• perpetual inventory systemA "real-time" inventory system that updates inventory records with each purchase and sale
• petty cashA fund established for making small payments that are impractical to pay by check; also known as imprest cash fund
• physical inventoryThe process of counting inventory actually on hand
• post-closing trial balanceReveals the balance of accounts after the closing process, and consists of balance sheet accounts only
• postingThe process of transferring journal entry effects into the respective general ledger accounts
• preemptive rightA 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 stockA 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 bondsThe 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 expensesGoods or services purchased in advance of their consumption
• present valueThe calculated value today of an amount to be received in the future, based upon an assumed interest rate (the reciprocal of future value)
• present valueAlso known as discounting; determines the current worth of cash to be received in the future
• price earnings ratioThe per share market value of a stock divided by its earnings per share
• prime costProduct costs that are direct in nature; direct materials and direct labor
• principalThe basic stated amount of a note on which interest is usually calculated; generally relating to the amount borrowed
• principles-basedThe idea that accounting standards should articulate broad-based principles rather than specific and detailed rules
• prior period adjustmentTo 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 costingProcess 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 methodsA product costing method particularly well suited to situations where production occurs in a continuous process; costs are pooled and assigned to aggregate output
• product costCosts that attach to a product; the summation of direct materials, direct labor, and factory overhead
• product-level activityActivities that relate to the number of products produced; independent of the number of units produced
• production budgetA budget that details planned levels of production; takes into account sales and inventory build/decline
• profit centerBusiness unit that has control over both costs and revenues and is therefore evaluated on the profit outcomes
• proof of cashA detailed bank reconciliation that verifies not only beginning and end balances, but also validates deposits and withdrawals during the month
• property, plant, and equipmentAssets with long lives that will be used in an entity's production processes; land, buildings, and equipment
• prospectusThe documentation describing financial and business aspects of an initial public offering
• public accountingAccounting activities provided by a person to the general public, typically relating to audit, tax and similar services
• purchase discountsA cash discount available on purchases of merchandise on account; encourages prompt payment
• quick ratioAn extreme measure of liquidity, calculated by dividing quick assets (cash, short-term investments, and accounts receivable) by current liabilities
• raw materialsThe components that will be used in manufacturing units that are not yet started -- also known as direct materials
• real accountsAsset, liability, and equity accounts; balances are carried forward from the end of one period into the beginning of the next period
• registered bondA bond for which ownership records are maintained, and interest is paid to the registered owner
• relevancyA 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 costItems where future costs and revenues are expected to differ for the alternative decisions under consideration
• relevant rangeThe level of activity for which assumptions underlying CVP are expected to hold true
• remeasurementUses a variety of exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact operating income.
• replacementA restoration of an asset, at least partially, to its original condition; such costs may be capitalized by reducing accumulated depreciation
• residual incomeAn 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 valueAmount expected be realized at the end of an asset's service life; "salvage value"
• resourceThe elements consumed by activities and cost objects
• resource driverThe concept that activities create the need for resources which will be consumed in the production process
• responsibility centerThe part of an organization under the control of a manager
• restatementThe financial statements of prior periods are redone to reflect the correct amounts
• retail inventory methodAn inventory costing technique used by retailers that extrapolates inventory values by applying cost-to-retail percentages to known sales and purchase transactions
• retained earningsThe excess of a corporation's income over its dividends
• retrospective adjustmentRevision of the financial statements for prior periods to reflect the application of a current change in accounting method
• return on assets ratioA ratio comparing income (net income plus interest) to the average total assets
• return on equity ratioA ratio comparing income (net income minus preferred dividends) to the average total equity
• return on investmentROI: A model consisting of a margin component (Operating Income/Sales) and turnover component (Sales/Average Assets); reduces to Operating Income/Average Assets
• revenueInflows and other benefits received in exchange for the providing of goods and services
• revenue expenditureNot a capital expenditure; to be expensed as incurred
• revenue recognitionThe point at which revenue is recognized in the accounting records; ordinarily the point of sale
• reversing entryOptional accounting procedure which may prove useful in simplifying record keeping; a journal entry to "undo" an adjusting entry
• radio frequency identification(RFID) Micro processes embedded in inventory that emit radio frequency signals that enable a computer to automatically track inventory
• rules-basedThe idea that accounting standards must be very specific to provide adequate guidance and drive consistency in reporting
• sales budgetA budget that details anticipated sales levels
• sales discountsA 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
• scattergraphA 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 bondA 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
• segmentA business unit for which separate financial information is evaluated by an operating decision maker who allocates resources and judges performance of the unit
• serial bondA bond issue that has multiple repayment dates, rather than the entire issue maturing at one fixed maturity date
• service lifeThe 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&ASelling, general, and administrative costs; the period costs of the business
• SG&A budgetA budget that details anticipated selling, general, and administrative costs
• significant influenceThe ability to sway management and decision making of another entity, but generally not enough to assert absolute control
• simple interestInterest calculations that do not provide for periodic inclusion of accumulated interest into the base on which interest is calculated
• single-step income statementA 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 bondA bond issue that requires periodic setting aside of monies into a separate fund to provide for eventual repayment of the debt at maturity
• Six SigmaA trademarked quality management system developed by Motorola; driven by pursuit of statistical results that reflect near perfection in production and processing
• sole proprietorshipA non-corporation business owned by a sole individual
• source documentA document evidencing a transaction or event and potentially providing for the initiation of a journal entry
• special orderA customer order that is outside of the normal pricing and terms
• specific identification methodInventory costing method where the actual cost of each unit of merchandise is tracked and used for accounting purposes
• stable currency assumptionAn accounting assumption that presumes the currency is not impacted over time by inflation
• standard costA measure of what costs should be incurred to achieve the observed output
• standardsBenchmarks against which actual productive activity is compared
• statement of cash flowsA financial statement that summarizes the cash flows relating to operating, investing, financing, and noncash investing/financing activities of an entity
• statement of retained earningsA 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' equityA financial statement that is often presented in lieu of a statement of retained earnings and other disclosures about equity accounts
• static budgetA budget that does not anticipate alternative outcomes; estimated sales and expenses are fixed and establish the relevant benchmarks
• step costA 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 costAn allocation process whereby some service department costs may be assigned to other service departments as part of a sequential methodology
• stockTransferable units of ownership in a corporation
• stock dividendA 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 splitA 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 methodA 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 depreciationA simple depreciation method by which the depreciable base is spread uniformly over the service life
• subsidiary accountA 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 costHistorical amount expended on a project or object; not relevant to current decisions or future actions
• sustainabilityDevelopment without depletion of natural resources or negative effects on the environment
• SUTAState Unemployment Tax levied on employer to provide funds for unemployed workers; rate is adjusted for employer history of layoffs, etc.
• T-accountAn abstract representation of an account, with the left side of the "T" representing debits and the right side credits
• target incomeA level of income that is to be obtained; CVP projects activity levels necessary to achieve this benchmark
• temporary accountsAccounts 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 moneyConceptual 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 5(...)
• timelinessAn enhancing quality of accounting such that information is available in sufficient time to be capable of influence
• top-down mandated budgetA budget approach where upper level management establishes parameters under which the budget is to be prepared
• total paid-in capitalThe 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 costsFixed costs that would not exist if the unit under evaluation ceased to exist
• trade discountA reduction from list price that is not entered in the accounting records; customarily offered in "setting" the invoice amount
• trade receivablesAmounts due from customers from credits sales of products or services
• trading securitiesInvestments in debt acquired with the intent of generating profits by reselling the investment in the very near future; classified as current assets
• transfer pricingThe system of setting prices at which goods are exchanged between affiliated units; usually involving cross-border transactions
• translationUses prevailing exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact other comprehensive income.
• treasury stockShares of a company's own stock that it has reacquired
• trial balanceA listing of account balances from the ledger, used to test the equality of debits and credits
• underapplied overheadApplied 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
• understandabilityAn enhancing quality of accounting such that information is clear and concise to those with reasonable business knowledge
• unearned revenueRevenue that has been collected in advance of providing goods and services to "earn it;" reported as a liability until earned
• unit-level activityActivities that relate to the number of units of output; each additional unit of production requires another activity
• units-of-output depreciationA depreciation approach where the depreciable base is allocated to the expected total units of output; mileage, hours, etc.
• variable costA per unit cost that is the same regardless of volume; total variable cost increases with volume increases
• variable costingA costing method where inventory absorbs direct costs and variable factory overhead; the income statement identifies the contribution margin
• variable overhead efficiency varianceA variance that reflects the level of efficiency associated with the application of variable overhead to production
• variable overhead spending varianceA variance that reflects the difference between actual variable overhead and standard variable overhead associated with the actual units of the application base
• variancesDeviations from the norm that may provide warning signs of situations requiring corrective action by managers
• verifiabilityAn enhancing quality of accounting such that different knowledgeable and independent observers reach similar conclusions
• W-2An annual statement provided to employees stating the amount of earnings and withholdings; assists employee in preparing their own tax returns
• W-4A 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 liabilityA liability that is recorded for the future costs of claims that are anticipated because of product warranty agreements
• weighted-average inventory methodUnder 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 costingA 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 processGoods that are in production but not yet complete; an accumulation of monies spent on direct material, direct labor, and applied manufacturing overhead
• workers compensation insuranceInsurance paid by the employer to cover work related injuries sustained by employees
• working capitalThe difference between current assets and current liabilities
• zero-based budgetingA budget approach where each expenditure item must be justified for each new budget period