Managerial Accounting Terms Flashcards
1
Q
Association of Certified Fraud Examiners (ACFE)
A
The world’s largest anti-fraud organization and premier provider of anti-fraud training and education.
2
Q
Code of Ethics
A
A guide of standards or principles that are designed to help professionals conduct business honestly and with integrity.
3
Q
Environmental Control
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The attitude of managers and employees regarding the need for internal controls.
4
Q
Fraud Triangle
A
A model that is used for explaining the factors that cause someone to commit occupational fraud.
5
Q
Information and Communication
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Information about controls that should be communicated to management so that any issues can be addressed in a timely manner.
6
Q
Institution of Management Accountants (IMA)
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A global association for financial professionals whose mission is to promote education and development in management accounting and finance, the highest ethics, and the best business practices.
7
Q
Internal Control System
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The policies and procedures that are used to protect assets, ensure reliable accounting, promote efficient operations, and maintain company policies.
8
Q
Internal Controls
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Measures that are put in place to make sure that the company’s accounting operations and workflows are effective, efficient, reliable, and compliant with the applicable regulations.
9
Q
Monitoring
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The set of processes used by management to assess if the internal controls are functioning properly.
10
Q
Occupational Fraud
A
The use of one’s occupation for personal gain through the intentional misuse or misapplication of the employing organization’s resources or assets.
11
Q
Opportunity
A
The knowledge and ability to carry out fraud.
12
Q
Pressure
A
The motivation or incentive to commit fraud.
13
Q
Rationalization
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Justification for dishonest actions.
14
Q
Accounting
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A measurement and communication process used to report on the activities of profit-seeking business organizations and not-for-profit organizations.
15
Q
Accounting System
A
An information system designed to provide relevant financial information on the resources of a business and the effects of their use.
16
Q
Annual Report
A
A document that contains a company’s financial statements; the independent auditor’s opinion as to the fairness of the financial statements; as well as information about the company’s activities, products, and plans.
17
Q
Bookkeeping
A
A process that records the routine economic activities of a business.
18
Q
Financial Accounting
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The organization of information that appears in financial statements that are intended primarily for external use.
19
Q
Financial Statements
A
Formal reports providing information on a company’s financial position, cash inflows and outflows, and the results of operations.
20
Q
Generally Accepted Accounting Principles (GAAP)
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Accounting standards that are developed and applied by accounting professionals.
21
Q
Managerial Accounting
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The internal use of financial and nonfinancial information by an organization’s managers for the purpose of controlling or directing a company or one of its many segments.
22
Q
Board of Directors
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Individuals who are elected by the stockholders of a company for the purpose of developing strategic goals.
23
Q
Chief Executive Officer (CEO)
A
The company president who is responsible for implementing the company’s short-term and long-term plans.
24
Q
Controlling
A
Monitoring operations and keeping the company on track.
25
Directing
Running the day-to-day operations of a business.
26
Effectiveness
The ability to produce a desired result.
27
Efficiency
Using the smallest amount of resources to get work completed.
28
Line Position
A job that is directly involved in providing goods or services to customers.
29
Operational Planning
Short-term actions that focus on the company’s daily operations.
30
Organizational Chart
A chart that shows the relationship between departments and divisions, and the managers that are responsible for each section.
31
Staff Position
A job that provides support to the line positions.
32
Strategic Planning
Developing long-term strategies for a company to achieve their goals.
33
Certified Internal Auditor (CIA)
A certificate for people employed by a company or the government to review the financial records of that company or the government before an external auditor comes in.
34
Certified Management Accountant (CMA)
A professional accountant with advanced knowledge in finance, operations, strategy, and management.
35
Certified Public Accountant (CPA)
An accountant who has passed the certified public accountant examination as well as met the other requirements that are specific to the state that they reside in.
36
Chartered Financial Analyst (CFA)
A professional designation awarded to candidates with proven competence in investment analysis and wealth management.
37
Chartered Global Management Accountant (CGMA)
Accounting professionals with advanced knowledge in finance, operations, strategy, and management.
38
Chief Financial Officer (CFO)
A senior-level manager who monitors the cash flows and plans the future financial aspects of the organization.
39
Controller
The head of the accounting department who oversees and manages the financial affairs of the business.
40
Independent Audit
An examination of the financial statements of a company, such as the income statement, cash flow statement, and balance sheet. It is conducted by a CPA who was not involved in the creation of the information that was used in conducting the audit.
41
Institute of Management Accountants (IMA)
The organization that certified people who pass the Certified Management Accountant examination.
42
Internal Revenue Code (IRC)
Federal tax laws.
43
Internal Revenue Service (IRS)
A U.S. federal agency responsible for the collection of taxes and enforcement of tax laws.
44
Not-for-Profit Organization
An organization that receives significant resources from donors, operates for a purpose other than to provide goods or services for a profit, and lacks an identifiable individual or group of individuals who hold a legally enforceable residual claim.
45
Public Accounting Firms
Firms of accountants that offer services to businesses, individuals, nonprofit organizations, and governmental organizations.
46
Sarbanes-Oxley Act (SOX)
A U.S. law to protect investors, by preventing fraudulent accounting and financial practices at publicly traded companies. This law created the Public Company Accounting Oversight Board, which is a nonprofit organization that regulates the auditors of publicly traded companies.
47
Tax Return
A form that an individual or business uses to report their annual income to a taxing authority that determines their tax liability.
48
Whistleblower
A person who discloses unethical or illegal practices that are occurring within an organization.
49
Business entity concept
A business is accounted for separately from other business entities and its owner.
50
Business unit
An organization formed to conduct business.
51
Cash basis
Recording revenue when cash has been received and recording expenses when cash is paid out.
52
Cost principle
Accounting information is based on actual cost and cost is measured on a cash or equal-to-cash basis.
53
Disclosure statement
A statement that contains additional information related to the company’s financial statements.
54
Full disclosure principle
A company reports the details of their financial statements.
55
Generally accepted accounting principles (GAAP)
The set of accounting rules and standards that accountants in the United States are expected to follow.
56
Going concern assumption
Accounting information presumes that the business will continue operating instead of being closed or sold.
57
Historical cost
The amount paid, or the fair market value of the liability incurred or other resources surrendered, to acquire an asset and place it in a condition and position for its intended use.
58
Matching principle
A company records the expenses it incurred to generate the revenue it reported.
59
Monetary unit assumption
Transactions and events are expressed in monetary units.
60
Revenue
The amount of cash received from selling products and services.
61
Revenue recognition principle
Revenue is recognized when goods or services are provided to customers and at the amount that is expected to be received from the customer.
62
Time period assumption
The life of a company can be divided into time periods, such as months and years, and financial reports can be prepared for those periods.
63
Equities
The rights or financial claims to a company’s assets.
64
Capital investment
The owner’s current investment or equity in the business’s assets.
65
Depreciation
A planned, gradual reduction in the recorded value of an asset over its useful life by charging it to expense.
66
Useful life
The estimated lifespan of a depreciable fixed asset.
67
Short-term asset
An asset that is expected to be consumed within one year.
68
Long-term asset
An asset that is expected to be consumed in more than one year.
69
Accounts payable
All goods and services billed to the company by suppliers that have not yet been paid.
70
Accrued liabilities
Liabilities for goods and services that have been provided to the business, although a supplier invoice has not been received.
71
Common stock
The general class of stock issued when no other class of stock is authorized, in which each share carries the same rights and privileges.
72
Dividends
Payments made to shareholders that are equivalent to the number of shares that they own.
73
Revenues
Amounts received from sales or products and services to customers.
74
Expenses
The costs of providing products and services.
75
Expanded accounting equation
An equation that takes the basic accounting equation and splits equity into its four main elements: common stock, dividends, revenues, and expenses.
76
Summary of transactions
A summary of all of the business transactions, and how they impact the accounting equation.
77
Transaction analysis
The process of reconciling the differences made to each side of the equation with each financial transaction that occurs.
78
Basic Accounting Equation
Assets = Liabilities + Equity
This equation forms the foundation of accounting and reflects that everything a company owns (assets) is financed either by borrowing (liabilities) or by its owners' investments (equity).
79
Expanded Accounting Equation
Assets = Liabilities + Owner’s Equity
Owner’s Equity = Owner’s Capital + Revenues - Expenses - Drawings
The expanded accounting equation provides a more detailed view of the owner's equity, breaking it down into:
Owner’s Capital: The initial investment made by the owner.
Revenues: Income earned from business activities.
Expenses: Costs incurred to run the business.
Drawings: Money or assets taken out by the owner for personal use.
80
Account balance
The current total in an account.
81
Contra account
An account with a balance opposite the normal accounts in its category.
82
Credit balance
The sum of the credits exceeds the sum of the debits.
83
Credits
An accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry.
84
Debit balance
The sum of the debits exceeds the sum of the credits.
85
Debits
An accounting entry that either increases an asset or expense account, or decreases a liability or equity account. It is positioned to the left in an accounting entry.
86
Double-entry accounting
A record keeping system under which every transaction is recorded in at least two accounts.
87
Normal balance
The side that increases by the rules of debit and credit.
88
Zero balance
Debits and credits are equal.
89
Business transactions
Measurable events that affect the financial condition of a business.
90
Chart of accounts
A listing of all accounts used in the general ledger of an organization.
91
Compound journal entry
A journal entry that includes more than two lines of entries.
92
Control account
A summary-level account in the general ledger.
93
General Ledger
The master set of accounts that summarize all transactions that occur within a business.
94
General journal
A complete record of each transaction in one place.
95
Posting
The process of entering transactions into the ledger, which is where all transactions are permanently recorded.
96
Posting references (PR)
A column in the general journal that is used to indicate when entries have been posted to the ledger accounts, showing the link between the transactions and accounts.
97
Source document
Evidence that a business event has occurred.
98
Adjusting journal entries
Journal entries that are needed in order to update specific ledger accounts to reflect correct balances at the end of an accounting period.
99
Slide error
An error that occurs when the decimal point is misplaced.
100
Transposition error
An error that occurs when the digits of a number are switched.
101
Trial balance
The list of the accounts with their balances taken from the ledger.
102
Worksheet
A spreadsheet tool that records all accounting information, and which is used to prepare the company’s financial statements.
103
Balance Sheet
A report that summarizes all of an entity's assets, liabilities, and equity as of a given point in time.
104
Cash inflows
Cash coming into the business.
105
Cash outflows
Cash going out of the business.
106
Closing entries
Journal entries that are prepared to “reset” all temporary accounts to a zero balance and update the capital account to the current balance.
107
Direct method
A method of presenting the statement of cash flows by recording the specific cash flows associated with items that affect cash flow.
108
Efficiency
Measuring the level of performance against a standard.
109
Financing activities
All of the activities of a company that show how the company raises capital and pays investors.
110
Income Statement
An accounting statement that shows business results in terms of revenue and expenses.
111
Indirect method
A method of preparing the statement of cash flows that involves adjusting net income with the changes in the balance sheet accounts to find the operating cash flows.
112
Investing activities
All of the activities of a company that involve the purchasing or selling of long-term assets.
113
Leverage
The use of debt to finance an organization’s activities and asset purchases.
114
Liquidity
A measure of the ability of a debtor to pay their debts as and when they fall due.
115
Net Income
The excess of revenues over expenses
116
Net loss
When expenses exceed revenues.
117
Operating activities
All of a company's activities as it brings its products and services to the market.
118
Permanent accounts
Accounts whose balances are carried over to the next accounting period.
119
Retained earnings
The accumulated net income of the corporation minus dividends distributed to stockholders.
120
Solvency
The business’ ability to pay its long term obligations on time.
121
Statement of Cash Flows
A financial report that describes the cash flows into and out of the organization.
122
Statement of retained earnings
A financial statement that reconciles changes in the retained earnings account during a reporting period.
123
Temporary accounts
Accounts that are closed at the end of the period to show a zero balance.
124
Calculation structure of the statement of retained earnings formula
Retained Earnings (Beginning) + Net Income (or Loss) - Dividends = Retained Earnings (Ending)
125
Net Income formula
Net Income = Revenues - Expenses
126
Beginning Finished Goods Inventory
The value of the finished goods that are in the inventory at the start of the period.
127
Cost of Goods Available for Sale
The total of the beginning finished good inventory and the cost of goods manufactured.
128
Cost of Goods Manufactured (COGM)
The manufacturing costs of the goods that finished the production process in a given accounting period.
129
Cost of Goods Sold (COGS; Manufacturing)
The total costs to produce a product that has been sold.
130
Direct Labor
The cost of the wages and salaries of employees who convert raw materials into finished products.
131
Direct Materials
The cost of the raw materials that are converted into the finished product.
132
Ending Finished Goods Inventory
The value of the finished goods that remained in the inventory at the end of the period.
133
Finished Goods Inventory
Completed goods that haven’t been sold yet.
134
Indirect Labor
The cost of labor that cannot be traced to the products that are being manufactured.
135
Indirect Materials
The materials used in the manufacturing process that cannot be easily traced back to the product.
136
Manufacturing Company
A company that uses labor, equipment, supplies, and facilities to convert raw materials into finished products.
137
Manufacturing Overhead
Costs that cannot be easily traced to a specific product.
138
Raw Materials
The unprocessed materials used to make a product.
139
Raw Materials Inventory
Materials converted through the manufacturing process into a finished product.
140
Schedule of COGM
The schedule that shows the total cost of goods completed during the period.
141
Total Manufacturing Cost
The costs of all resources put into production during the period.
142
Work-in-Process (WIP) Inventory
Goods that have been started in the production process but are not completed yet.
143
Total Manufacturing Costs formula
Total Manufacturing Costs = Direct Materials Used + Direct Labor + Manufacturing Overhead
144
Cost of Goods Manufactured (COGM) formula
Cost of Goods Manufactured = Beginning Work in Progress + Total Manufacturing Costs - Ending Work in Progress
145
Cost of Goods Available for Sale formula
Cost of Goods Available for Sale = Beginning Inventory + Purchases + Freight-in (if applicable)
146
Cost of Goods Sold (COGS) formula
Cost of Goods Sold = Beginning Inventory + Purchases (or Cost of Goods Manufactured) + Freight-in - Ending Inventory
147
Adjusting Entry
An entry made at the end of the period to account for any unrecognized transactions and bring the accounts to their current balances.
148
Administrative Expenses
Operating expenses that are required to administer a business.
149
Cost of Goods Sold (COGS; Merchandising)
The cost to sell the inventory to customers.
150
Gross Profit
The markup on the merchandise inventory; the sales revenue minus the cost of goods sold.
151
Merchandise Inventory
The products that a merchandising company buys and sells.
152
Merchandiser
A company that sells merchandise to customers.
153
Multistep Income Statement
An income statement with subtotals for gross profit and operating income.
154
Net Income
The amount of income that remains after expenses are deducted from the revenue.
155
Nonoperating Activities
Expenses, revenues, losses, and gains that are not related to the company’s operations.
156
Operating Expenses
Expenses other than the cost of goods sold that are incurred through the company’s day-to-day operations.
157
Operating Income
The income that is related to the company’s normal operations.
158
Perpetual Inventory System
An inventory system that updates each purchase and sale of inventory as it occurs.
158
Periodic Inventory System
An inventory system that updates purchases and sales of inventory at the end of the period.
159
Retailer
A company that buys merchandise and sells it to customers.
160
Sales
The amount a business earns from selling merchandise.
161
Selling Expenses
Operating expenses that are related to marketing and selling the company’s goods and services.
162
Service Company
A company that sells services instead of products.
163
Wholesaler
A merchandiser who buys goods from a manufacturer and sells them to retailers.
164
Allocate
Split costs between different activities, products, or departments.
165
Conversion Costs
The combination of direct labor and overhead.
166
Direct Costs
Costs that can be easily traced to a cost object.
167
Fixed Costs
Costs that do not change with increases or decreases in the number of goods produced or services provided, they remain constant.
168
Indirect Costs
Costs that cannot be easily traced to a cost object.
169
Mixed Costs
Costs that have components of both fixed and variable costs.
170
Period Costs
Operating costs that are expensed in the period in which they are incurred.
171
Prime Costs
The combination of direct material costs and direct labor costs.
172
Product Costs
The cost of purchasing or making a product.
173
Variable Costs
Costs that change or vary with increases or decreases in the number of goods produced or services provided.
174
Damaged Goods
Defective goods.
175
FOB Destination
An inventory term describing a situation where the goods in transit are the property of the seller.
176
FOB Shipping Point
An inventory term describing a situation where the goods in transit are the property of the buyer.
177
First-In, First-Out (FIFO) Method
A cost flow assumption that the first goods purchased are also the first goods sold.
178
Free on Board (FOB)
A shipping term that indicates liability or ownership of inventory.
179
Goods in Transit
Inventory items that have been shipped by a seller but have not yet reached the buyer.
180
Goods on Consignment
Goods shipped by the owner to another party.
181
Last-In, First-Out (LIFO) Method
A cost flow assumption that the most recent purchases are sold first.
182
Net Realizable Value
The selling price of goods minus the cost of their sale.
183
Specific Identification (SI) Method
The inventory method of tracking the actual cost of a product being sold.
184
Weighted Average Method
A cost flow assumption that costs flow at an average of the costs available.
185
Budget
A financial plan of the revenues and costs that are needed to carry out activities and meet financial goals.
186
Cost-Benefit Analysis
The concept of considering both the costs and benefits of a proposed change.
187
Sales Mix
The combination of products that make up the total sales.
188
Costing System
An accounting system that measures, records, and reports product costs.
189
Cost of Services
The costs that are necessary to provide a service to customers.
190
Job
The production activities for a unique product or service.
191
Job Order Costing
A costing system that accumulates costs for each unique batch of products.
192
Service Costs
The costs that are incurred when providing a service.
193
Services-in-Process Inventory
The services that have started but have not been completed.
194
Job Cost Sheet
The cost record that is kept for each job.
195
Subsidiary Ledger
A ledger that stores the details for a general ledger control account.
196
Materials Requisition
The document that requests the transfer of raw materials to the production floor.
197
Raw Materials Subsidiary Ledger
The subsidiary record that shows the raw materials purchased, the raw materials used, and the balance on hand.
198
Receiving Report
The source document that records the materials that were purchased and received.
199
Time Ticket
A document that is used to track the labor hours for each employee.
200
Allocation Base
The factor that overhead costs are linked to.
201
Cost Driver
The main factor that causes or drives a cost to increase or decrease.
202
Overallocated Overhead
Occurs when more overhead is applied than is actually incurred.
203
Overhead Allocation
The distribution of indirect costs.
204
Predetermined Overhead Allocation Rate
The formula that we use to estimate overheads before the period.
205
Underallocated Overhead
Occurs when less overhead is applied than is actually incurred.
206
Cost Production Report
The cost report for process costing.
207
Just-in-Time Inventory System
An inventory system where the raw materials arrive as production is scheduled to begin.
208
Just-in-Time Production
A production system where items are created to meet customer demand.
209
Process Costing System
A costing system that accumulates costs by the process.
210
Processes
The series of steps in production that is typically associated with making large quantities of similar products.
211
Cost per Equivalent Unit
The combined cost of converting direct materials into finished products.
212
Equivalent Unit
The number of units that could have been started and completed given the costs incurred during the period.
213
Production Cost Report
The report used in process costing to report the direct materials, direct labor, and overhead.
214
Accounted For
Shows what happened to the inventory amounts to account for.
215
Physical Units
The actual number of items that the company will account for during the period.
216
Production Cost Report
A report that identifies the costs that are charged to each department within the production process.
217
To Account For
The amount of inventory in process at the beginning of the period plus the amount added during the period.
218
Abnormal Spoilage
Spoilage that exceeds the amount expected under normal operating conditions.
219
Normal Spoilage
Spoilage that occurs in the normal production process.
220
Spoilage
The loss of goods during production.
221
Cost Object
Any item that managers want a separate measurement of cost for.
222
Departmental Overhead Rate Method
An overhead allocation method in which each department will have its own allocation rate and its own allocation base.
223
Plant
An entire factory, hospital, or other company that has multiple departments.
224
Plantwide Overhead Rate Method
An allocation method that uses one overhead allocation rate to allocate overhead to products for all of the departments within a particular manufacturing facility.
225
Activity
A task, operation, or procedure that causes costs to be incurred.
226
Activity Cost Driver
A task, operation, or procedure that causes costs in the pool to be incurred over a period of time.
227
Activity Cost Pool
A collection of costs that are related to the same activity.
228
Activity-Based Costing
A two-part product costing method that assigns costs first to activities and then to the products based on each of the product’s use of activities.
229
Activity-Based Management
An extension of activity-based costing that uses the link between activities and costs for better management.
230
Batch
A group of units.
231
Batch-Level Activities
Activities that are performed on each group of units.
232
Cost Hierarchies
Classification of cost drivers into the four levels of activity.
233
Downstream Phase
The value chain phase that refers to links to customers.
234
Facility-Level Activities
Activities that are performed to sustain facility capacity as a whole and are not caused by a specific product.
235
Just-in-Time Inventory System
An inventory system where raw materials are provided when they are needed in the production process.
236
Lean Accounting
A managerial accounting system designed around the value chain of products to support lean manufacturing.
237
Lean Manufacturing
A production approach that focuses on reducing production costs and eliminating waste while satisfying customers.
238
Non-Value-Added Activity
Activities that do not add worth to a specific product.
239
Operations Phase
The value chain phase that refers to the company’s production processes.
240
Product-Level Activities
Activities that are performed on each product line and are not affected by either the numbers of units or batches.
241
Unit-Level Activities
Activities that are performed on each product.
242
Upstream Phase
The value chain phase that consists of product development and the use of suppliers.
243
Value Chain
The set of activities that convert raw materials into products for customers.
244
Value-Added Activity
Activities that transform raw materials into a finished product that a customer will buy.
245
Appraisal Activities
Activities that focus on the inspection of products.
246
Cost of Quality
The costs related to manufacturing defective products or providing services that do not meet the expectations of customers.
247
Costs of Capacity
Expenditures that are made to produce a certain amount of goods or services to customers.
248
Costs of Customers
The costs that can be directly linked to providing products to customers.
249
Costs of Suppliers
The costs that can be directly linked to purchasing materials from suppliers.
250
Customer Profitability Analysis
Examination of the level of profitability that the company incurs from individual customers.
251
External Failure Costs
Costs that are incurred after the product or service has been provided to the customer.
252
Internal Failure Costs
Costs that are incurred after a company has manufactured a defective product.
253
Prevention Activities
Activities that focus on quality training and improvement programs.
254
Strategic Activity-Based Management
A management activity that focuses on choosing appropriate activities for the company’s production processes.
255
Value-Chain Analysis
An analysis tool that is used to identify where the value to customers can be increased or costs can be reduced.
256
Absorption Costing
Costing method that applies all direct expenses, fixed overhead, and variable manufacturing overhead to the cost of the product.
257
Variable Costing
Costing method that assigns all variable expenses including direct material, direct labor, and variable overhead to a product. In this method, fixed overhead costs are considered as expenses in the period during which they are incurred.
258
Contribution Margin
The income that is remaining after variable costs are paid.
259
External Reporting
Providing financial data to creditors or investors outside the company.
260
Internal Reporting
Providing financial data inside the company to managers, owners, and employees.
261
Business Segment
An identifiable part of a company that has financial data available.
262
Controllable Costs
An expense that a manager has the ability to control.
263
Long Run
An extended period of time during which production and costs are variable.
264
Short Run
A short period of time during which companies are able to change prices by adjusting production levels.
265
Target Markup
The amount by which the product cost needs to be increased in order to determine the selling price.
266
Target Selling Price
The amount that a company must sell its product for in order to cover the absorption cost and the target markup per unit.
267
Uncontrollable Costs
An expense that a manager does not have an influence or control over.
268
Comparative Financial Statements
Financial statements that include the presentation of prior periods.
269
Explanatory Notes
Supplemental information provided by management to further explain the financial statements and disclose assumptions, accounting methods, and estimations.
270
Financial Statement Analysis
The process of evaluating a company’s value or performance by analyzing its financial statement.
271
Horizontal Analysis
A form of financial statement analysis that detects changes in a company’s performance over time and highlights trends.
272
Liquidity
The degree to which an asset can be converted into cash.
273
Profitability
The ability of a company to generate profit through operations.
274
Solvency
The ability of a company to meet its long-term obligations.
275
Vertical Analysis
A form of financial statement analysis that determines the proportion of each line item to a base or total figure.
276
Acid-Test Ratio (Quick Ratio)
A liquidity ratio that indicates a company’s ability to pay short-term obligations on time with only its most liquid assets.
277
Current Ratio
A liquidity ratio that indicates a company’s ability to pay short-term obligations on time.
278
Liquid Asset
An asset that is easily converted into cash.
279
Liquidity Ratios
Calculations used by banks, insurers, regulators, and analysts to determine the financial health of an organization.
280
Quick Assets
Highly liquid assets that include cash, marketable securities and accounts receivables, and net receivables.
281
Working Capital
The amount of current assets minus current liabilities that are used in daily operations.
282
Accounts Receivable
The amount of cash that customers owe a company for products or services that were provided in the past but not paid for.
283
Accounts Receivable Turnover
An indicator of how efficient a company is at collecting receivables.
284
Accounts Receivable, Net
The total amount of accounts receivables that a company believes it will collect after subtracting bad debt.
285
Allowance for Doubtful Accounts
An account that represents the total amount of accounts receivables that will not be collected.
286
Average Collection Period
A measurement of how many days it takes for a company to collect outstanding receivables.
287
Days to Sell
A measurement of how long in days it takes a company to turn over its inventory.
288
Inventory Turnover
A measurement of how many times a company sells its inventory during a period, which demonstrates how efficiently it manages its inventory.
289
Noncurrent Assets
Assets that are owned for longer periods of time (greater than 1 year) to help produce products or provide services to be sold.
290
Total Assets Turnover
A measurement of the sales generated by a company compared to the average value of its assets.
291
Covenants
Agreements of rules for borrowing within a legal contract.
292
Debt-to-Equity Ratio
A solvency ratio that compares how much debt a company has in comparison to its assets.
293
EBIT
An acronym for earnings before interest and taxes.
294
Retained Earnings
The profit that a company holds on to after paying all its direct costs, indirect costs, income taxes, and dividends to shareholders.
295
Solvency Ratios
A financial measurement that determines if a company’s assets can meet all future debt obligations.
296
Stockholder’s Equity Ratio/Equity Ratio
A financial measurement that determines the percentage of a company’s assets that have been funded through equity.
297
Times Interest Earned Ratio
A solvency ratio indicating the ability to pay all interest on business debt obligations.
298
Book Value of Common Stock
The amount of a company’s equity that is left over after the preferred stockholders’ equity is subtracted.
299
Gross Margin Ratio
An analytical tool that represents the amount of revenue that remains after subtracting the cost of goods sold as a percentage.
300
Net Profit Margin Percentage
The percentage of revenue that remains after deducting all expenses; calculated as the net income divided by the net sales.
301
Nonoperating Assets
Assets owned by a company but not used in producing operating revenues.
302
Operating Assets
All assets actively used in producing operating revenues.
303
Operating Margin
A measurement of the amount of revenue retained after the cost of goods sold and the operating expenses are deducted.
304
Rate of Return on Operating Assets
A calculation that measures the impact assets have on creating revenue.
305
Return on Equity (ROE)
A ratio that shows how much profit a company makes for each dollar of the common stockholders’ equity.
306
Return on Operating Assets
A financial ratio that shows how much operating income is generated for every dollar spent on assets that support operations.
307
Turnover of Operating Assets
A measurement of how many sales dollars a company generates for each dollar it invests in operating assets.
308
Cash Equivalents
Short-term investments that can easily and quickly be converted into cash, such as treasury bills and money market accounts.
309
Direct Method
An accounting method used to prepare the statement of cash flows that deducts only the operating expenses that are paid in cash from cash sales.
310
Financing Activities
Business activities that include transactions with creditors and owners.
311
Indirect Method
An accounting method used to prepare the statement of cash flows by adding or subtracting the differences between noncash activities from the net income.
312
Investing Activities
Business activities that include transactions involving the acquisition or disposal of noncurrent assets.
313
Operating Activities
Business activities that include the cash effect of transactions and other events that enter into the determination of net income.
314
Statement of Cash Flows
A required financial statement that shows the amount of cash that flows in and out of a company.
315
Working Capital
The amount of current assets minus current liabilities that is used in daily operations.
316
Gains
A gain results when the proceeds received from the sale of an asset exceeds the book value.
317
Losses
A loss results when the proceeds received from the sale of an asset are less than the book value.
318
Noncurrent Assets
The assets that a company holds long term with the expectation that they will generate income; this includes fixed assets like property and equipment as well as intangible assets like copyrights and patents.
319
Proceeds
The cash received from the sale of a noncurrent asset.
320
Accrual Basis
An accounting method that recognizes revenue and expenses when they are generated instead of when cash is exchanged.
321
Cash Basis
An accounting method that records revenue and expenses when cash is exchanged instead of when revenue is earned.
322
Gross Cash Flows
The total amount of all cash flows from activities that cause cash inflows and outflows.
323
Investing Activities
Activities that include transactions involving the acquisition or disposal of noncurrent assets.
324
Plant Assets
Assets that the company plans to use for the foreseeable future, which include land, buildings, and equipment.
325
Activity Bases
Events that directly impact costs such as the number of units sold.
326
Cost Behavior
The way in which costs react to changes in business activity.
327
Fixed Costs
Costs that remain constant (in total) over some relevant range of output.
328
Mixed Costs
Contains a fixed portion of the cost incurred even when the plant is completely idle and a variable portion that increases directly with production volume.
329
Relevant Range
The range of production or sales volume over which the assumptions about cost behavior are valid.
330
Step Costs
A cost that remains constant at a certain fixed amount over a range of output (or sales) but then keeps increasing to a higher amount at certain points.
331
Variable Costs
Costs that vary (in total) directly with changes in the volume of production or sales.
332
Contribution Margin Income Statement
An alternative format income statement that separates costs by variable and fixed.
333
Contribution Margin Ratio
Contribution margin per unit divided by selling price per unit, or total contribution margin divided by total revenues.
334
Cost-Volume-Profit (CVP) Analysis
An analysis of the effect that any changes in a company’s selling prices, costs, and/or volume will have on income (profits) in the short run.
335
Short Run
The time during which a company’s management cannot change the effects of certain past decisions; often determined to be one year or fewer. In the short run, many costs are assumed to be fixed and unchangeable.
336
Variable Expense Ratio
Variable expense per unit divided by the selling price per unit or total variable expense divided by total revenues.
337
Break-Even Analyses
Calculations used to determine the sales in units and dollars that a company will need to reach a profit of zero.
338
Break-Even Point
That level of operations at which revenues for a period are equal to the costs assigned to that period so there is no net income or loss.
339
Margin of Safety
Amount by which sales can decrease before a loss is incurred.
340
Margin of Safety Rate
Margin of safety expressed as a percentage, which equals (current sales − break-even sales)/current sales.
341
Target Profit Analyses
Calculations used to determine the sales in units and dollars that a company will need to reach a desired profit level.
342
Cost Structure
The proportion of costs that are variable as opposed to fixed.
343
Operating Leverage
A measurement of how net operating income reacts to changes in sales.
344
Sales Mix
The proportion of a company’s total sales attributable to each type of product sold.
345
Budget
A plan showing a company’s objectives and proposed ways of attaining the objectives.
346
Budgeting
The process of planning future financial and nonfinancial business actions and expressing these actions in a formal budget.
347
Capital Budgets
Budgets that evaluate long-term capital projects such as the addition of equipment or the relocation of a plant.
348
Control
The mechanism that ensures that plans actually get carried out.
349
Financial Budget
The projected balance sheet portion of a master budget.
350
Management-by-Exception
A practice that promotes employee empowerment, which only requires management’s intervention in the most important or unique circumstances.
351
Master Budget
The projected income statement and projected balance sheet showing the organization’s objectives and proposed ways of attaining them.
352
Participatory Budgeting
A method of preparing the budget that includes the participation of all levels of management responsible for actual performance.
353
Planned Operating Budget
The projected income statement portion of a master budget.
354
Planning
The process an organization uses to set its goals for the upcoming period and how it will go about achieving them.
355
Responsibility Budgets
Budgets designed to judge the performance of an individual segment or manager.
356
Master Budget
The overall plan of the business that consists of all of the various segmented budgets.
357
Production Budget
The budget that determines the number of units that need to be produced to satisfy the projected sales.
358
Sales Budget
The budget that provides the projected number of units sold and sales dollars for the period.
359
Direct Labor Budget
The budget that details the number of direct labor hours that are needed to meet the budgeted production.
360
Direct Materials Budget
The budget that provides a company with information regarding the amount of raw material that will need to be purchased during a given period.
361
Manufacturing Overhead Budget
The budget that deals with the indirect manufacturing costs and all other costs other than materials and direct labor.
362
Finished Goods Inventory Budget
The budget that is used to calculate the unit product cost, cost of goods sold, and ending finished goods inventory.
363
Selling and Administrative Expense Budget
The budget that projects all of the nonmanufacturing expenses for the upcoming period.
364
Cash Collections Budget
The budget that uses budgeting standards developed from past experiences and current economic indicators to determine the timing and amount of cash to be collected within a given period.
365
Materials Cash Disbursements Budget
The budget that shows a projection of the amount of cash that will be paid for direct materials and the timing of those payments within a financial period.
366
Cash Budget
The budget that provides management with a complete outlook regarding the amount of cash inflows and outflows for a financial period, which can be broken down by quarters or months.
367
Budgeted Balance Sheet
Budget that projects the financial position of the company at the end of the financial period.
368
Budgeted Income Statement
Summarizes the projected operating activities for the upcoming period by presenting the budgeted revenue and expenses.
369
Cash Budget
A budget that provides information on the amount of cash inflows and outflows for a financial period.
370
Materials Cash Disbursement Budget
The budget that projects the amount of cash that will be paid for direct materials and the timing of those payments within a financial period.
371
Direct Labor Rate Variance
A measurement of the difference in labor cost when the actual number of direct labor hours is applied to both the actual labor rate and the standard labor rate.
372
Labor Efficiency Variance
A measurement of the difference in labor hours actually used in production as compared to the number of hours that should have been used based on the standard direct labor hours per unit.
373
Price Variance
The difference in the amount that was actually paid for direct materials and the standard amount that should have been paid.
374
Quantity Variance
The difference between how much material was actually used to achieve the actual production level and the amount that should have been used by the standard.
375
Spending Variance
A comparison of the actual quantity used at the actual price paid versus the standard quantity that should be used at the standard price.
376
Standard Cost
A predetermined measure of what the cost should be under stated conditions.
377
Standard Direct Labor Hours per Unit
The number of direct labor hours that should be committed to producing a single unit.
378
Standard Direct Material Cost per Unit
The standard cost of materials to produce a single finished unit.
379
Standard Labor Rate
The hourly rate that should be paid for direct labor that includes employment taxes and benefits.
380
Standard Price per Unit
The cost of each unit of direct materials that should be paid per the standard.
381
Standard Quantity per Unit
The amount of direct materials that the production department should use to produce one finished product.
382
Standard Variable Overhead Rate
The variable overhead cost per unit that was used to calculate the company’s predetermined overhead rate.
383
Standards
Set goals an organization wishes to achieve.
384
Variable Overhead Efficiency Variance
The difference in labor hours actually used in production as compared to the number of hours that should have been used based on the standard direct labor hours per unit.
385
Variable Overhead Rate Variance
The difference in variable overhead cost when the actual number of direct labor hours is applied to both the actual variable overhead rate and the standard rate.
386
Avoidable Costs
Cost that can be completely eliminated by choosing one option as opposed to another.
387
Committed Fixed Costs
Fixed costs that cannot be easily eliminated or have a legal obligation to for the foreseeable future.
388
Differential Analysis
A decision making process that focuses on the costs and benefits related to each of the potential options available.
389
Differential Costs
The difference in cost that arises from choosing one alternative over another.
390
Differential Revenue
The difference in future revenue from choosing one option instead of another.
391
Discretionary Fixed Costs
Short-term fixed costs that can be reduced or completely eliminated without profoundly impacting operations or earnings.
392
Irrelevant Benefits
Benefits that would not change as a direct result of the decision.
393
Irrelevant Costs
Costs that should not be considered when making decisions.
394
Opportunity Cost
The benefit that was lost by choosing one alternative over another.
395
Relevant Benefits
The additional earnings or perks of choosing one alternative versus another.
396
Relevant Costs
Costs that have an impact on a decision and should be considered a necessary input by management when making decisions.
397
Sunk Costs
Costs that have already been incurred and will not be regained in the future.
398
Cost-Plus Pricing
A pricing strategy that determines a product’s selling price by adding the product’s unit cost to a markup percentage.
399
Desired Profit
An amount, determined by management, that will earn the company an acceptable return on their investment.
400
Expected Selling Price
A price set by management for a product it wants to produce; it is usually determined by market price or product demand.
401
Left-to-Right Pricing
A pricing strategy where costs that go into a product are first considered, then prices are set after adding markup.
402
Markup
The amount added to the cost of an item to cover overhead and achieve a desired profit.
403
Product Cost Method
A pricing methodology strategy that adds all product costs that feed into manufacturing a product then adds a markup to determine the price.
404
Product Costs
Manufacturing costs that include direct materials, direct labor and factory overhead.
405
Right-to-Left Pricing
A pricing strategy where the price of the product is the driving factor, then target profit is subtracted, which leaves the cost the business can incur in making the product.
406
Target Costing
A methodology of pricing products that subtracts a desired profit from an expected selling price to determine how much cost a company can invest in a product and still earn a desired profit.
407
Continue or Discontinue Product Decisions
A form of differential analysis where relevant costs are examined and compared, so management can make informed decisions on whether to add or eliminate a product.
408
Make-or-Buy Decision
A decision that occurs when management must decide whether to make or purchase a part or material used in manufacturing another product.
409
Accept or Reject a Special Order Decision
A type of differential analysis that is used to decide whether to accept special order offer or not, where managers weigh the differential revenue from accepting the business compared to the costs of producing the product.
410
Process or Sell Decisions
A type of differential analysis that investigates the differential revenues and costs of further processing to determine whether a business should sell at an intermediary level or process further.
411
Book Value
The book value of an asset is determined by subtracting the accumulated depreciation of an asset from the cost of obtaining the asset. Book value is a sunk cost and is not relevant to future decisions.
412
Fixed Asset
A long-term piece of equipment or property a business uses to generate income.
413
Lease or Sell Decision
A differential analysis tool that compares the financial outcomes of selling a piece of equipment outright or leasing it to another firm for a period of time.
414
Market Value
Market value is the amount an asset could be sold for in a given market. It is often confused with book value, but the two are not the same.
415
Replace Equipment Decision
A differential analysis tool that compares costs and benefits of replacing fixed assets against the costs and benefits of continuing with the old asset.
416
Bottleneck
A process that has reached its maximum capacity and cannot produce any further.
417
Constraint
Any impediment that stalls a system from achieving its goal.
418
External Constraints
Market issues that negatively affect an organization’s efficiency.
419
Internal Constraints
Issues that slow or stop production that appear within an organization’s system.
420
Inventory
Cash a business has invested in materials it ultimately wants to sell.
421
Operational Expense
Money spent in converting inventory into throughput.
422
Profit Maximization
A management strategy that ensures a business achieves its highest profits by maximizing efficiency.
423
The Theory of Constraints (TOC)
A management philosophy that says systems (eg. production lines) are limited in achieving their goals due to constraints.
424
Thinking Processes
Prompts that help guide a decision maker through identifying and mitigating constraints.
425
Throughput
The maximum possible output or production that is achievable.
426
Capital Assets
Significant pieces of property that have useful lives of longer than one year.
427
Capital Budgeting
The process of considering alternative capital projects and selecting those alternatives that provide the most profitable return on available funds, within the framework of company goals and objectives.
428
Capital Projects
Large-scale projects that require the use of resources for extended periods.
429
Capital Rationing Process
It is a process of ranking opportunities that are most likely to be successful.
430
Cost of Capital
A cost businesses associate with acquiring money.
431
Initial Cost
The total price associated with the purchase of an asset, taking into consideration all of the money that is spent to purchase it and to put it to use.
432
Intangible Capital Assets
Those assets that do not have a physical presence, but also help the company make a profit, like software, patents and licenses.
433
Net Cash Inflow
The net cash benefit expected from a project in a period.
434
Out-of-pocket cost
A cost requiring a future outlay of resources, which management has control over.
435
Risk
Anything that could negatively impact your company’s finances.
436
Salvage Value
The value of an asset at the end of its useful life.
437
Tangible Capital Assets
Those assets with a physical presence, like land, buildings, vehicles, and equipment that businesses invest in to turn a profit.
438
Tax Shield
The total amount by which taxable income is reduced due to the deductibility of an item.
439
Time Value of Money
The concept that a sum of money in your hand today has greater value than the same sum to be paid in the future.
440
Net Cash Inflow formula
Net Cash Inflow = Cash Inflows - Cash Outflows
441
Cash Payback Method
Allows managers to identify the timeline for breaking even on a potential capital project.
442
Cash Payback Period
The expected time it takes to recover the cash invested in a capital project.
443
Average Rate of Return
The average annual amount of cash flow generated over the life of an investment.
444
Average Annual Income After Taxes formula
Average annual income after taxes = (Average annual net cash flow - Average annual depreciation) x (1 - tax rate)
445
Annuity
A series of equal net cash inflows generated by a capital asset for consecutive periods.
446
Discounted Cash Flow Method
Another name for the net present value method.
447
Discounting
Determining the present value of a future cash flow.
448
Net Present Value
A project valuation method that compares the initial investment amount of a project to the present value of future cash flows.
449
Present Value
The current value of a future sum of money, given a specified rate of return.
450
Internal Rate of Return
Determines the rate of return that causes your net present value of future cash flows to equal zero.
451
Mutually Exclusive Projects
Project alternatives that compete with one another, cannot be funded at the same time and where management must make a choice between two options.
452
Profitability Index
Also called the present value index, is the ratio of present value to cost which is used to assist decision makers in ranking capital investment proposals.
453
Aggregated Data
High-level data which is summarized from separate individual reports.
454
Controllable Factors
Those factors that can be regulated by a particular center manager’s actions and decisions.
455
Executive Summary
A summary of aggregated data which allows senior management to make effective decisions.
456
Management by Exception
The principle that upper-level management does not need to examine operating details at lower levels unless there appears to be a problem.
457
Responsibility Accounting
A system of control where ownership of a specific business objective is given to an employee.
458
Responsibility Center
A unit within an organization that is headed by a center manager who is responsible for its activities.
459
Responsibility Reports
Accounting reports that contain items that are controllable by the responsibility center manager.
460
Uncontrollable Factors
Those factors which are beyond the sphere of influence of a center manager.
461
Allocating Costs
Assigning costs to various segments using company-defined guidelines.
462
Centralized Organizations
Entities who have hierarchical decision structures, where executives at the top of the structure make decisions, which are then passed down through the organizational chart.
463
Cost Center
A segment of a business that does not directly contribute to profit, but still costs the organization money to operate.
464
Decentralization
The dispersion of decision-making authority among individuals at lower levels of the organization.
465
Decentralized Organizations
Entities that disperse decision-making authority among individuals at lower levels of the organization.
466
Direct Fixed Costs
Fixed expenses that are specifically traceable to a cost object.
467
Indirect Fixed Costs
Fixed expenses that have been allocated to a segment, but are not directly related to it or its operations.
468
Investment Center
A segment of a business that can utilize capital to contribute to a company’s profitability.
469
Segment
A fairly autonomous unit or division of a company defined according to function or product line.
470
Cost Center
A segment of a business that does not directly contribute to profit but still costs the organization money to operate.
471
Investment Center
A responsibility center having revenues, expenses, and an appropriate investment base.
472
Profit Center
A responsibility center having both revenue and expense responsibilities, which is ultimately expected to add to a company’s bottom line.
473
Responsibility Center
Part of an organization for which a particular manager is responsible for operations.
474
Return on Investment (ROI)
A performance measure used to evaluate the profitability of an investment by dividing operating income by the amount of investment in a segment.
475
Revenue Center
A responsibility center of a business which is responsible for generating sales.
476
DuPont Formula
An alternative to the return on investment calculation which deconstructs return on investment into its components of profit margin and investment turnover.
477
Investment Turnover (also known as operating efficiency)
The ratio of sales to invested assets used to evaluate the ability of a business segment to generate revenue with the funding they receive.
478
Profit Margin (also known as operating profitability)
The ratio of operating income to sales which indicates how much profit a company makes for every dollar of revenue generated.
479
