accountingA set of concepts and techniques that are used to measure and
report financial information about an economic unit
accounting equationA financial relationship at the heart of
the accounting model: Assets = Liabilities + Owners' Equity
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
balance sheetA financial statement that presents a firm's assets, liabilities,
and owners' equity at a particular point in time
certified public accountantAn individual who is licensed by a state to
practice public accounting
corporationA form of business organization where ownership is
represented by divisible units called shares of stock
CPAAn individual who is licensed by a state to practice public accounting
dividendsAmounts paid from profits of a corporation to shareholders as
a return on their investment in the stock of the entity
expensesThe costs incurred in producing revenues
financial accountingAn area of accounting that deals with external reporting
to parties outside the firm; usually based on standardized rules and
procedures.
Financial Accounting Standards BoardAn organization charged with
producing standards for financial reporting in the USA
financial statementsCore financial reports that are prepared to represent the
financial position and results of operations of a company
historical cost principleThe concept that many transactions and events are
to be measured and reported at acquisition cost
income statementA financial statement that summarizes the
revenues, expenses, and results of operations for a specified period of time
internal auditorA person within an organization who reviews and monitors the
controls, procedures, and information of the organization
International Accounting Standards BoardAn organization charged with
producing accounting standards with global acceptance
liabilitiesAmounts owed by an entity to others
managerial accountingAn area of accounting concerned with reporting
results to managers and others who are internal to an organization
net incomeThe excess of revenues over expenses for a designated period
of time
net lossThe excess of expenses over revenues for a designated period of
time
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. Investment-
Withdrawal+Net income
partnershipA non-corporation representing an association of two or more
persons organized to carry out a business plan for a profit motive
public accountingAccounting activities provided by a person to the general
public, typically relating to audit, tax and similar services
retained earningsThe excess of a corporation's income over its dividends
revenueInflows and other benefits received in exchange for the providing of
goods and services
sole proprietorshipA non-corporation business owned by a sole individual
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
accountA record that is kept for each asset, liability, equity, revenue,
expense, and dividend component of an entity
chart of accountsA listing of the accounts of an entity, along with any
identification coding
control accountThe total of all subcomponent account records for an
account; e.g., the sum of all individual accounts receivable
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
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
general ledgerA record of the accounts comprising financial statements, and
their respective balances or The current balance of any account can be found
in the ledger
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
or The process of making journal report.
postingThe process of transferring journal entry effects into the
respective general ledger accounts
source documentA document evidencing a transaction or event and
potentially providing for the initiation of a journal entry
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
T-accountAn abstract representation of an account, with the left side of the
"T" representing debits and the right side credits
trial balanceA listing of account balances from the ledger, used to test the
equality of debits and credits
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 expensesUnpaid expenses that have already been incurred
accrued revenuesRevenues that have been earned and recorded, but
are not as yet collected
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
book valueCost minus accumulated depreciation; the net amount at
which an asset is reported on the balance sheet. Asset’s cost-Asset’s
depreciation.
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")
contra assetAn account that is subtracted from a related account -- contra
accounts have opposite debit/credit rules
depreciationThe process used to allocate the cost of a long-lived property to
the accounting periods benefited
fiscal yearA one-year accounting period that does not correspond to a
calendar year
matching principleTo associate expenses with revenues, and record
them in simultaneous accounting periods
modified cash basisLike the cash basis, except that certain large
expenditures for durable assets may be recorded as assets initially
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
periodicity assumptionAn accounting assumption that purports to divide a
continuous business process into measurement intervals, such as months,
quarters, and years
prepaid expensesGoods or services purchased in advance of their
consumption
revenue recognitionThe point at which revenue is recognized in the
accounting records; ordinarily the point of sale
unearned revenueRevenue that has been collected in advance of
providing goods and services to "earn it;" reported as a liability until
earned
accounting cycleThe procedures needed to process transactions through
an accounting system; including journalization, posting, adjusting, and
preparing financial statements
capital stockA non-specific reference to the ownership interests of
shareholders in a corporation
closing processThe process by which temporary accounts are "zeroed" out
and the effects transferred to retained earnings
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 ratioA measure of liquidity, calculated by dividing current
assets by current liabilities
full disclosure principleAll relevant facts that would influence investors' and
creditors' judgments about the company are disclosed in the financial
statements or related notes
income summaryA non-financial statement account used only to
facilitate the closing process by summarizing and zeroing-out
the revenue and expense accounts
intangible assetLack physical existence, and include items like purchased
patents and copyrights
liquidityThe ability of a firm to meet its near-term obligations as they come
due
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
nominal accountsAccounts that will be reset to a zero balance with each new
accounting period; revenue, expense, and dividend accounts (also called
"temporary" accounts)
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)
other assetsThe category of a classified balance sheet for reporting assets
that are not logically attached to one of the other specific sections
post-closing trial balanceReveals the balance of accounts after the closing
process, and consists of balance sheet accounts only
property, plant, and equipmentAssets with long lives that will be used in an
entity's production processes; land, buildings, and equipment
quick ratioAn extreme measure of liquidity, calculated by dividing quick
assets (cash, short-term investments, and accounts receivable) by
current liabilities
real accountsAsset, liability, and equity accounts; balances are carried
forward from the end of one period into the beginning of the next period
retained earningsThe excess of a corporation's income over
its dividends
reversing entryOptional accounting procedure which may prove useful
in simplifying record keeping; a journal entry to "undo" an adjusting
entry
temporary accountsAccounts that will be reset to a zero balance with each
new accounting period; revenue, expense, and dividend accounts (also
called "nominal" accounts)
working capitalThe difference between current assets and current
liabilities
accounts receivableAmounts due from customers from credits sales of
products or services; "trade receivables"
aging of accounts receivableAnalysis used to estimate the
uncollectible accounts; involves stratification of receivables based upon age
allowance method for uncollectiblesA method that estimates
uncollectibles as a portion of total receivables and establishes an
offsetting contra allowance account
direct write-off methodA simple, non-GAAP, method
that expenses uncollectible accounts only as they are determined to be
uncollectible and are written off
dishonoring a noteTo fail to pay a note at maturity
interestThe charge imposed on the borrower of funds for the use of money
makerThe party creating the note and agreeing to make payment
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
net realizable value (receivables)The amount of cash expected to be
collected on outstanding accounts receivable; accounts receivable minus the
allowance for uncollectibles
nontrade receivablesAmounts due from transactions and events not
directly related to sales of products or services
notes receivableA written promise from a client or customer to pay a definite
amount of money on a specific future date
payeeThe party to whom a note is made payable
principalThe basic stated amount of a note on which interest is usually
calculated; generally relating to the amount borrowed
trade receivablesAmounts due from customers from credits sales of products
or services
accounts payableAmounts due to suppliers relating to the purchase of goods
and services on credit
compensated absencesTerm to describe paid time off; vacations, sick leave,
etc.
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
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
employeeA person who works for a specific business and
whose activities are directed by that business
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
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.)
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.
gross payAlso known as gross earnings; this it is the total amount earned by
an employee before any deductions
income taxesTaxes that are based on the amount income; for employees
such amounts must be withheld by employers and remitted to the
government
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
net payAlso known as net earnings; this is the gross pay less all applicable
deductions ("take home pay")
notes payableFormal short-term borrowings usually evidenced by a specific
written promise to pay
pension planA general term to describe some form of arrangement for
continuing payments to retirees
SUTAState Unemployment Tax levied on employer to provide funds for
unemployed workers; rate is adjusted for employer history of layoffs, etc.
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
workers compensation insuranceInsurance paid by the employer to cover
work related injuries sustained by employees
callable preferredPreferred stock that can be repurchased by issuer for a
preset price
common stockThe residual equity interest in a corporation; last in liquidation
but usually receiving the full benefits of any corporate growth
convertible preferredPreferred stock that can be exchanged for common
stock at some preagreed ratio
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
dividends in arrearsAn omitted dividend on cumulative preferred stock that
must eventually be paid before any monies can be distributed to common
stockholders
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
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
legal capitalUsually the par value of the stock of a corporation
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 is a technical provision establishing the “legal
capital” of the firm and is frequently associated with common and
preferred stock to satisfy statutory requirements
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
prospectusThe documentation describing financial and business aspects of
an initial public offering
statement of stockholders' equityA financial statement that is often
presented in lieu of a statement of retained earnings and other
disclosures about equity accounts
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)
total paid-in capitalThe sum of legal capital plus paid-in capital in
excess of par
treasury stockShares of a company's own stock that it has reacquired
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
B2B(Business to Business) A system that enables data interchange between
companies; sometimes sufficiently robust to permit
automatic inventoryreplenishment, etc.
budgetA planning tool that outlines the financial plans for an organization;
there are various types of budgets -- operating, capital, and financial
CFMCertified Financial Manager; a professional designation of competency
in the field of financial management that is issued by the Institute of
Management Accountants
CMACertified Management Accountant; a professional designation of
competency in the field of management accounting that is issued by the
Institute of Management Accountants
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
cost accountingThe process by which an organization's cost is
collected, assigned, and interpreted
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
direct laborGross wages paid to those who physically and directly work on
the goods being produced
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
ERP(Enterprise Resource Package) Comprehensive database software that
tracks an almost endless array of business and accounting data
finished goodsFinished goods represent the cost of completed products
awaiting sale to a customer
IMAInstitute of Management Accountants; a professional association for
management accountants that sponsors the CMA and CFM designations
inventoriable costProduct costs that attach to inventory
job costing methodA costing approach whereby actual labor and material is
tracked for each job or product
M2M(Machine to Machine) enables connected devices to communicate with
each other
manufacturing overheadAll costs of manufacturing other than direct materials
and direct labor (also called factory overhead)
period costA cost not attributable to the acquisition or manufacture of
inventory; expensed as incurred
prime costProduct costs that are direct in nature; direct materials and direct
labor
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
raw materialsThe components that will be used in manufacturing units that
are not yet started -- also known as direct materials
RFID(radio frequency identification) Micro processes embedded in inventory
that emit radio frequency signals that enable a computer to automatically
track inventory
scorecards (balanced)A system for evaluating elements that are important to
the organization and under the control of an employee holding that position
SG&ASelling, general, and administrative costs; the period costs of the
business
standardsBenchmarks against which actual productive activity is compared
sustainabilityDevelopment without depletion of natural resources or negative
effects on the environment
theory of constraints(TOC) Efficiency is improved by seeking out and
eliminating constraints within the organization
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
variancesDeviations from the norm that may provide warning signs of
situations requiring corrective action by managers
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
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
committed fixed costCosts that arise from an organization's commitment to
engage in operations; unavoidable elements like depreciation, rent,
insurance, property taxes
contribution marginRevenues minus all variable expenses, whether related to
production or selling and administration (not to be confused with gross profit)
cost-volume-profit analysis(CVP) Analysis focusing on the interplay of
pricing, volume, variable and fixed costs, and product mix
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)
economies of scaleEfficiencies associated with increases in volume
fixed costA total cost that is the same regardless of volume; total cost is
constant and per unit cost decreases with volume increases
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
method of least squaresA complex means for separating costs into fixed and
variable components, based upon minimising the variances between all
observations and the resulting assumed cost function
mixed costsA cost that has both fixed and variable components
relevant rangeThe level of activity for which assumptions underlying CVP are
expected to hold true
scattergraphA simplistic mapping of observed data points, where a line is
"visually" drawn to represent the estimated cost function
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
target incomeA level of income that is to be obtained; CVP projects activity
levels necessary to achieve this benchmark
variable costA per unit cost that is the same regardless of volume;
total variable cost increases with volume increases
Uncollectible –
Allowance for uncollectible accounts – The sum of estimated amount
uncollectibles.
Prime costs=Direct labor+Direct material.
Conversion costs=Direct labor+Manufacturing overhead
