Vocabulary

Question 1

Absorbed Costs

Answer 1

Overhead costs that have gone into the cost of products that have been manufactured.

Question 2

Accelerated Depreciation

Answer 2

Any method of depreciation that loads higher depreciation expense into the early years of an asset’s useful life.

Question 3

Accounts Payable

Answer 3

Money that is owed to suppliers of goods or services. It is, in effect, an interest-free loan from the suppliers.

Question 4

Accounts Receivable

Answer 4

Debts owed by others to the entity, usually for goods and services.

Question 5

Accounts Receivable Turnover

Answer 5

How many times accounts receivable were collected during the year. (Net sales divided by accounts receivable.)

Question 6

Accrual Accounting

Answer 6

The process of recording transactions when they happen (not when they are paid for) to meet the matching principle.

Question 7

Accumulated Depreciation

Answer 7

The total of depreciation expense that has been listed as an expense on the income statements since the first day a piece of equipment was put into use.

Question 8

Allowance for Bad Debts

Answer 8

The accumulation of amounts subtracted from sales as future bad debt expense. It is reduced by amounts that become known (uncollectible) bad debts.

Question 9

Assets

Answer 9

Economic resources acquired and owned by an entity

Question 10

Bad Debt Expense

Answer 10

The amount that is subtracted from sales revenue for the portion of sales that will probably become bad debts.

Question 11

Bad Debts

Answer 11

Amounts owed by customers who are insolvent, bankrupt, or have disappeared. Payment will never be collected.

Question 12

Balance Sheet

Answer 12

A financial report listing the assets, liabilities, and owners’ equity as of a specific date.

Question 13

Bond

Answer 13

One of a series of notes that are sold to investors

Question 14

Book Values

Answer 14

Values that are reflected on balance sheets. They do not necessarily represent market values.

Question 15

Breakeven Point

Answer 15

That level of sales at which there is neither income nor loss.

Question 16

Capitalization of Earnings

Answer 16

The computation of the investment amount that will yield, at a desired rate of return, an amount equal to the net income of a company.

Question 17

Capitalization Policy

Answer 17

A dollar figure below which equipment cost will not be depreciated but will be considered an expense in the year the equipment is acquired.

Question 18

Capitalized Lease

Answer 18

A least that is substantially an installment sale rather than a rental agreement.

Question 19

Cash Basis

Answer 19

The method of accounting that treats cash received for products and services as income and cash disbursed as expense.

Question 20

Cash Disbursements

Answer 20

All checks written (and mailed) or cash paid out.

Question 21

Cash Discount

Answer 21

An allowance granted to a customer for prompt payment of an invoice. It is an expense relatvive to the quick collection of money and should not be confused wiht a sales allowance that is granted for other reasons.

Question 22

Cash Flow

Answer 22

The cash that can be generated by a business, or a particular project, over a period of time.

Question 23

Cash Flow Statement

Answer 23

A financial statement that shows the sources and uses of cash.

Question 24

Cash Receipts

Answer 24

All the checks, money orders, and cash received in a given period of time.

Question 25

Cash Sale

Answer 25

Merchandise or service that is delivered to a customer and on which payment is collected, on delivery, in cash (or equivalent, such as checks and money orders).

Question 26

Common Size Financial Statement

Answer 26

A financial statement, expressed in percentages only, as an income statement in which the line items are expressed as percentages of net sales.

Question 27

Comparative Financial Statements

Answer 27

A format of financial statement that presents two (or more) years of financial statement figures side by side, so they can be compared.

Question 28

Completed-Contract Method of Reporting Income

Answer 28

Applicable to short-term contracts. Income is reported as earned only upon completion of the contract.

Question 29

Conservatism Principle

Answer 29

Income is not shown on a report until it is earned (generally when a sale takes place), but losses are reported as soon as there is a possibility they might occur. Similarly, most assets on the balance sheet are valued at the lower of their cost or replacement cost.

Question 30

Consignment Sale

Answer 30

Merchandise is shipped to someone who appears as a dealer, but is actually an agent for the shipper. The shipper retains title until the agent sells the goods and remits payment (less agent’s commission) to the shipper.

Question 31

Consistency Principle

Answer 31

An accounting principle that the same accounting methods should be followed year after year so that several years’ financial statements can be compared.

Question 32

Contribution Margin

Answer 32

That portion of the selling price of an item that remains after variable costs and expenses are paid.

Question 33

Controllable Cost or Expense

Answer 33

A cost or expense that can be challenged by the action of a manager at a given level of management.

Question 34

Convertible Preferred Stock

Answer 34

Preferred stock that can be exchanged, at the option of the preferred stockholder, for common stock in the same corporation, at a rate set when the stock is originally issued.

Question 35

Corporation

Answer 35

An entity created by the state. It is a legal person, usually with unlimited life and limited liability.

Question 36

Cost

Answer 36

The amount of money or other asset paid for something. The something received can be cost of sales, expense, or it can be another asset, such as inventory. Also, a cost can be incurred by creating a liability (as an account payable).

Question 37

Cost Of Goods Sold

Answer 37

The cost to the company of the merchandise that was sold to customers.

Question 38

Credit Sale (Sale on Account)

Answer 38

Exchange of goods or services in exchange for a promise to pay at some date in the future.

Question 39

Creditor

Answer 39

A company or individual to whom money is owed.

Question 40

Cumulative Preferred Stock

Answer 40

Preferred stock on which, if dividends are omitted (not paid) in any year, the preferred stock dividends for previous years must be paid before any dividends on common stock can be paid.

Question 41

Current Assets

Answer 41

Those assets that are cash or will be converted to cash within the next 12 months.

Question 42

Current Liabilities

Answer 42

Those obligations that will become due within the next 12 months

Question 43

Current Ratio

Answer 43

Total current assets divided by total current liabilities.

Question 44

Debt-To-Equity Ratio

Answer 44

Total liabilities divided by total equity.

Question 45

Declaration Date

Answer 45

The day on which the board of directors of a corporation declares that the stockholders will receive a dividend, and how much that dividend will be.

Question 46

Deferred Income

Answer 46

A liability for income that has been received but not yet earned.

Question 47

Deferred Income Tax

Answer 47

The amount computed by subtracting the actual income tax owed from the income tax computed on net income computed by GAAP, if the result is a positive number (an additional liability). It may or may not represent an amount that will have to be paid some day.

Question 48

Depreciation

Answer 48

The spreading out, or allocation, of the cost of the equipment over the useful life of the equipment.

Question 49

Direct Costs or Expenses

Answer 49

Those items and labor that become part of a finished product.

Question 50

Direct Labor Cost

Answer 50

The cost of the people who actually do the work of putting the product together.

Question 51

Direct Materials Cost

Answer 51

The materials that end up being part of the finished product.

Question 52

Dividends

Answer 52

The payments of part or all of the earnings of the corporation to stockholders. Generally, dividends must be made in proportion to the number of shares of stock owned by each stockholder.

Question 53

Earnings

Answer 53

Usually means the same as net income, but in some areas (e.g., long-term