Finance and Business Flashcards
Accounting
A monetary reporting system used to inform interested parties about a firm’s business transactions.
Accounting cycle
The accounting procedures organizations typically use to record, analyze and summarize financial transactions and events.
Accounting standards
Benchmarks prescribed for the reporting of accounting data.
Accrual basis accounting
Revenues recorded when earned and expenses recorded when incurred.
Activity-based budgeting (ABB)
Focuses on activities; includes the use of activity-based costs to make a clear connection between resource consumption and output.
Amortization
The systematic reduction of a lump-sum amount; the expense applies to intangible assets (such as patents, franchises, leaseholds, and goodwill) in the same way depreciation applies to physical assets.
Arbitration
Submission of a dispute to one or more qualified and impartial persons for a final and binding decision.
Asset
Something that retains value for a period of time after purchase such as a building or a piece of equipment.
Average inventory turnover
A ratio showing how many times an organization’s inventory is sold and replaced over a period.
Balance sheet
A “snap shot” of a firm’s financial position at a specific point in time.
Blanket purchase order (BPO)
Allows a stream of procurements over a length of time and/or within a dollar ceiling.
Budget
A formal, numerical expression of how an organization, or a part of the organization, expects to operate for a defined period of time. This identifies the resources and commitments needed to satisfy the identified goals over a period as well as the sources of the funding to provide those resources.
Business
The use, interpretation, and management of documents related to the administration and management of contracts, service providers, and leases including lease agreements, business cases, charge backs, and procurement policies and procedures.
Business case
Explains how a specific project or initiative will add value to an organization.
Capital asset
A depreciable item whose cost is significant to the company and whose expected life is longer than one accounting period and often much longer.
Capital budget
Shows financial impacts resulting from major, long-term, non -routine expenditures for items like property, plant and equipment.
Capital expenditures
Acquisitions of new or expanded long-term plant assets.
Capitalization cutoff point
A designated limit (or floor) for capital requests under which an item is expensed in the period purchased and over which it will be capitalized and depreciated for the length of its useful life.
Cartel
A formal (explicit) agreement among suppliers, producers or other organizations that agree to coordinate prices and/or production.
Cash basis
In financial recording, this method of accounting is used to account for cash when it is received or spent. Items promised to be paid or received, such as accounts payable and receivable, are ignored.
Cash flow
(1) Net cash before financing, including acquisitions. (2) The income from all sources less expenses, indicating how much cash is available at a given time.
Chargeback
The ability of facility management to charge its services to another group that is requesting those services. Also known as cross charging or recharging.
Chart of accounts
Numerical list of all standard items that an accounting system tracks: assets, liabilities, net assets, revenues, and expenses.
Closing fiscal period
Process of transferring account balances from sub-ledgers to trial balance account at the end of an accounting period; typically associated with income statement accounts.
Contract
A legal device used by two or more persons to indicate they have reached an agreement.
Contract administration
Any action from the time a contract is awarded until its closeout. It is the process of ensuring that the intent, requirements, and terms and conditions of the contract are met.
Cost
The price paid for acquisition, maintenance, production, or use of materials or services.
Cost accumulation
Collects and organizes cost information in some organized way through an accounting system.
Cost allocation
The process of determining the proportional share of a total cost that belongs to a particular cost object based on data about the proportions of the total resource cost consumed by the cost object.
Cost assignment
Precedes an activity or takes place without measurement of the activity, as it makes assumptions about the proportion of costs that are assumed to relate to an activity.
Cost-benefit ratio
Comparison of the net present value of an investment decision or project with its initial cost. Net present value is divided by the investment or project’s initial cost; a ratio of greater than one indicates that the project is viable.
Cost center
An organizational unit in which budgetary funding is used to sustain operations.
Cost of operation
The total costs associated with the daily operation of a facility. It includes all maintenance and repair costs (both fixed and variable), administrative costs (clerical, time-keeping, general supervision), labor costs, janitorial, housekeeping and other cleaning costs, utility costs and indirect costs (e.g., all costs associated with roadways and grounds). Might also include the amortized or depreciation costs of capital assets.
Cost of ownership
The cost to the owner of owning the building, servicing the existing debt, and receiving a return on equity. This also includes the cost of capital improvements, maintenance and repair, operations, and disposal.
Cost-reimbursement contract
Allows for payment of all incurred costs within a predetermined ceiling that can be allocated to the contract, that are allowable within cost standards, and that are reasonable. Also called a reimbursable or variable price contract.
Cost tracing
Assigning direct costs to a particular cost object.
Credit
The positive cash entries in a bank account. An amount due to be paid to, or already residing in, an account. The opposite of debit.
Creditor
A lender of money or one to whom funds are owed.
Currency conversion factor
The net rate at which the organization converts revenues and expenses from one currency into another. This is often an internally agreed rate set at the start of the budget year so as to remove the effect of currency fluctuations from operational budgets, and is almost never the same as the nominal exchange rate.
Debit
An amount due to be paid from, or already paid from, an account. The opposite of credit.
Debtor
An individual, company, or other organization that owes debt to another individual, company, or organization (the creditor). Almost always compensates a creditor with a certain amount of interest, representing the time value of money.
Depreciation
A noncash charge against assets, such as cost of property, plant, and equipment over the asset’s useful life. An expense associated with spreading (allocating) the cost of a physical asset over its useful life.
Differential cost
A cost concept that implies that costs and revenues differ depending on the conditions.
Direct costs
Costs that can be specifically traced to an item or activity. (For example, repairing a hole in the roof).
Discount rate
The rate at which future cash flows are discounted because of the time value of money. The interest rate used to compute a present value amount.
Double-entry accounting
An accounting system in which each transaction is recorded in at least two places: a debit to one account and a credit to another account. (Also known as dual-entry accounting.)
Earnings before interest and taxes (EBIT)
A measure of an organization’s earning power from ongoing operations, equal to earnings before deduction of interest payments and income taxes.
Earnings before interest, tax, depreciation and amortization (EBITDA)
An approximate measure of an organization’s operating cash flow based on data from the organization’s income statement. Calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization.
EBIT
Earnings before interest and taxes.
Equity
The residual ownership interest in an organization’s assets after deducting all of its liabilities. Can also be the issued shared capital of the organization.
Equivalent annual cost (EAC)
The cost per year of owning and operating an asset over its entire lifespan. This measure facilitates comparisons of the cost effectiveness of various assets.
Expenses
Money outflow that represents goods and services consumed in the course of business operations.
Feasibility study
Study of a planned scheme or development, the practicality of its achievement, and its projected financial outcome.
Finance
The use, interpretation, and management of information related to the financial operation of the facility. This includes the development, use and interpretation of financial data in any form, e.g., reports, spreadsheets, computer printouts, budgets, pro formas, cost statements, ratios, and more.
Financial accounting
Relates to the preparation of financial statements on the organization as a whole. May be used by owners and other internal parties but primarily intended for external parties such as creditors, investors, government agencies, unions, and suppliers. Information is developed according to specific accounting standards.
Financial Accounting Standards Board (FASB)
The primary financial reporting standards-setting body in the United States. An independent, nonprofit group under the authority of the United States Securities and Exchange Commission (SEC).
Financial leverage
The use of borrowed money in acquiring an asset.
Financial ratios
Analytical tools used to exam the relationship of one quantity to another. Used to show underlying financial conditions and to help judge the financial health of an organization.
Financial reporting
Process of presenting information about an entity’s financial position, operating performance, and cash flow for a specified period.
Financial statements
Documents (e.g., balance sheet, income statement, statement of cash flows, and statement of retained earnings) that report financial information about an organization.
Fixed asset
As asset, such as property, plant, or equipment, that has a long life and cannot be expensed in a single year or cannot easily be converted into cash.
Fixed costs
Costs that remain unchanged in total for a given time period, despite wide changes in the related level of total activity. For example, a licensing fee or taxes.
Fixed expenses
Expenses over which a company has little control.
Fixed price contract
Requires a contractor to successfully perform the contract and deliver supplies or services for a price agreed to up-front. Also called a fixed sum or lump sum contract.
Fraud
Generally defined as an intentional deception made to gain an advantage or damage another individual. It encompasses a variety of illegal acts characterized by deceit, concealment or violation of trust.
Future value (FV)
The amount that a given amount, invested today at a given rate of return or interest rate, will be worth at some designated future time.
Generally Accepted Accounting Principles (GAAP)
In the United States, rules, procedures, and conventions used to help govern an organization’s accounting operations and the preparation of financial statements.
Income statement
Accounting document that represents the company’s revenue and expense transactions for the reporting period.
Incremental budgeting
A budget method that extrapolates from historical data. Next year’s budget is constructed by starting with the current year’s budget as a baseline and then adjusting each line item for expected changes. Often referred to as the traditional method.
Indirect costs
Costs that are spread over a period of time, regardless of specific activities. For example, yearly insurance premiums.
Insurance
A system to protect persons, groups, or businesses against large financial loss by transferring the risks to an insurance company or other large group who agree to share the financial losses in exchange for premium payments.
Intangible assets
Assets that have no physical substance. Intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets.
Internal rate of return (IRR)
The return on investment a company typically realizes (or targets to realize) based on its past track record regarding asset investments. It is the interest rate at which lifetime dollar savings equal lifetime dollar costs, after the time value of money is taken into account.
International Financial Reporting Standards (IFRS)
A set of international accounting and reporting guidelines and rules that organizations can follow when compiling financial statements.
Invitation to Tender (ITT)
A special procedure for generating competing offers from different bidders looking to obtain an award of business activity in works, supply or service contracts.
Journal
A daily, chronological record of business transactions.
Journal entry
An entry to the journal, recording a financial transaction (as a debit and then as a credit) by date. Journal entries are eventually posted to a ledger.
Lease
A contract between the owner of real property (lessor) and another party (lessee) for the possession and use of the property for a specified term in return for rent or other valuable consideration.
Ledger
Accounting book of final entry, recording journal transactions under separate accounts. Sub-ledgers provide more detailed information about individual accounts.
Liabilities
Debts a business incurs that are expected to result in future negative cash flows to the firm. For example, salaries and tax liabilities. Can also include an assessment of net risk items (e.g., bad debts).
License
The degree of real property interest the signer has in the property. A lease provides a higher level of legal interest in the property than this.
Life cycle
The usable life span of a product, process, facility, tool, system, technology, natural resource and the like. It is based on the presumption that all things go through a continuous cycle beginning with creation, use and disposal, and then ideally start all over again.
Life-cycle costing
Process of determining (in present-value terms) all costs incident to the planning, design, construction, operation and maintenance, and disposition of a structure over time.
Liquid assets
Cash or assets that can be immediately converted to cash (or easily convertible into cash).
Liquidity ratios
Show an organization’s solvency—its ability to pay bills and other short-term obligations without undue hardship.
Management accounting
Relates to the provision of accounting information for an organization’s internal users. It is the organizations internal accounting system, designed to support the information needs of managers. Unlike financial accounting, this is not bound by any specific accounting standards. Also known as managerial accounting.
Mediation
A method in which the parties to a dispute reach a voluntary settlement with the help of a skilled facilitator.
Mixed costs
Costs that vary with changes in volume or activity, but not by a direct proportion. Also known as semi-variable costs.
Net assets
An organization’s financial worth. They are the balance that remains when liabilities are subtracted from assets.
Net present value (NPV)
The monetary value today that an investment project earns after yielding the desired rate of return for each period during the life of the investment.
Noncompetitive pricing
Conspiring competitors effectively raise prices when the organization acquiring goods or services solicits competing bids.
Operating budget
A short-term budget projecting all estimated income and expenses during a given period (usually one year). Excludes capital expenditures because they are long-term costs.
Operating profit margin
The net sales less cost of goods sold and selling, general and administrative expenses.
Opportunity costs
Represent “lost” opportunities (measured in monetary units) that could have accrued to the entity by pursuing an alternate course of action.
Outsourcing
The process of contracting with another company or person to do a particular function. Encompasses anything not done with in-house labor.
Output-based specifications
Notes what service is required, but not how it should be provided. The focus is on what the deliverables are in business terms rather than how they should be delivered.
Payback period
The length of time it will take to recoup an initial investment cost. In other words, how long it takes to earn back the funds you spent on a project.
Performance-based specifications
Typically sets quality-related targets that allow the service provider some flexibility in determining the most appropriate response.
Period
Time interval covered by a financial statement; usually one year for external statements but often less (month or quarter) for internal statements.
Prescriptive specifications
Dictate exactly what will be done, how the tasks will be performed and the frequency. Restrictive; they are based on specific inputs.
Present value (PV)
The method is used to compare costs; all cash flows are converted to their present value or the value of past and future dollars corresponding to today’s value.
Price fixing
An agreement among competitors to raise, fix or otherwise maintain the prices at a specified level.
Procurement
The systematic process by which an organization reaches formal agreements for the purchase of the supply of goods and/or services.
Profitability index (PI)
The ratio of the present value of the cash inflows to the initial investment cost. Also called the cost-benefit ratio.
Pro-forma statement
A financial statement prepared as a projection of the future. Attempts to present a reasonably accurate idea of a financial situation if present trends continue or certain assumptions hold true.
Property loss
The loss in the book (balance sheet) capital value of an asset due to changes in market condition, requiring a write down in the asset values and thus a reduction in the value of the balancing equity value.
Property tax
A tax levied against owner, leasor or occupier of any property based on an assessment of the value of the property, its public infrastructure requirements, or some other determining factor.
Purchase order (PO)
A written contract between an organization and a vendor using a pre-printed standard form.
Request for proposal (RFP)
An official statement to vendors about the business activity in works, supply or service required.
Request for quotation (RFQ)
Used when discussions with bidders are not required (mainly when the specifications of the business activity in works, supply or service are already known) and when price is the main or only factor in selecting the successful bidder.
Return on assets (ROA)
A financial ratio that indicates how profitable an organization is relative to its total assets. It is calculated by taking net income divided by total assets, displayed as a percentage.
Return on capital employed (ROCE)
Measures the profitability of an organization by the pretax profit (earnings before interest and taxes, or EBIT) achieved on an organization’s capital employed. The capital employed is taken to be EBIT as a percentage of the net of current assets minus current liabilities.
Return on equity (ROE)
A financial ratio that reveals how much profit an organization has earned in comparison to the total amount of shareholder equity found on the balance sheet. It is calculated by taking net profit divided by equity, displayed as a percentage.
Revenues
Cash or properties received in exchange for goods or services.
Risk response
The measures taken to avoid or reduce the impact of a risk or to control the effects of a risk.
Salvage value
The estimated value of an asset if it is sold at the end of its depreciation period or service life. Also sometimes called residual value or scrap value.
Service contract
An agreement for the performance of various labor-oriented services, funded on a periodic basis.
Service level agreement (SLA)
A part of a service contract where the service expectations are formally defined. They are terms negotiated between the service provider and the facility representative (such as the facility manager). The service provider may be internal staff or outside contractors who perform any delivered service such as operations and maintenance of the facility and its systems as well as occupant services such as custodial, food service, waste management and so forth.
Single-entry accounting
Much like the way people record checks and deposits in a checking account register.
Statement of cash flows
A financial statement used to show cash levels across the operating period, so as to ensure that predicted liabilities due to be paid at any given time do not exceed the ability to pay.
Statement of shareholders’ equity
A financial statement that starts with the balances from the end of the prior period and shows changes due to net income (loss) and dividends for the period or any new issuances or repurchases of stock.
Sunk cost
Money that has already been spent on decisions that cannot be changed.
Time value of money (TVM) principle
A principle which states that a dollar in hand is worth more than a dollar to be received in the future because it can either be consumed immediately or put to work to earn a return.
Trial balance
Total of all debits and credits. If debits do not equal credits, an error has occurred (e.g., mistake in entry, omission, double posting).
Unit costs
Costs related to resources consumed to outputs or outcomes provided by those resources in the form of a ratio.
Variable costs
Costs that change in total in proportion to changes in the related level of total activity. For example, fuel costs depend on mileage driven.
Variable expenses
Expenses that fluctuate and may be influenced by factors such as occupancy levels.
Working capital
The funds required to service the worst cash flow position plus any contingency provision deemed necessary.
Zero-based budgeting
A budget method in which the continued existence of items must be justified both financially and operationally before they are included in the new budget.
