Principals of Financial and Managerial Accounting Flashcards
Absolute Cell Reference
A cell reference that remains constant when a formula is pasted into a new cell.
Account
An accounting record in which the results of transactions are accumulated; shows increases, decreases, and a balance.
Accounting
A system for providing quantitative, financial information about economic entities that is useful for making sound economic decisions. Accounting provides the means of recording and communicating business activities and the results of those activities.
Accounting Cycle
The procedure for analyzing, recording, summarizing, and reporting the transactions of a business.
Accounting Equation
An algebraic equation that expresses the relationship between assets (resources), liabilities (obligations), and owner’s equity (net assets, or the residual interest in a business after all liabilities have been met): Assets = Liabilities + Owners’ Equity.
Accounting System
The procedures and processes used by a business to analyze transactions, handle routine bookkeeping tasks, and structure information so it can be used to evaluate the performance and health of the business.
Activity-based Costing (ABC)
A method of attributing overhead costs to products based on measurable factors that relate to activities that create overhead costs.
Actual Manufacturing Overhead
Manufacturing costs other than direct materials and direct labor.
American Institute of Certified Public Accountants (AICPA)
A professional organization for CPAs in which membership is voluntary.
Annual Report
A document that summarizes the results of operations and financial status of a company for the past year and outlines future plans.
Applied Manufacturing Overhead
The amount of the manufacturing overhead that is assigned to the goods produced. This is usually done by using a predetermined annual overhead rate.
Arm’s-length Transaction
A transaction in which a buyer and seller act independently to get the best possible deal.
Articulation
The interrelationships among the financial statements.
Assets
Economic resources that are owned or controlled by a company.
Balance Sheet
A summary of the financial position of a company at a particular date.
Batch-level Activities
Activities that take place in order to support a batch or production run, regardless of the size of the batch.
Book Value
The value of a company measured by the amount of owner’s equity in the company.
Break Even
To make just enough income to cover costs without any profit or loss.
Break-even Point
The amount of sales at which total costs of the number of units sold equal total revenues; the point at which there is no profit or loss.
Budget
A quantitative expression of a plan that shows how a firm or organization will acquire and use resources over some specified period of time.
Business
An organization operated with the objective of making a profit from the sale of goods or services.
Business Documents
Records of transactions used as the basis for recording accounting entries; include invoices, check stubs, receipts, and similar business papers.
Capital Budgeting
Systematic planning for long-term investments in operating assets.
Capital Stock
The portion of stockholder’s equity that represents investment by owners in exchange for shares of stock; also referred to as paid-in capital.
Cash Budget
A short-term schedule of expected cash inflows and outflows during a period of time.
Certified Public Accountant (CPA)
An accountant who has met specified professional requirements established by the AICPA and local and state societies. A key service provided by CPAs is the performance of independent audits of financial statements.
Classified Balance Sheet
A balance sheet that distinguishes between current and long-term assets.
Comparative Financial Statements
Financial statements that include information for both the current year and preceding year(s) that are prepared for users to identify any significant changes in particular items.
Contribution Margin
The difference between total sales and variable costs; the portion of sales revenue available to cover fixed costs and provide a profit.
Contribution Margin Ratio
The percentage of net sales revenue left after variable costs are deducted; the contribution margin divided by net sales revenue.
Controllable Costs
Costs over which a manager has direct authority and can change.
Controlling
Tracking the actual performance of a company.
Cost Accountant
An accountant who is specially trained to prepare and analyze accounting information for internal decision-making.
Cost Behavior
The way a cost is affected by changes in activity levels
Cost Center
An organizational unit in which a manager has control over and is held accountable for cost performance.
Cost Drivers
A numerical measure used to reflect the amount of a specific cost that is associated with a particular activity.
Cost Objects
An output of a business, such as a product, service, or division.
Cost Pool
Total cost being generated by a specific overhead cost activity.
Cost Variance
A difference between the actual cost and the budgeted cost.
Cost of Goods Manufactured Statement
A schedule supporting the income statement that summarizes the total cost of goods manufactured and transferred out of the work-inprocess inventory account during a period. These costs include direct materials, direct labor, and applied manufacturing overhead.
Cost of Goods Sold Statement
A statement that sums the cost of goods sold for an accounting period based on the cost of goods sold formula.
Cost-volume-profit (C-V-P) Analysis
Techniques for determining how changes in revenues, costs, and level of activity affect the profitability of an organization.
Current Assets
Cash and other assets that are expected to be converted to cash within a year
Current Liabilities
Liabilities expected to be satisfied within a year or the current operating cycle, whichever is longer.
Decentralized Company
An organization in which managers at all levels have the authority to make decisions concerning the operations for which they are responsible.
Differential Costs
Future costs that change as a result of a decision; also called incremental or relevant costs.
Direct Costs
Costs that are specifically traceable to a unit of business or segment being analyzed.
Direct Labor
Wages paid to those who physically work on direct materials to transform them into a finished product and are traceable to specific products.
Direct Labor Budget
A schedule of direct labor requirements for the budget period.
Direct Materials
Materials that become part of the product and are traceable to it.
Direct Materials Budget
A schedule of direct materials to be used during the budget period and direct materials to be purchased during that period.
Dividends
A sum of money distributed to the owners (stockholders) of a corporation.
Earnings (Loss) Per Share (EPS)
The amount of net income (earnings) related to each share of stock; computed by dividing net income by the number of shares of stock outstanding during this period.
Economy of Scale
A pattern of decreasing costs per unit as unit volume increases
Estimated Manufacturing Overhead
Budgeted manufacturing overhead costs that are used to establish the predetermined overhead rate.
Ethics
The basic moral principles that govern an individual’s behavior.
Evaluating
Analyzing results, rewarding performance, and identifying problems.
Expenses
The amount of assets consumed through business operations; the costs incurred in normal business operations to generate revenues.
External Transaction
An exchange that occurs between a company and an external party and that is recorded in the financial records of the company.
Financial Accounting
The area of accounting concerned with reporting financial information to interested external parties.
Financial Accounting Standards Board (FASB)
The organization responsible for studying accounting issues and establishing accounting standards to govern financial reporting in the United States.
Financial Statement Analysis
The examination of both the relationships among financial statement numbers and the trends in those numbers over time.
Financial Statements
Reports such as the balance sheet, income statement, and statement of cash flows, which summarize the financial status and results of operations of a business entity.
Financing Activities
Activities whereby cash is obtained from or repaid to owners and creditors.
Finished Goods Inventory
Inventory that has completed the production process and is ready for sale to customers.
Fixed Costs
Costs that remain constant in total, regardless of activity level, over a certain range of activity.
Form 10-K
A form required by the SEC for businesses to report a comprehensive summary of financial perfomance, including the three primary financial statements.
Form 10-Q
Quarterly financial reports that publicly traded companies must file with the SEC.
Gains
Money made on activities outside the normal business of a company.
Generally Accepted Accounting Principles (GAAP)
Authoritative guidelines that define accounting practice at a particular time in the United States.
Governmental Accounting Standards Board (GASB)
An independent private organization that sets the accounting and financial reporting standards for state and local governments following GAAP
Gross Margin
The difference between sales and cost of goods sold; gross profit
Gross Profit
The difference between sales and cost of goods sold; gross margin.
Horizontal Analysis
A method of financial statement analysis that compares a firm’s results from year to year
Illiquid
Assets that take time and effort to convert into cash.
Income Statement
The financial statement that reports the amount of net income earned by a company during a period.
Indirect Costs
Costs normally incurred for the benefit of several segments within the organization; sometimes called common costs or joint costs.
Indirect Labor
Labor that is necessary to a manufacturing or service business but is not directly related to the actual production of the product.
Indirect Materials
Materials that are necessary to a manufacturing or service business but are not directly included in or are not a significant part of the actual product.
Internal Revenue Service (IRS)
(IRS) A government agency that prescribes the rules and regulations that govern the collection of tax revenues in the United States.
Internal Transaction
A transaction that occurs within a company, does not involve an external party, and is not recorded in the company’s financial records.
International Accounting Standards Board (IASB)
A committee formed to develop international accounting standards.
Investing Activities
Activities associated with buying and selling long-term assets.
Investment Center
An organizational unit in which a manager has control over and is held accountable for cost, revenue, and asset performance.
Job
An individual product produced or service rendered in a job order costing system.
Job Order Costing
A method of product costing whereby each job, product, or batch of products is costed seperately.
Liabilities
Obligations to pay cash, transfer other assets, or provide services to someone else.
Liquid
Assets that are in the form of cash or can be easily converted into cash.
Long-term Assets
Assets that are illiquid and that are needed to operate a business over an extended period of time.
Long-term Liabilities
Liabilities that are not expected to be satisfied within a year.
Losses
Money lost on activities outside the normal business of a company.
Management Accounting
The area of accounting concerned with providing internal financial reports to assist management in making decisions.
Manufacturing Business
Any organization whose main economic activity involves using components or raw materials to make finished goods for sale to customers
Manufacturing Overhead
All costs incurred in the manufacturing process other than direct materials and direct labor.
Manufacturing Overhead Budget
A schedule of production costs other than those for direct labor and direct materials.
Market Value
The value of a company as measured by the number of shares of stock outstanding multiplied by the current market price of the stock; the current value of a business.
Master Budget
A network of many separate schedules and budgets that together constitute the overall operating and financing plan for the coming operating period.
Merchandising Business
Any organization whose main economic activity involves purchasing finished goods and reselling them to customers.
Mixed Costs
Costs that contain both variable and fixed costs components.
Net Income
A line on the income statement that reports a company’s operating income minus interest expense and taxes.
Noncontrollable Costs
Costs over which a manger does not have direct authority and cannot change
Nonprofit Organization
An entity without a profit objective, oriented toward providing services efficiently and effectively.
Operating Activities
Activities that are part of the day-to-day business of a company.
Operating Capital
Funds available for use in financing the day‑to‑day activities of a business.
Operating Income
A line on the income statement that reports the results of what a company does on a daily basis; calculated by sales minus cost of goods sold minus operating expenses.
Operational Budgeting
Managerial planning decisions regarding current and immediate future (a year or less) operations that are characterized by regularity and frequency
Opportunity Costs
The benefits lost or forfeited as a result of selecting one alternative course of action over another.
Out-of-pocket Costs
Costs that require an outlay of cash or other resources.
Overapplied Manufacturing Overhead
The excess of applied manufacturing overhead (based on a predetermined application rate) over the actual manufacturing overhead costs for a period
Owners’ Equity
The remaining claim against the assets of a business after the liabilities have been deducted.
Per-unit Contribution Margin
The excess of the sales price of one unit over its variable costs.
Period Costs
Costs not directly related to a product, service, or asset. They are charged as expenses to the income statement in the period in which they are incurred.
Planning
Outlining the activities that need to be performed for an organization to achieve its objectives.
Primary Financial Statements
The balance sheet, income statement, and statement of cash flows, which are used by external groups to assess a company’s economic standing.
Pro Forma Financial Statements
Financial statements that show a forecast of a company’s future performance based on certain assumptions rather than historical data.
Process Costing
A method of product costing whereby costs are accumulated by process or work centers and averaged over all products manufactured in a center or department during a production period.
Product Costs
Costs associated with products or services offered.
Product-line Activities
Activities that take place in order to support a product line, regardless of the number of batches or individual units produced.
Production Budget
A schedule of production requirements for the budget period.
Production Prioritizing
Management’s continual evaluation of various product lines and division profitability in order to analyze and identify opportunities to improve profits
Profit Center
An organizational unit in which a manager has control over and is held accountable for both cost and revenue performance.
Raw Materials Inventory
Inventory of raw materials that have not yet begun the production process.
Relative Cell References
A cell reference that automatically updates when a formula is pasted into a new cell.
Relevant Range
The range of operating level, or volume of activity, over which the relationship between total costs (variable plus fixed) and activity level is approximately linear.
Responsibility Accounting
A system of evaluating performance in which managers are held accountable for the costs, revenues, assets, or other elements over which they have control.
Responsibility Center
An organizational unit in which a manager has control over and is held accountable for its performance.
Retailers
Second-tier merchants who typically purchase products from wholesalers to distribute to end-user customers.
Retained Earnings
The amount of accumulated earnings of the business that have not been distributed to owners.
Return On Investment
A measure of operating performance and efficiency in utilizing assets; computed in its simplest form by dividing net income by average total assets (also known as return on assets or ROA).
Return On Sales Revenue
A measure of operating performance; computed by dividing net income by total sales revenue. Similar to profit margin.
Revenues
The amount of assets created through the sale of goods and services
Sales Budget
A schedule of projected sales over the budget period, which often includes a measure of revenue earned and cash collected from customers.
Securities and Exchange Commission (SEC)
The government body responsible for regulating the financial reporting practices of most publicly owned corporations in connection with the buying and selling of stocks and bonds.
Segment
A subsection of a company that is distinct from the whole of the company based on its operational activities, customers, or geographic location.
Segment Margin Statement
A profit and loss statement that identifies costs directly chargeable to a segment and further divides them into variable and fixed cost behavior patterns.
Segment Margins
The difference between segment revenue and direct segment costs; a measure of the segment’s contribution to cover indirect fixed costs and provide costs; in effect, the operating profit created by the segment.
Segment-margin Ratios
The segment margin divided by the segment’s net sales revenue; a measure of the efficiency of the segment’s operating performance and, therefore, its profitability.
Segments
Parts of an organization requiring separate reports for evaluation by management.
Selling and Administrative Expense Budget
A schedule of all nonproduction spending expected to occur during the budget period.
Service Business
Any organization whose main economic activity involves producing a nonphysical product that provides value to a customer.
Shareholders
Those who own a corporation by owning shares of stock in that corporation; also called stockholders
Statement of Cash Flows
The financial statement that reports the amount of cash collected and paid out by a company during a period of time.
Statement of Retained Earnings
A financial statement that identifies the changes in accumulated investments by owners and earnings or profits since day one.
Stepped Costs
Costs that change in total in a stair-step fashion (in large amounts) with changes in volume of activity.
Stockholders
Those who own a corporation by owning shares of stock in that corporation; also called shareholders
Stockholders’ Equity
The owners’ equity section of a corporate balance sheet.
Sunk Costs
Costs that are past costs and do not change as a result of a future decision
Target Income
A profit level desired by management.
Transaction
Two parties exchanging something of value.
Underapplied Manufacturing Overhead
The excess of actual manufacturing overhead costs over the applied overhead costs for a period (based on a predetermined application rate).
Unit-level Activities
Activities that take place each time a unit of product is produced
Variable Cost Ratio
The ratio of variable costs to sales.
Variable Costs
Costs that change in total in direct proportion to changes in activity level.
Vertical Analysis
A method of financial statement analysis in which each line item is displayed as a percentage of another item to allow for comparison to other companies within the same industry.
Wholesalers
Top-tier merchants who typically deal directly with the original manufacturers to distribute products to retailers.
Work-in-process Inventory
Inventory that is partly completed in the production process, but not yet ready for sale to customers
