- 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-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 pool
The costs assigned to a particular activity
- activity driver
Event that causes consumption of an activity
- 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
- American Institute of Certified Public Accountants
(AICPA) an organization whose members are CPAs interested in advancing the accounting profession
- 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
- 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 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 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
- financing 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
A major component of a cash planning system that depicts cash inflows and outflows for a stated period of time
- 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
- 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 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
- Chartered Global Management Accountant
(CGMA) sponsors a designation that distinguishes professionals who have advanced proficiency in finance, operations, strategy and management
- closing process
The 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 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 card
Transactions are equivalent to an electronically generated check that results in an almost immediate withdrawal of funds.
- 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
- Enterprise Resource Packages
(ERP) 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
The amount to which an interest-earning amount is expected to grow over a stipulated time period at a given interest rate
- 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
- Institute of Management Accountants
(IMA) 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
Lack physical existence, and include items like purchased patents and copyrights
- 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
List price less any trade discounts
- 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
- lower of cost or net realizable value
To report inventory at the lower of its cost or net realizable value
- 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
- lump-sum purchase
A 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
- 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
The excess of revenues over expenses for a designated period of time
- 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 (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 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 leases
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 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
The calculated value today of an amount to be received in the future, based upon an assumed interest rate (the reciprocal of future value)
- 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
Uses a variety of exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact operating income.
- 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
- radio frequency identification
(RFID) 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 method
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
- sustainability
Development without depletion of natural resources or negative effects on the environment
- 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 5(...)
- 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 in debt 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
Uses prevailing exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact other comprehensive income.
- 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