WGU C213 Accounting

1. Accounting A system of providing "quantitative information, primarily financial in nature, about economic entities that is intend- ed to be useful in making economic decisions." 2. Accounting Equation 3. Accounts Payable 4. Accounts Re- ceivable 5. Accrual Ac- counting 6. Accumulated De- preciation Assets = Liabilities + Owners' Equity The flip side of accounts receivable—when one company sells on credit, creating for itself an account receivable, the company on the other side of the transaction is buying on credit, creating an account payable. Amounts owed to a business by its credit customers and are usually collected in cash within 10 to 60 days. The process that accountants use in adjusting raw trans- action data into refined measures of a firm's economic performance. Reflects the wear and tear, or depreciation, of these items since they were originally purchased. 7. Accumulated Other Comprehensive Income 8. Activity-based Costing (ABC) 9. Additional Paid-in Capital 10. American Insti- tute of Certified Public Accoun- tants (AICPA) The grouped together and reported changes which com- panies experience increases and decreases in equity each year because of the movement of market prices or exchange rates A method of attributing overhead costs to products based on measurable factors that relate to activities that create overhead costs. Invested by stockholders that exceeds the par value of the issued shares. The professional organization of certified public accoun- tants in the United States. 11. Asset Probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events. 12. Asset Mix The proportion of total assets in each asset category, is determined to a large degree by the industry in which the company operates. 13. Asset Turnover Sales divided by assets and is interpreted as the number of dollars in sales generated by each dollar of assets. 14. Assets The firm's economic resources, formally defined as "prob- able future economic benefits obtained or controlled by a particular entity as a result of past transactions or events 15. Assets-to-equity Ratio Assets divided by equity and is interpreted as the number of dollars of assets acquired for each dollar invested by stockholders. 16. Audit Committee Members of a company's board of directors who are responsible for dealing with the external and internal au- ditors. 17. Average Collec- tion Period Shows the average number of days that elapse between sale and cash collection. 18. Balance Sheet A listing of an organization's assets and of its liabilities at a certain time. 19. Batch-level Ac- tivities Activities that take place in order to support a batch or production run, regardless of the size of the batch. 20. Book Value The book value of an asset is the asset's cost minus the asset's accumulated depreciation. 21. Bookkeeping The preservation of a systematic, quantitative record of an activity. 22. Breakeven 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. 23. Capital Budget- ing 24. Capital Lease Obligations Systematic planning for long-term investments in operat- ing assets. A long-term liability in the balance sheet. 25. Cash Coins and currency as well as the balances in company checking and savings accounts. 26. Cash Budget An important tool in helping management plan its cash needs. This discussion briefly introduces you to budgeting cash receipts. 27. Cash Equiva- lents 28. Cash Flow Ade- quacy Ratio Short-term, highly liquid investments such as Treasury bills, commercial paper, and money market funds. Cash from operations divided by expenditures for fixed asset additions and acquisitions of new businesses 29. A financial analysis tool that indicates the interest pay- ment ability of an entity Cash Times In- terest Earned Ra- tio 30. Certified Public A person who has taken a minimum number of col- Accountant lege-level accounting classes, has passed the dreaded CPA exam, and has met other requirements set by his or her state. 31. Common Stock Stockholders' equity investment 32. Common-size Fi- All amounts for a given year being shown as a percentage nancial State- of that denominator for the year. ments 33. Comparability Tnformation that becomes much more useful when it can be related to a benchmark or standard 34. Comprehensive The number used to reflect an overall measure of the Income change in a company's wealth during the period 35. Conservatism a pervasive factor in accounting, can be summarized as follows: When in doubt, recognize all losses but don't recognize any gains. 36. Consistency What principle states that once you adopt an accounting Principle principle or method, continue to follow it consistently in future accounting periods? 37. Contribution The difference between total sales and variable costs; the Margin portion of sales revenue available to cover fixed costs and provide a profit. 38. Contribution The percentage of net sales revenue left after variable Margin Ratio costs are deducted; the contribution margin divided by net sales revenue. 39. Control Activi- Policies and procedures used by management to meet ties their objectives. 40. Control Environ- ment The actions, policies, and procedures that reflect the overall attitudes of top management about control and its importance to the entity. 41. Control Proce- dures Policies and procedures used by management to meet their objectives. 42. Controlling Implementing management plans and identifying how plans compare with actual performance. 43. Cost Behavior The way a cost is affected by changes in activity levels. 44. Cost Drivers Numerical measure used to reflect the amount of a spe- cific cost that is associated with a particular activity. 45. Cost of Goods Sold When a business sells goods to customers, the cost of the goods sold is recorded as an expense 46. Cost Pool Total cost being generated by a specific overhead cost activity. 47. Cost-vol- ume-profit (C-V-P) Analysis Techniques for determining how changes in revenues, costs, and level of activity affect the profitability of an organization. 48. Current Assets Cash, accounts receivable, and inventory. 49. Current Liabili- ties Those obligations expected to be paid within one year, the most common being accounts payable. 50. Current Portion of Long-term Debt Some liabilities, such as mortgages, are payable in equal monthly installments over a specified number of years. The portion of these liabilities that is payable within 12 months from the balance sheet date. 51. Current Ratio A comparison of current assets (cash, receivables, and inventory) with current liabilities. It is computed by dividing total current assets by total current liabilities. 52. Debt Ratio A frequently used measure of leverage, computed as total liabilities divided by total assets. 53. Debt-to-equity Total liabilities divided by total equity and is interpreted Ratio as the number of dollars of borrowing for each dollar of equity investment 54. Deferred Income The income tax expected to be paid in future years on Tax Liability income that has already been reported in the income statement but which, because of the tax law, has not yet been taxed. 55. Derivative A financial instrument, such as an option or a future, that derives its value from the movement of a price, an exchange rate, or an interest rate associated with some other item. 56. Detective Con- Internal control activities that are designed to detect the trols occurrence of errors and fraud. 57. Differential Future costs that change as a result of a decision; also Costs called incremental or relevant costs. 58. Direct Costs Costs that are specifically traceable to a unit of business or segment being analyzed. 59. Direct Labor Wages paid to those who physically work on direct ma- terials to transform them into a finished product and are traceable to specific products. 60. Direct Materials Materials that become part of the product and are trace- able to it. 61. Direct Method reporting the information contained in the last column of the adjustment worksheet 62. Disclosure Convey the details in a narrative note without ever includ- ing anything in the financial statements themselves. 63. Discontinued Operations A separate income category for operations no longer being continued. 64. DuPont Frame- work A systematic approach to identifying general factors caus- ing ROE to deviate from normal. 65. Earnings Per Share (EPS) The amount of net income associated with each share of stock. 66. Economic Value Added A system of earnings-based compensation 67. Entity Concept The idea that personal financial activity is kept separate from business financial activity 68. Equity Residual interest in the assets of an entity that remains after deducting its liabilities. 69. Evaluating Analyzing results, rewarding performance, and identifying problems. 70. Executory Con- tract, It is an exchange of promises about the future. 71. Expanded Ac- counting Equa- tion Assets = Liabilities + Paid-in Capital + (Revenues - Ex- penses - Dividends) 72. Expenses The value of resources used in generating the reported revenue. 73. External Audit audit conducted by external (independent) qualified ac- countant(s) 74. External Audi- tors Independent CPAs who are retained by organizations to perform audits of financial statements. 75. Extraordinary Items Gains and losses that result from transactions that are both unusual in nature and infrequent in occurrence 76. Facility Support Activities 77. Financial Ac- counting 78. Financial Ac- counting Stan- dards Board (FASB) 79. Financial Capital Maintenance Activities necessary to have a facility in order to partic- ipate in the development and production of products or services; activities are not related to any particular line of products or services. The name given to accounting information provided for and used by external users. A private body established and supported by the joint efforts of the U.S. business community, financial analysts, and practicing accountants. The approach that accountants typically use in computing a company's income is the first option described above in which inflation is ignored and a company is said to have income when its financial resources increase. 80. Financial Ratios Relationships between financial statement amounts 81. Financial State- ment Analysis 82. Financial State- ments 83. Financing Activi- ties Areas in which additional data must be gathered, in- cluding details of significant transactions, market share information, competitors' plans, and customer demand forecasts. The three primary financial information documents: the balance sheet, income statement, and statement of cash flows. Obtaining resources from owners and providing them a return on their investment, and obtaining resources from creditors and repaying those borrowings 84. Financing Mix The percentage of total financing (liabilities plus equity) in each individual category. 85. Fixed Asset Turnover Sales divided by average fixed assets and is interpreted as the number of dollars in sales generated by each dollar of fixed assets. 86. Fixed Costs Costs that remain constant in total, regardless of activity level, at least over a certain range of activity. 87. GAAP Oval A diagram that represents the flexibility a manager has, within GAAP, to report one earnings number from among many possibilities based on different methods and as- sumptions. 88. Gain The amount of a company makes money on activities that are peripheral to its primary operations 89. Gains Refers to money made on activities outside the normal business of a company 90. Generally Ac- Auditing standards developed by the PCAOB for public cepted Audit- companies and AICPA for private companies. ing Standards (GAAS) 91. Going Concern allows the readers of financial statements to assume that Assumption the company will continue on long enough to carry out its objectives and commitments. 92. Gross Profit The difference between the selling price of the product and the cost of the product. 93. High-low Method A method of segregating the fixed and variable compo- 94. Historical Cost Convention 95. Income From Continuing Oper- ations 96. Income Smooth- ing nents of a mixed cost by analyzing the costs at the highest and the lowest activity levels within a relevant range. An accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition the segments of a company's business that it considers to be normal, and expects to operate in for the foreseeable future The practice of carefully timing the recognition of rev- enues and expenses to even out the amount of reported earnings from one year to the next. 97. Income State- A company's financial performance for a specified period ment of time. 98. Independent Procedures for continual internal verification of other con- Checks trols. 99. Indirect Costs Costs normally incurred for the benefit of several seg- ments within the organization; sometimes called common costs or joint costs. 100. Indirect Labor Labor that is necessary to a manufacturing or service business but is not directly related to the actual production of the product. 101. Indirect Materi- Materials that are necessary to a manufacturing or ser- als vice business but are not directly included in or are not a significant part of the actual product. 102. Indirect Method A method for creating a statement of cash flows a compa- ny may use during any given reporting period. The indirect method uses accrual accounting information to present the cash flows from the operations section of the cash flow statement. 103. Intangible As- Assets that have no physical or tangible characteristics. sets 104. Internal Auditors An independent group of experts (in controls, account- ing, and operations) who monitor operating results and financial records, evaluate internal controls, assist with increasing the efficiency and effectiveness of operations, and detect fraud. 105. Internal Control Structure Policies and procedures established to provide manage- ment with reasonable assurance that the objectives of an entity will be achieved. 106. Internal Earnings Targets 107. Internal Revenue Service (IRS) 108. International Ac- counting Stan- dards Board (IASB) 109. International Fi- nancial Report- ing Standards (IFRS) Financial goals established within a company. The government agency responsible for tax collection and tax law enforcement. An independent, international body formed to develop worldwide accounting standards. The accounting standards produced by the IASB. 110. Inventory The name given to goods held for sale in the normal course of business. 111. Investing Activi- ties 112. Investment Se- curities Cash inflows and outflows from (1) acquiring and selling productive assets such as property, plant, and equipment, (2) acquiring and selling investment securities, and (3) lending money and collecting on those loans Composed of publicly traded stocks and bonds. 113. Leverage Borrowing that allows a company to purchase more as- sets than its stockholders are able to pay for through their own investment. 114. Liabilities the future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions or other past events 115. Liability Probable future sacrifice of economic benefit arising from a present obligation of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. 116. Liquidity A company's ability to pay its debts in the short run or the ease with which the item can be turned into cash 117. Long-term Debt Long-term notes, bonds, mortgages, and similar obliga- tions on the balance sheet 118. Long-term In- vestments Those assets that you expect to still be around next year when you prepare the balance sheet again. 119. Loss The amount of a company loses money on activities that are peripheral to its primary operations 120. Losses Refers to money lost on activities outside the normal business of a company 121. Managerial Ac- counting 122. Manufacturing Overhead The name given to accounting systems designed for in- ternal users. All costs incurred in the manufacturing process other than direct materials and direct labor. 123. Margin The profitability of each dollar in sales 124. Matching The concept typically used in practice to determine when an expense should be recognized 125. Materiality the question of whether an item is large enough to make any difference to anyone 126. Mixed Costs Costs that contain both variable and fixed costs compo- nents. 127. Multiple-step In- come Statement The multi-step income statement includes multiple sub-totals within the income statement. 128. Net Assets total assets minus total liabilities. In a sole proprietorship the amount of net assets is reported as owner's equity. In a corporation the amount of net assets is reported as stockholders' equity. 129. Net Income The accountant's attempt to summarize in one number the overall economic performance of a company for a given period. 130. Net Loss the difference between revenues and expenses. If rev- enues exceed expenses, net income results. If, on the other hand, expenses exceed revenues, there will be a net loss 131. Non-cash Invest- ing and Financ- ing Activities 132. Noncontrolling Interest 133. Notes to Finan- cial Statements 134. Number of Days' Sales in Invento- ries 135. Operating Activi- ties 136. Operating In- come 137. Operating Lever- age 138. Operational Bud- geting Some investing and financing activities affect a compa- ny's financial position but not the company's cash flows during the period. Arises when a corporation has subsidiaries that are not 100 percent owned by the corporation. These provide additional information pertaining to a com- pany's operations and financial position and are consid- ered to be an integral part of the financial statements. Calculated by dividing average inventory by average daily cost of goods sold and is interpreted as the average number of days of sales that can be made using only the supply of inventory on hand. All transactions relating to a company's delivering or pro- ducing its goods for sale and providing its services The performance of the fundamental business operations conducted by a company The extent to which fixed costs replace variable costs as part of a company's cost structure; the higher the pro- portion of fixed costs to variable costs, the faster income increases or decreases with changes in sales volume. Managerial planning decisions regarding current and im- mediate future (a year or less) operations that are char- acterized by regularity and frequency. 139. Opportunity Costs 140. Organizational Structure The benefits lost or forfeited as a result of selecting one alternative course of action over another. Lines of authority and responsibility. 141. Other Assets Long-term assets that are not suitable for reporting under any of the previous classifications 142. Out-of-pocket Costs Costs that require an outlay of cash or other resources. 143. Owners' Equity portion of the assets that the owners of the organization can really call their own 144. Paid-in Capital The value of the assets given in exchange for shares of stock. 145. Par Value The market value of the shares at issuance. 146. Per-unit Contri- bution Margin The excess of the sales price of one unit over its variable costs. 147. 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. 148. Physical Capital Maintenance 149. Physical Safe- guards income is earned only when one experiences an increase in actual physical resources. Physical precautions used to protect assets and records. 150. Planning Outlining the activities that need to be performed for an organization to achieve its objectives. 151. Preferred Stock Stockholders' equity investment 152. Prepaid Expens- es Payments in advance for business expenses. 153. Preventative Controls 154. Price-earnings Ratio Internal control activities that are designed to prevent the occurrence of errors and fraud. an equity valuation multiple. It is defined as market price per share divided by annual earnings per share. 155. Pro Forma A prediction of what the actual cash flow statement will look like in future years if the operating, investing, and financing plans are implemented. 156. Product Costs Costs associated with products or services offered. 157. Product-line Ac- tivities 158. Production Prior- itizing Activities that take place in order to support a product line, regardless of the number of batches or individual units produced. Management's continual evaluation of various product lines and divisions' profitability in order to analyze and identify opportunities to improve profits. 159. Profit Graph A graph that shows how profits vary with changes in volume. 160. Property, Plant, and Equipment 161. Public Compa- ny Accounting Oversight Board (PCAOB) Exactly what the label implies: land, buildings, machinery, tools, furniture, fixtures, and vehicles used by a company in conducting its business activities. Board of five full-time members established by the Sar- banes-Oxley Act to oversee the accounting and auditing profession. 162. Recognition Boil down all the estimates and judgments into one num- ber and report that one number in formal financial state- ments. 163. Regression Line On a scattergraph, the straight line that most closely expresses the relationship between the variables. 164. Relevance A qualitative characteristic in accounting. Relevance is associated with information that is timely, useful, has predictive value, and is going to make a difference to a decision maker. 165. 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 apploximately linear. 166. Reliability A qualitative characteristic in accounting. It is achieved when information is verifiable, objective (not subjective) and you can depend on it. 167. Restructuring Charges 168. Retained Earn- ings 169. Return On As- sets The fact that companies have exercised considerable discretion in determining the amount and timing of a restructuring charge. The cumulative amount of a corporation's profits that have been reinvested on behalf of the stockholders Net income divided by total assets and is the number of pennies of net income generated by each dollar of assets. 170. Return On Equity The overall measure of the performance of a company. 171. Return On In- vestment 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). 172. Return On Sales Net income divided by sales and is interpreted as the number of pennies in profit generated from each dollar of sales. 173. Return On Sales Revenue A measure of operating performance; computed by divid- ing net income by total sales revenue. Similar to profit margin. 174. Revenue The value of the goods and services provided by a com- pany in its business operations. 175. Revenue Recog- nition a cornerstone of accrual accounting together with match- ing principle. They both determine the accounting period, in which revenues and expenses are recognized. 176. Sales Mix The relative proportion of total sales dollars (or total units sold) that is represented by each of a company's prod- ucts. 177. Sarbanes-Oxley Act A law passed by Congress in 2002 that gives the SEC significant oversight responsibility and control over com- panies issuing financial statements and their external auditors. 178. Scattergraph A method of segregating the fixed and variable compo- nents of a mixed cost by plotting on total costs at several activity levels and drawing a regression line through the points. 179. Securities and Exchange Com- mission (SEC) 180. Segregation of Duties 181. Short-term Loans Payable 182. Single-step In- come Statement 183. Statement of Cash Flows The government body responsible for regulating the fi- nancial reporting practices of most publicly owned corpo- rations in connection with the buying and selling of stocks and bonds. A strategy to provide an internal check on performance through separation of authorization of transactions from custody of related assets, operational responsibilities from record-keeping responsibilities, and custody of as- sets from accounting personnel. Formal, interest-bearing loans that are expected to be paid back within one year. With this format, all revenues are grouped together, all expenses are grouped together, and net income is com- puted as the difference between total revenues and total expenses. Individual cash flow items that are classified according to three main activities: operating, investing, and financing. Summarize a company's cash flows for a period of time. 184. Stepped Costs Costs that change in total in a stair-step fashion (in large amounts) with changes in volume of activity. 185. Stockholders' Equity 186. Strategic Plan- ning The difference between assets and liabilities in a corpo- ration Broad, long-range planning usually conducted by top management. 187. Sunk Costs Costs that are past costs and do not change as a result of a future decision. 188. Target Income A profit level desired by management. 189. Time Period Con- cept 190. Transaction Analysis The time period principle is the concept that a business should report the financial results of its activities over a standard time period, which is usually monthly, quarterly, or annually. The process of determining how an economic event im- pacts the financial statements 191. Treasury Stock The repurchased shares when a company buys back its own shares 192. Turnover The degree to which assets are used to generate sales 193. Unearned Rev- enue 194. Unit-level Activi- ties Represents a company's obligation to provide service to customers who have paid the company for a service they have not yet received. Activities that take place each time a unit of product is produced. 195. Valuation Once it has been determined that an item should be rec- ognized in financial statements, the question then arises about what dollar amount to assign to the item. 196. 196. Variable Cost Rate The change in cost divided by the change in activity; the slope of the regression line. 197. Variable Costs Costs that change in total in direct proportion to changes in activity level. 198. Visual-fit A method of segregating the fixed and variable compo- nents of a mixed cost by plotting on total costs at several activity levels and drawing a regression line through the points.