ABC/activity based costingAlternative costing method for strategic management; divides production into activities, defines costs for activities, and allocates costs to objects based on activity consumption
absorption costingAlso known as full costing -- a costing method where inventory absorbs direct costs and variable and fixed factory overhead
accelerated depreciation methodsSeveral alternative depreciation approaches that result in relatively more depreciation in early years of use, and smaller amounts during later years
accountA record that is kept for each asset, liability, equity, revenue, expense, and dividend component of an entity
accountingA set of concepts and techniques that are used to measure and report financial information about an economic unit
accounting changesChanges from one acceptable method of accounting to another acceptable method; like straight-line depreciation to a declining balance approach
accounting cycleThe procedures needed to process transactions through an accounting system; including journalization, posting, adjusting, and preparing financial statements
accounting equationA financial relationship at the heart of the accounting model: Assets = Liabilities + Owners' Equity
Accounting Principles BoardThe private sector group charged with developing accounting standards from 1959 to 1973; primary authoritative pronouncements were known as "opinions"
accounting rate of returnA project evaluation tool that focuses on accounting income rather than cash flows; average annual increase in income by the amount of initial investment.
Accounting Standards CodificationResearch tool deemed to be the primary authoritative source and reference guide on accounting standards
Accounting Standards Update (ASU)The official notification issued by the Financial Accounting Standards Board of a new or modified accounting rule
accounts payableAmounts due to suppliers relating to the purchase of goods and services on credit
accounts receivableAmounts due from customers from credits sales of products or services; "trade receivables"
accrualExpenses and revenues that gradually accumulate throughout an accounting period
accrual basisThe accounting process whereby revenues are measured and recorded as earned, while expenses are recorded as incurred
accrued revenuesRevenues that have been earned and recorded, but are not as yet collected
achievable standardsA standard that takes into account normal spoilage and inefficiency; intended to allow workers to reach the established benchmarks
activityAn event that gives rise to the consumption of resources
activity-based costing(ABC) A costing system for situations where overhead is high and/or a variety of products are produced; costs are traced to activities and then activities are allocated to production
adjusted trial balanceA trial balance prepared after adjusting entries have been prepared and posted to the ledger
adjusting processTo analyze account balances and update them at the end of an accounting period to reflect the correct measure of revenues and expenses
aging of accounts receivableAnalysis used to estimate the uncollectible accounts; involves stratification of receivables based upon age
all-inclusive approachA concept of income by which virtually all nonequity-based transactions and events are captured and reported in the income statement; the preferred approach for income theory
allowance method for uncollectiblesA method that estimates uncollectibles as a portion of total receivables and establishes an offsetting contra allowance account
amortizationThe process used to allocate the cost of an intangible asset to the accounting periods benefited
amortized cost methodThe approach mandated for held-to-maturity securities; investments are reported at their cost with any premium or discount amortized over the life of the investment
annuitiesStreams of level (i.e., the same amount each period) payments occurring on regular intervals
annuityLevel streams of payments; with each payment being the same, and occurring at a regular interval
annuity dueAlso known as an annuity in advance; involves a level stream of payments, with the payments being made at the beginning of each time period
assetsThe economic resources owned by an entity; entailing probable future benefits to the entity
auditingThe examination of transactions and systems that underlie an organization's financial statements with the goal or reporting thereon
available-for-sale securitiesInvestments in debt that are neither "held-to-maturity" or "trading;" a default category that is accounted for at fair value with changes in value recognized in other comprehensive income
Business to Business(B2B) A system that enables data interchange between companies; sometimes sufficiently robust to permit automatic inventory replenishment, etc.
balance sheetA financial statement that presents a firm's assets, liabilities, and owners' equity at a particular point in time
balanced scorecardA set of performance measures that are congruent with assessing improvement in financial, customer, and business process outcomes
bank reconciliationA control procedure to establish and verify the correct cash balance via identification of errors, irregularities, and adjustments
bank statementThe document received from a bank which summarizes deposits and other credits, and checks and other debits to a bank account
basic EPSThe simplest earnings per share number; earnings available to common shares divided by weighted average shares, without factoring in potential dilution
batch-level activityActivities that relate to each batch of production; independent of the number of units within that batch
benchmarkingMeasuring products or processes against industry standards, an essential part of total quality management
bettermentExpenditures that improve or increase the service potential of an asset even beyond its original new condition; such costs may be capitalized by increasing the asset's cost
big dataElectronically warehoused information, capable of being mined and analyzed, containing the “who, what, when, where, and why” of all business activity
bonds payableAn obligation divided into transferable units requiring the issuer to make periodic interest payments and an eventual repayment of the face amount
book valueCost minus accumulated depreciation; the net amount at which an asset is reported on the balance sheet
book value per shareCommon stockholders' equity divided by common shares outstanding, to indicate stockholders' equity per share
bootTerm used to describe additional monetary consideration that may accompany an exchange transaction
break-even pointThe level of activity where revenues equal total expenses, producing a zero net income; also the point where the contribution margin is said to cover fixed costs
budgetA planning tool that outlines the financial plans for an organization; there are various types of budgets -- operating, capital, and financial
budget committeeA group of senior managers from each business unit charged with leading the budget preparation and review process
budget slackThe influence of behavior to "pad" a budget via misstating expected revenues and/or expenses; to create more favorable budget vs. actual performance appraisals
callable bondA bond that provides the issuer an option to reacquire the bonds before scheduled maturity at a preset price
callable preferredPreferred stock that can be repurchased by issuer for a preset price
capacity utilizationThe degree to which an organization's output capabilities are being deployed or utilized
capital expenditure decisionAlso known as capital budgeting; planning and decision making related to longer term projects and expenditures
capital expendituresOrdinary and necessary costs incurred to place an item of property, plant, or equipment in its condition for intended use; such amounts are included in the asset account
financing leaseA lease that effectively transfers the risks and rewards of ownership to the lessee
capital stockA non-specific reference to the ownership interests of shareholders in a corporation
cashItems acceptable to a bank for deposit and free from restrictions for satisfying current debts; includes coins, currency, bank deposits, etc.
cash basisAn accounting approach where revenue is recorded when cash is received (no matter when "earned"), and expenses are recognized when paid (no matter when "incurred")
cash budgetA major component of a cash planning system that depicts cash inflows and outflows for a stated period of time
Certified Financial Manager(CFM) a professional designation of competency in the field of financial management that is issued by the Institute of Management Accountants
change in accounting estimateA revision of assumptions used in a related accounting calculation (e.g., change in estimated useful life of an asset); handled prospectively by revising current and future periods
chart of accountsA listing of the accounts of an entity, along with any identification coding
Chartered Global Management Accountant(CGMA) sponsors a designation that distinguishes professionals who have advanced proficiency in finance, operations, strategy and management
closing processThe process by which temporary accounts are "zeroed" out and the effects transferred to retained earnings
Certified Management Accountant(CMA) a professional designation of competency in the field of management accounting that is issued by the Institute of Management Accountants
commercial substanceThe quality of an exchange transaction such that it changes the future cash flow potential of the entity
commitmentsPromises to engage in some future action; not necessarily creating a recordable accounting liability but potentially necessitating enhanced disclosure
committed fixed costCosts that arise from an organization's commitment to engage in operations; unavoidable elements like depreciation, rent, insurance, property taxes
common fixed costsFixed costs that are incurred to support more than one business unit
common stockThe residual equity interest in a corporation; last in liquidation but usually receiving the full benefits of any corporate growth
comparabilityAn enhancing quality of accounting such that even though different companies may use different accounting methods, there is still sufficient basis for valid comparison
compensating balanceAn amount that must be left on deposit and cannot be withdrawn
complex capital structureCompanies with options, warrants, or convertible bonds and stocks that may result in the issuance of additional shares
compound interestInterest calculations that provide for periodic inclusion of accumulated interest into the base on which interest is calculated; "interest on the interest"
comprehensive incomeNet income plus items of other comprehensive income (e.g., market value adjustments of available for sale securities)
conservatismA general principle of accounting measurement; when in doubt, understate assets and income and overstate liabilities
consignmentTo place inventory in the custody of another party without requiring them to purchase it, as a sales agent
consistencyAn enhancing quality of accounting such that deviations in outcomes from period to period should be the result of deviations in underlying performance (not accounting quirks)
consolidationTo prepare financial reports for a parent and subsidiary company as a single economic unit
contingent liabilitiesEvents that may or may not give rise to an actual liability because the outcome is uncertain; examples include lawsuits, environmental damage issues, and so forth
continuous budgetA budget that is constantly updated; as one month/quarter is completed another is added to the set the projections
contra assetAn account that is subtracted from a related account -- contra accounts have opposite debit/credit rules
contribution income statementAn internal report that identifies each segment's controllable elements; the contribution margin, controllable fixed costs, uncontrollable fixed costs, and segment margin
contribution marginRevenues minus all variable expenses, whether related to production or selling and administration (not to be confused with gross profit)
control accountThe total of all subcomponent account records for an account; e.g., the sum of all individual accounts receivable
controllerThe primary person responsible for the cost and managerial accounting functions
conversion costCost components needed to change raw materials to finished goods, specifically direct labor and manufacturing overhead
convertible bondA bond that may be converted by the holder into stock of the issuing company
convertible preferredPreferred stock that can be exchanged for common stock at some preagreed ratio
corporationA form of business organization where ownership is represented by divisible units called shares of stock
cost accountingThe process by which an organization's cost is collected, assigned, and interpreted
cost centerAn area of responsibility under the control of a manager who is responsible for costs incurred within the unit; the unit generally has little revenue function
cost driverThe factor that is viewed as causing costs to be incurred within an organization
cost flow assumptionAn assumption about how costs are assigned to inventory in the accounting records
cost objectThe output for which costing information is to be determined under ABC; can be product or service related, or customer, market, etc.
cost of goods manufacturedThe amount of cost attributable to goods reaching the end of production; beginning work in process (wip) + (direct materials, direct labor, manufacturing overhead) - ending wip
cost of goods soldThe total cost attributed to units of inventory actually sold during a period
cost of production reportA report used in a process costing environment to tabulate the costs incurred within a particular stage/department
cost-volume-profit analysis(CVP) Analysis focusing on the interplay of pricing, volume, variable and fixed costs, and product mix
coupon bondA bond that has detachable coupons that are exchanged for interest payments; historically popular but falling into disuse
creditThe nature of an action to an account to indicate an increase (liabilities, equity, and revenue) or decrease (assets, expenses, and dividends); usually right-justified in an entry
credit memorandumA seller-prepared document evidencing an approved return of merchandise for credit against an account
cumulative preferredPreferred stock that is entitled to a periodic dividend, and those dividends must be paid (eventually) before any monies can be distributed to common stockholders
current assetsAssets that will be converted into cash or consumed within one year or the operating cycle, whichever is longer
current liabilitiesObligations that will be liquidated within one year or the operating cycle, whichever is longer
current operating approachA concept of income where income is limited to transactions related to central ongoing operations; not an acceptable approach for income theory
current ratioA measure of liquidity, calculated by dividing current assets by current liabilities
customer-level activityActivities that relate to each customer; independent of the volume of goods and services provided to the specific customer
dashboardCustomized business software that delivers key real time business data in an easily monitored layout
databaseAn information storehouse, usually electronic, that can be queried to extract data meeting certain parameters. Enables singular data entry and multiple data output.
debenture bondA bond that lacks specific collateral; payment is only assured by the general faith and creditworthiness of the issuer
debitThe nature of an action to an account to indicate an increase (assets, expenses, and dividends) or decrease (liabilities, equity, and revenue); usually left-justified in an entry
debit cardTransactions are equivalent to an electronically generated check that results in an almost immediate withdrawal of funds.
debit memorandumA purchaser-prepared document evidencing a return of merchandise to a seller
decentralized decision makingA business style where top leaders concentrates on strategy, and leaves day-to-day operation and decision-making tasks to lower-level personnel
declining balance depreciation methodAn accelerated depreciation method by which a constant rate (that is a multiple of the straight-line rate) is multiplied by each period's beginning (constantly declining) book value
defined benefit planA type of pension plan where the benefits are a function of years of service, pay, and age; the ultimate employer cost is not known in advance
defined contribution planA type of pension plan where the benefits are based on amounts in trust for the benefit of the employee; employer contributions are usually a fixed percentage of pay
depletionThe process used to allocate the cost of a natural resource asset to the accounting periods benefited
deposits in transitReceipts entered on company records but not yet posted by the bank
depreciable baseCost minus salvage value; the amount of cost that will be allocated to the service life
depreciationThe process used to allocate the cost of a long-lived property to the accounting periods benefited
derivativesInvestments accounted for a fair value that generally derive their value from some other item; examples include commodity futures, options, and so forth
diluted EPSAn earnings per share number; adjusted to reflect the potential effect of dilutive securities
dilutive securitiesOptions, warrants, convertible bonds, convertible stocks, and other items that have the potential to increase the number of shares outstanding
direct approachThe preferred method for preparing the statement of cash flows; operating cash flows are presented according to their direct source (e.g., cash received from customers)
direct costsA cost easily traced to a specific job; generally direct material and direct labor
direct laborGross wages paid to those who physically and directly work on the goods being produced
direct labor budgetA budget that details expected direct labor needs, along with the related costs of labor
direct labor efficiency varianceA variance comparing standard hours of direct labor to the actual hours worked; measured at the standard rate per hour [(standard hours - actual hours) X standard rate]
direct labor rate varianceA variance that reveals the difference between the standard rate and actual rate for the actual labor hours worked [(standard rate - actual rate) X actual hours]
direct materialThe costs of all materials that are an integral part of a finished product and that have a physical presence that is readily traced to that finished product
direct method/allocating service costAn allocation process whereby service department costs are assigned directly to productive departments (compare to step method)
direct write-off methodA simple, non-GAAP, method that expenses uncollectible accounts only as they are determined to be uncollectible and are written off
discontinued operationsThe special income statement reporting of the impact of disposing or abandoning of a component of a business
discount on bondsThe difference between face value and issue price of a bond, where the issue price is less; causes the effective yield to be higher than that stated
discretionary fixed costFixed cost resulting from yearly spending decisions; proper planning can result in avoidance of these costs as necessary (e.g., advertising and training)
dividend rateDividend per share divided by stock price; also called dividend yield
dividendsAmounts paid from profits of a corporation to shareholders as a return on their investment in the stock of the entity
dividends in arrearsAn omitted dividend on cumulative preferred stock that must eventually be paid before any monies can be distributed to common stockholders
double-declining balance depreciationAn accelerated depreciation method by which a constant rate (that is 200% of the straight-line rate) is multiplied by each period's beginning (constantly declining) book value
earningsA concept that relates to income from continuing operations plus/minus discontinued operations
Earnings per shareEPS; generally understood as the amount of income for each share of stock, but is actually better refined as basic and diluted EPS (see those definitions)
EBITAn analyst's calculation to reflect "earnings before interest and taxes"
EBITDAAn analyst's calculation to reflect "earnings before interest, taxes, depreciation, and amortization"
effective-interest amortizationA theoretically preferable method for amortizing premiums and discounts on bonds; interest expense is a constant percentage of the bonds ever-changing carrying value
employeeA person who works for a specific business and whose activities are directed by that business
encumbranceA budgetary restriction occurring in advance of a related expenditure
entity assumptionAccounting information should be presented for circumscribed distinct economic units
entity-sustaining activityActivities that relate to an entity's ability to operate; independent of business volume
equity methodMethod to account for stock investment when significant influence is present; changes in equity of the investee are recognized by the investor on a pro rata basis
equivalent unitsA measure of physical units expressed in terms of finished units
Enterprise Resource Packages(ERP) Comprehensive database software that tracks an almost endless array of business and accounting data
ex-dividendThe event (date) when a transfer of stock ownership between shareholders will occur without the right for the purchaser to receive any previously declared dividends
exchange transactionTrading one asset for another; to be booked at fair value if the transaction has commercial substance
F.O.B. destinationFree on Board destination; meaning the transfer of ownership of inventory will occur when the goods reach their destination and the seller will incur the freight charges
F.O.B. shipping pointFree on Board shipping point; meaning the transfer of ownership of inventory will occur when the goods are shipped and the purchaser will incur the freight charges
factory overhead budgetA budget that details the anticipated factory overhead, including calculations related to the allocation of such amounts
fair value accountingSometimes called "mark-to-market;" to record an investment at its fair value and recognize changes in value as they occur
faithful representationA fundamental quality of accounting such that information must be truthful; complete, neutral, and free from error
FICAFederal Insurance Contributions Act (also known as social security and Medicare); establishes a tax that employers must withhold and match for government-based retiree benefit
financial accountingAn area of accounting that deals with external reporting to parties outside the firm; usually based on standardized rules and procedures
financial statementsCore financial reports that are prepared to represent the financial position and results of operations of a company
financing activitiesA cash flow category; including receipts from stock issues, bonds, notes and loans, -- and payments for loan repayment, acquisitions of treasury stock, and dividend distributions
finished goodsFinished goods represent the cost of completed products awaiting sale to a customer
first-in, first-outFIFO; An inventory cost flow assumption based on the notion that the earliest costs are to be assigned to units sold
fiscal yearA one-year accounting period that does not correspond to a calendar year
fixed costA total cost that is the same regardless of volume; total cost is constant and per unit cost decreases with volume increases
fixed overhead volume varianceA fixed overhead variance that compares the budgeted fixed overhead to the fixed overhead that is applied to production based on standard fixed overhead per unit of output
flexible budgetA budget that covers a range of potential outcomes by relating expense levels to the potential revenues
Form 1099A form required to be issued to an independent contractor reporting amounts paid; to assist with tax compliance issues (this form used to report other payments like interest, etc.)
full disclosure principleAll relevant facts that would influence investors' and creditors' judgments about the company are disclosed in the financial statements or related notes
FUTAFederal Unemployment Tax levied on employer to provide funds for unemployed workers; rate is dependent on existence of SUTA and employer history of layoffs, etc.
future valueThe amount to which an interest-earning amount is expected to grow over a stipulated time period at a given interest rate
future valueOr "compound interest;" amount that a current payment (or stream of payments) will grow in time; includes interest on previous interest based on frequency of compounding
GAAPGenerally accepted accounting principles -- encompass the rules, practices, and procedures that define the proper execution of accounting
general ledgerA record of the accounts comprising financial statements, and their respective balances
going-concern assumptionIn the absence of evidence to the contrary, accountants assume that a business will continue to operate well into the future
goods available for saleA calculated amount corresponding to the beginning inventory plus net purchases; represents the total pool of inventory available during a period from which sales can occur
goods in transitGoods in the process of being transported to the buyer; ownership is based on freight terms
goodwillThe excess of the purchase price of an acquired company over the fair value of the identifiable net assets acquired
gross methodA method of recording purchases of inventory at invoice price
gross payAlso known as gross earnings; this it is the total amount earned by an employee before any deductions
A calculated amount corresponding to net sales minus cost of goods sold
gross profit methodA technique that purports to estimate inventory and cost of goods sold by applying historic percentage relationships to observable sales information
held-to-maturity investmentsInvestments purchased with intent to hold to maturity; usually investment in debt; accounted for by amortized cost method
high-low methodA simple means for separating costs into fixed and variable components, based upon the difference between costs at the highest and lowest observed levels of activity
historical cost principleThe concept that many transactions and events are to be measured and reported at acquisition cost
ideal standardsA standard that could only be achieved under perfect operating conditions; such standards are rarely expected to be achieved
impairmentWhen the carrying amount of an asset is not recoverable from its future cash flow
income statementA financial statement that summarizes the revenues, expenses, and results of operations for a specified period of time
income summaryA non-financial statement account used only to facilitate the closing process by summarizing and zeroing-out the revenue and expense accounts
income taxesTaxes that are based on the amount income; for employees such amounts must be withheld by employers and remitted to the government
incremental budgetingA budgeting approach where the prior year experience sets a base line for a new budget; changes are made based on new information but the base need not be rejustified in detail
independent contractorOne who performs a designated task or service for a company, and the company has the right to control or direct only the result of the work done
indirect approachAn alternative method for preparing the statement of cash flows; operating cash flows are presented as a reconciliation of income to cash from operating activities
indirect costsA cost not easily traced to a specific job; generally categorized as factory or manufacturing overhead
initial public offeringThe first time stock in a corporation is offered to the investing public; registration and other requirements must be met; proceeds may flow to the corporation or private shareholders
intangible assetLack physical existence, and include items like purchased patents and copyrights
intangible assetLong-term asset that lacks physical existence; contract rights, copyrights, patents, trademarks, etc.
interestThe charge imposed on the borrower of funds for the use of money
internal auditorA person within an organization who reviews and monitors the controls, procedures, and information of the organization
internal rate of returnAlso known as time-adjusted rate of return or IRR; discount rate causing present value of cash inflows to equal present value of the cash outflows
intraperiod tax allocationSeparately reported items like discontinued operations, prior period adjustments, and other comprehensive income, are to reported net of their specifically related tax effects
investeeThe company in which another has an investment
investing activitiesA cash flow category; including receipts from disposal of investments and long-term assets -- and payments to acquire long-term assets and investments
investment centerA evaluative unit where managers are accountable for cost and profit outcomes, including consideration of the amount of capital that is deployed to achieve those outcomes
issue priceThe amount a company receives in exchange for the initial issue of debt or other financial instrument
job cost sheetA document representing a compilation of cost data for a specific job
job costing methodA costing approach whereby actual labor and material is tracked for each job or product
journalA chronological listing of the transactions and events of an organization, in debit/credit format
journalizingThe process of recording transactions and events into the journal
junk bondA bond that is issued by a company of low credit worthiness, and entails substantial risk of nonpayment; generally offers a high interest rate to compensate for the high risk
just in time inventoryRaw materials are received from supplies just as they are needed in the production process
KaizenJapanese term used to describe a blitz like approach to study processes and install efficiency within an organization
KanbanJapanese term which means some form of signal that a particular inventory is ready for replenishment
land improvementsIncludes the cost of parking lots, sidewalks, landscaping, irrigation systems, and similar expenditures that are incurred to better land
last-in, first-out methodLIFO; An inventory cost flow assumption based on the notion that the most recent costs are to be assigned to units sold
lean manufacturingIndicative of an environment where waste has been trimmed; entails a focus on standardization, speed, and quality, without compromising responsiveness to customer demand
lease/lessee and lessorPeriodic payment from the user (lessee) of an asset to an owner (lessor) of the asset
legal capitalUsually the par value of the stock of a corporation
lesseePeriodic payment from the user (lessee) of an asset to an owner (lessor) of the asset
lessorPeriodic payment from the user (lessee) of an asset to an owner (lessor) of the asset
liquidityThe ability of a firm to meet its near-term obligations as they come due
list priceAn established price determined by reference to a catalog or general price list; before any discounts
long-term investmentsInvestments made for long-term holding purposes; including land for speculation, securities of other companies, etc.
long-term liabilitiesAny obligation that is not current, and include bank loans, mortgage notes, and the like
lump-sum purchaseA single price paid for a package of assets; the purchase price must be allocated to each of the components
Machine to Machine(M2M) enables connected devices to communicate with each other
makerThe party creating the note and agreeing to make payment
management by exceptionA management focus of attention on areas where corrective measures appear necessary
managerial accountingAn area of accounting concerned with reporting results to managers and others who are internal to an organization
manufacturing overheadAll costs of manufacturing other than direct materials and direct labor (also called factory overhead)
market-level activityActivities that relate to the number of markets in which an entity operates; independent of the number of products, customers, etc.
master budgetAlso known as the comprehensive budget; an integrated set of articulated budgets relating to numerous operational subcomponents (labor, material, overhead, SG&A, etc.)
matching principleTo associate expenses with revenues, and record them in simultaneous accounting periods
materialityA matter of accounting judgment; when amounts involved are slight, expediency may dictate waiving the technically correct alternative in lieu of a simpler approach
materials price varianceA variance that reveals the difference between standard price for materials purchased and amounts actually paid for those materials [(standard price - actual price) X actual quantity]
materials quantity varianceA variance comparing standard quantity to actual quantity of materials; variation is measured at the standard price per unit [(standard quantity - actual quantity) X standard price]
materials requisition formForm showing what material has been removed from the raw materials stock and put into production
maturity dateThe date on which a note and related interest are due to be paid
maturity valueThe amount due at maturity of a note; includes principal and interest
method of least squaresA complex means for separating costs into fixed and variable components, based upon minimizing the variances between all observations and the resulting assumed cost function
mixed costsA cost that has both fixed and variable components
Modified Accelerated Cost Recovery SystemA "depreciation" approach common to the tax code; generally permits more rapid "recovery" of asset cost than GAAP approaches; MACRS - pronounced "makers"
modified cash basisLike the cash basis, except that certain large expenditures for durable assets may be recorded as assets initially
monetary unit assumptionAccounting measures transactions and events in units of money, in contrast to some other unit of measure (e.g., acres of land)
moving-average methodUnder the perpetual inventory system; to recompute running average cost with each purchase transaction
multiple-step income statementA complex income statement with sections that segregate cost of goods sold calculations and other components of income and expense; enables enhanced evaluations of data
natural business yearApplicable to certain businesses that have a seasonal business pattern, and an attempt is made to establish an accounting fiscal year to match
natural resourcesOil and gas reserves, mineral deposits, thermal energy sources, and standing timber are just a few examples of such assets that a firm may own
net incomeThe excess of revenues over expenses for a designated period of time
net incomeIncome from continuing operations plus/minus discontinued operations, but before items of “other comprehensive income”
net lossThe excess of expenses over revenues for a designated period of time
net methodA method of recording purchases of inventory at invoice price less available cash discounts
net payAlso known as net earnings; this is the gross pay less all applicable deductions ("take home pay")
net present valueOr NPV, a method of evaluating capital projects that uses a predetermined interest rate to determine the present value of an investment's net cash inflows and outflows
net realizable value (receivables)The amount of cash expected to be collected on outstanding accounts receivable; accounts receivable minus the allowance for uncollectibles
net realizable value (NRV)(inventory) Estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal, and transportation
nominal accountsAccounts that will be reset to a zero balance with each new accounting period; revenue, expense, and dividend accounts (also called "temporary" accounts)
nonredeemable bondA bond that cannot be paid off before scheduled maturity
nonrefundable bondA bond that cannot be paid off with the proceeds of a new debt issue
nontrade receivablesAmounts due from transactions and events not directly related to sales of products or services
notes payableFormal short-term borrowings usually evidenced by a specific written promise to pay
notes receivableA written promise from a client or customer to pay a definite amount of money on a specific future date
NSF checkNon-sufficient funds check; a customer check returned for lack of funds (a "hot check")
operating activitiesA cash flow category; generally related to transactions that enter into the determination of income -- items that are not investing or financing
operating cycleThe period of time it takes to convert cash back into cash (i.e., purchase inventory, sell the inventory on account, and collect the receivable)
operating expensesGeneral expense category for selling and administrative costs
operating leasesA lease where the lessee makes periodic payments for periodic use of an asset, but does not assume the ultimate risks and rewards of owning the asset
opportunity costThe cost of a foregone alternative; may include lost revenue
ordinary annuityAlso known as an annuity in arrears; involves a level stream of payments, with the payments being made at the end of each time period
other assetsThe category of a classified balance sheet for reporting assets that are not logically attached to one of the other specific sections
other comprehensive incomeAn account for changes in value of available for sale securities; not part of net income but is included in the broader concept of total comprehensive income
outsourcingUtilization of independent parties to manufacture products (sometimes known as make-or-buy) or manage data processing, tech support, payroll services, etc.
outstanding checksChecks entered on company records but not yet cleared by the bank
overapplied overheadApplied overhead exceeds the actual amount; usually viewed as a favorable outcome, because less has spent than anticipated for the level of achieved production
overhead application rateA rate used to apply manufacturing overhead to output; estimated factory overhead for a period divided by the estimated application base
owner investmentsResources provided to an organization by a person in exchange for a position of ownership in the organization
owners' equityThe residual of assets minus liabilities, representing the collective interest or position of the entity's owners
paid-in capital in excess of parThe amount by which a stock's issue price exceeds its par value; also referred to as "additional paid-in capital"
par valuePar value is a technical provision establishing the “legal capital” of the firm and is frequently associated with common and preferred stock to satisfy statutory requirements
par value on bondsThe face or contract amount of a bond; the amount to be repaid at maturity along with any interest
partnershipA non-corporation representing an association of two or more persons organized to carry out a business plan for a profit motive
payback methodEasy method for evaluating capital projects; calculated by dividing the initial investment by the annual cash inflow
PCAOBPublic Company Accounting Oversight Board -- a private-sector, non-profit corporation charged with overseeing the auditors of public companies
pension planA general term to describe some form of arrangement for continuing payments to retirees
period costA cost not attributable to the acquisition or manufacture of inventory; expensed as incurred
periodic inventory systemAn inventory system that utilizes a Purchases account and does not update inventory with each sale; inventory is updated by physical count at the end of accounting periods
periodicity assumptionAn accounting assumption that purports to divide a continuous business process into measurement intervals, such as months, quarters, and years
perpetual inventory systemA "real-time" inventory system that updates inventory records with each purchase and sale
petty cashA fund established for making small payments that are impractical to pay by check; also known as imprest cash fund
post-closing trial balanceReveals the balance of accounts after the closing process, and consists of balance sheet accounts only
postingThe process of transferring journal entry effects into the respective general ledger accounts
preemptive rightA right that may or may not be provided to shareholders enabling them with a first right of refusal to buy any additional shares offered by a corporation
preferred stockA class of stock that generally benefits from a stipulated periodic dividend and priority in liquidation; but, usually lacking in upside participation in corporate growth
premium on bondsThe difference between face value and issue price of a bond, where the issue price is more; causes the effective yield to be lower than that stated
prepaid expensesGoods or services purchased in advance of their consumption
present valueThe calculated value today of an amount to be received in the future, based upon an assumed interest rate (the reciprocal of future value)
present valueAlso known as discounting; determines the current worth of cash to be received in the future
price earnings ratioThe per share market value of a stock divided by its earnings per share
prime costProduct costs that are direct in nature; direct materials and direct labor
principalThe basic stated amount of a note on which interest is usually calculated; generally relating to the amount borrowed
principles-basedThe idea that accounting standards should articulate broad-based principles rather than specific and detailed rules
prior period adjustmentTo correct errors from prior years; prior financial statements are retroactively changed to make them correct
process costingProcess costing is a method to allocate the total costs of production to homogenous units produced via a continuous process that usually involves multiple steps or departments
process costing methodsA product costing method particularly well suited to situations where production occurs in a continuous process; costs are pooled and assigned to aggregate output
product costCosts that attach to a product; the summation of direct materials, direct labor, and factory overhead
product-level activityActivities that relate to the number of products produced; independent of the number of units produced
production budgetA budget that details planned levels of production; takes into account sales and inventory build/decline
profit centerBusiness unit that has control over both costs and revenues and is therefore evaluated on the profit outcomes
proof of cashA detailed bank reconciliation that verifies not only beginning and end balances, but also validates deposits and withdrawals during the month
property, plant, and equipmentAssets with long lives that will be used in an entity's production processes; land, buildings, and equipment
prospectusThe documentation describing financial and business aspects of an initial public offering
public accountingAccounting activities provided by a person to the general public, typically relating to audit, tax and similar services
purchase discountsA cash discount available on purchases of merchandise on account; encourages prompt payment
quick ratioAn extreme measure of liquidity, calculated by dividing quick assets (cash, short-term investments, and accounts receivable) by current liabilities
raw materialsThe components that will be used in manufacturing units that are not yet started -- also known as direct materials
real accountsAsset, liability, and equity accounts; balances are carried forward from the end of one period into the beginning of the next period
registered bondA bond for which ownership records are maintained, and interest is paid to the registered owner
relevancyA fundamental quality of accounting such that information should be timely and bear on the decision-making process by possessing predictive or confirmatory (feedback) value
relevant costItems where future costs and revenues are expected to differ for the alternative decisions under consideration
relevant rangeThe level of activity for which assumptions underlying CVP are expected to hold true
remeasurementUses a variety of exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact operating income.
replacementA restoration of an asset, at least partially, to its original condition; such costs may be capitalized by reducing accumulated depreciation
residual incomeAn internal assessment technique that adjusts income for a presumed cost of capital (or other threshold rate of return); operating income - (operating assets X cost of capital)
residual valueAmount expected be realized at the end of an asset's service life; "salvage value"
resourceThe elements consumed by activities and cost objects
resource driverThe concept that activities create the need for resources which will be consumed in the production process
restatementThe financial statements of prior periods are redone to reflect the correct amounts
retail inventory methodAn inventory costing technique used by retailers that extrapolates inventory values by applying cost-to-retail percentages to known sales and purchase transactions
retained earningsThe excess of a corporation's income over its dividends
retrospective adjustmentRevision of the financial statements for prior periods to reflect the application of a current change in accounting method
return on assets ratioA ratio comparing income (net income plus interest) to the average total assets
return on equity ratioA ratio comparing income (net income minus preferred dividends) to the average total equity
return on investmentROI: A model consisting of a margin component (Operating Income/Sales) and turnover component (Sales/Average Assets); reduces to Operating Income/Average Assets
revenueInflows and other benefits received in exchange for the providing of goods and services
revenue recognitionThe point at which revenue is recognized in the accounting records; ordinarily the point of sale
reversing entryOptional accounting procedure which may prove useful in simplifying record keeping; a journal entry to "undo" an adjusting entry
radio frequency identification(RFID) Micro processes embedded in inventory that emit radio frequency signals that enable a computer to automatically track inventory
rules-basedThe idea that accounting standards must be very specific to provide adequate guidance and drive consistency in reporting
sales budgetA budget that details anticipated sales levels
sales discountsA cash discount offered to customers to encourage prompt payment of invoices
Sarbanes-Oxley Act"SOX" -- Legislation that imposes stringent controls over reporting and auditing; created the Public Accounting Oversight Board
scattergraphA simplistic mapping of observed data points, where a line is "visually" drawn to represent the estimated cost function
scorecards (balanced)A system for evaluating elements that are important to the organization and under the control of an employee holding that position
secured bondA bond that provides specific assets as collateral to help assure the payment stream
segmentA business unit for which separate financial information is evaluated by an operating decision maker who allocates resources and judges performance of the unit
serial bondA bond issue that has multiple repayment dates, rather than the entire issue maturing at one fixed maturity date
service lifeThe period of time that a depreciable asset will be in use by an entity; the time interval over which the asset will be depreciated
SG&ASelling, general, and administrative costs; the period costs of the business
SG&A budgetA budget that details anticipated selling, general, and administrative costs
significant influenceThe ability to sway management and decision making of another entity, but generally not enough to assert absolute control
simple interestInterest calculations that do not provide for periodic inclusion of accumulated interest into the base on which interest is calculated
single-step income statementA simple income statement with a section for all revenues and another for all expenses; there is no direct association between specific revenue and expense components
sinking fund bondA bond issue that requires periodic setting aside of monies into a separate fund to provide for eventual repayment of the debt at maturity
Six SigmaA trademarked quality management system developed by Motorola; driven by pursuit of statistical results that reflect near perfection in production and processing
source documentA document evidencing a transaction or event and potentially providing for the initiation of a journal entry
special orderA customer order that is outside of the normal pricing and terms
specific identification methodInventory costing method where the actual cost of each unit of merchandise is tracked and used for accounting purposes
stable currency assumptionAn accounting assumption that presumes the currency is not impacted over time by inflation
standard costA measure of what costs should be incurred to achieve the observed output
standardsBenchmarks against which actual productive activity is compared
statement of cash flowsA financial statement that summarizes the cash flows relating to operating, investing, financing, and noncash investing/financing activities of an entity
statement of retained earningsA financial statement that discloses changes in retained earnings during a designated period of time; those changes usually attributable to income and dividends
statement of stockholders' equityA financial statement that is often presented in lieu of a statement of retained earnings and other disclosures about equity accounts
static budgetA budget that does not anticipate alternative outcomes; estimated sales and expenses are fixed and establish the relevant benchmarks
step costA cost function that is fixed over a range, and then increases by a measured step to a new level at the next higher increment of activity
step method/allocating service costAn allocation process whereby some service department costs may be assigned to other service departments as part of a sequential methodology
stockTransferable units of ownership in a corporation
stock dividendA noncash corporate activity to provide shareholders with additional shares in proportion to existing ownership; makes for more shares outstanding, but does not change total equity
stock splitA corporate action to increase the number of shares and reduce the par per share by a stipulated ratio (e.g., 2 for 1)
straight-line methodA method for amortizing premiums and discounts on bonds; the premium or discount is spread uniformly over the life of the bond as an adjustment of interest
straight-line depreciationA simple depreciation method by which the depreciable base is spread uniformly over the service life
subsidiary accountA subcomponent account record providing individual balance details; e.g., the record for one customer out of a group of customers comprising all accounts receivable
sunk costHistorical amount expended on a project or object; not relevant to current decisions or future actions
sustainabilityDevelopment without depletion of natural resources or negative effects on the environment
SUTAState Unemployment Tax levied on employer to provide funds for unemployed workers; rate is adjusted for employer history of layoffs, etc.
T-accountAn abstract representation of an account, with the left side of the "T" representing debits and the right side credits
target incomeA level of income that is to be obtained; CVP projects activity levels necessary to achieve this benchmark
temporary accountsAccounts that will be reset to a zero balance with each new accounting period; revenue, expense, and dividend accounts (also called "nominal" accounts)
theory of constraints(TOC) Efficiency is improved by seeking out and eliminating constraints within the organization
time value of moneyConceptual notion holding that money to be received sooner is worth more than money to be received later
From Chapter 24:
In the context of capital budgeting, assume two alternative investments have the same upfront cost. Investment Alpha returns $100 per year for each of the next 5(...)
timelinessAn enhancing quality of accounting such that information is available in sufficient time to be capable of influence
top-down mandated budgetA budget approach where upper level management establishes parameters under which the budget is to be prepared
total quality management(TQM) A process for continuous improvement by focusing on customer service and systematic problem solving via teams made up of front-line employees
traceable fixed costsFixed costs that would not exist if the unit under evaluation ceased to exist
trade discountA reduction from list price that is not entered in the accounting records; customarily offered in "setting" the invoice amount
trade receivablesAmounts due from customers from credits sales of products or services
trading securitiesInvestments in debt acquired with the intent of generating profits by reselling the investment in the very near future; classified as current assets
transfer pricingThe system of setting prices at which goods are exchanged between affiliated units; usually involving cross-border transactions
translationUses prevailing exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact other comprehensive income.
treasury stockShares of a company's own stock that it has reacquired
trial balanceA listing of account balances from the ledger, used to test the equality of debits and credits
underapplied overheadApplied overhead is less than the actual amount; usually viewed as a unfavorable outcome, because more has spent than anticipated for the level of achieved production
understandabilityAn enhancing quality of accounting such that information is clear and concise to those with reasonable business knowledge
unearned revenueRevenue that has been collected in advance of providing goods and services to "earn it;" reported as a liability until earned
unit-level activityActivities that relate to the number of units of output; each additional unit of production requires another activity
units-of-output depreciationA depreciation approach where the depreciable base is allocated to the expected total units of output; mileage, hours, etc.
variable costA per unit cost that is the same regardless of volume; total variable cost increases with volume increases
variable costingA costing method where inventory absorbs direct costs and variable factory overhead; the income statement identifies the contribution margin
variable overhead efficiency varianceA variance that reflects the level of efficiency associated with the application of variable overhead to production
variable overhead spending varianceA variance that reflects the difference between actual variable overhead and standard variable overhead associated with the actual units of the application base
variancesDeviations from the norm that may provide warning signs of situations requiring corrective action by managers
verifiabilityAn enhancing quality of accounting such that different knowledgeable and independent observers reach similar conclusions
W-2An annual statement provided to employees stating the amount of earnings and withholdings; assists employee in preparing their own tax returns
W-4A form filled out by an employee stating the amount of exemptions to which they are entitled for tax purposes; such exemptions bear on the amount of income tax withholdings
warranty liabilityA liability that is recorded for the future costs of claims that are anticipated because of product warranty agreements
weighted-average inventory methodUnder the periodic inventory system; inventory cost is based on the average cost of units purchased giving consideration to the quantities purchased at different prices
weighted-average process costingA process costing technique where all units of production are assigned the same cost; determined by blending of current period costs with beginning inventory cost
work in processGoods that are in production but not yet complete; an accumulation of monies spent on direct material, direct labor, and applied manufacturing overhead
