part I glossary.txt

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part I glossary.txt
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Intermediate Accounting glossary
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Part I of the glossary of Intermediate Accounting by Spiceland
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  1. Accounting equation
    • the process used to capture the effect of economic events
    • Assets = Liabilities + Owner's Equity.
  2. Accounting Principles Board (APB)
    the second private sector body delegated the task of setting accounting standards.
  3. Accounts
    storage areas to keep track of the increases and decreases in financial position elements.
  4. Accounts payable
    obligations to suppliers of merchandise or of services purchased on open account.
  5. Accounts receivable
    receivables resulting from the sale of goods or services on account.
  6. Accounts receivable aging schedule
    applying different percentages to accounts receivable balances depending on the length of time outstanding.
  7. Accrual accounting
    measurement of the entity's accomplishments and resource sacrifices during the period, regardless of when cash is received or paid.
  8. Accruals
    when the cash flow comes after either expense or revenue recognition.
  9. Accrued interest
    interest that has accrued since the last interest date.
  10. Accrued liabilities
    expenses already incurred but not yet paid (accrued expenses).
  11. Accrued receivables
    the recognition of revenue earned before cash is received.
  12. Accumulated other comprehensive income
    amount of other comprehensive income (nonowner changes in equity other than net income) accumulated over the current and prior periods.
  13. Acid-test ratio
    current assets, excluding inventories and prepaid items, divided by current liabilities.
  14. Acquisition costs
    the amounts paid to acquire the rights to explore for undiscovered natural resources or to extract proven natural resources.
  15. Activity-based method
    allocation of an asset's cost base using a measure of the asset's input or output.
  16. Additions
    the adding of a new major component to an existing asset.
  17. Adjusted trial balance
    trial balance after adjusting entries have been recorded.
  18. Adjusting entries
    internal transactions recorded at the end of any period when financial statements are prepared.
  19. Allocation base
    the value of the usefulness that is expected to be consumed.
  20. Allocation method
    the pattern in which the usefulness is expected to be consumed.
  21. Allowance method
    recording bad debt expense and reducing accounts receivable indirectly by crediting a contra account (allowance for uncollectible accounts) to accounts receivable for an estimate of the amount that eventually will prove uncollectible.
  22. What does AIA and AICPA stand for and what are they?
    • AIA = American Institute of Accountants
    • AICPA = American Institute of Certified Public Accountants
    • They are national organizations of professional public accountants.
  23. Amortization
    cost allocation for intangibles.
  24. Amortization schedule
    schedule that reflects the changes in the debt over its term to maturity.
  25. Annuity
    cash flows received or paid in the same amount each period.
  26. Annuity due
    cash flows occurring at the beginning of each period.
  27. Asset retirement obligations (AROs)
    obligations associated with the disposition of an operational asset.
  28. Assets
    probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
  29. Asset turnover ratio
    measure of a company's efficiency in using assets to generate revenue.
  30. Assigning
    using receivables as collateral for loans; nonpayment of a debt will require the proceeds from collecting the assigned receivables to go directly toward repayment of the debt.
  31. Attribution
    process of assigning the cost of benefits to the years during which those benefits are assumed to be earned by employees.
  32. Auditors
    independent intermediaries who help ensure that management has appropriately applied GAAP in preparing the company's financial statements.
  33. Auditor's report
    report issued by CPAs who audit the financial statements that informs users of the audit findings.
  34. Average collection period
    indication of the average age of accounts receivable.
  35. Average cost method
    assumes cost of goods sold and ending inventory consist of a mixture of all the goods available for sale.
  36. Average days in inventory
    indicates the average number of days it normally takes to sell inventory.
  37. Bad debt expense
    an operating expense incurred to boost sales; inherent cost of granting credit.
  38. Balance sheet
    a position statement that presents an organized list of assets, liabilities, and equity at a particular point in time.
  39. Balance sheet approach
    determination of bad debt expense by estimating the net realizable value of accounts receivable to be reported in the balance sheet.
  40. Bank reconciliation
    comparison of the bank balance with the balance in the company's own records.
  41. Basic EPS
    computed by dividing income available to common stockholders (net income less any preferred stock dividends) by the weighted-average number of common shares outstanding for the period.
  42. Billings of construction contract
    contra account to the asset construction in progress; subtracted from construction in progress to determine balance sheet presentation.
  43. Board of directors
    establishes corporate policies and appoints officers who manage the corporation.
  44. Book value
    assets minus liabilities as shown in the balance sheet.
  45. Callable
    allows the issuing company to buy back, or call, outstanding bonds from the bondholders before their scheduled maturity date.
  46. Capital budgeting
    The process of evaluating the purchase of operational assets.
  47. Capital markets
    mechanisms that foster the allocation of resources efficiently.
  48. Cash
    currency and coins, balances in checking accounts, and items acceptable for deposit in these accounts, such as checks and money orders received from customers.
  49. Cash basis accounting/net operating cash flow
    difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers.
  50. Cash disbursements journal
    record of cash disbursements.
  51. Cash discounts
    sales discounts; represent reductions not in the selling price of a good or service but in the amount to be paid by a credit customer if paid within a specific period of time.
  52. Cash equivalents
    certain negotiable items such as commercial paper, money market funds, and U.S. Treasury bills that are highly liquid investments quickly convertible to cash. short-term, highly liquid investments that can be readily converted to cash with little risk of loss.
  53. Cash flows from financing activities
    both inflows and outflows of cash resulting from the external financing of a business.
  54. Cash flows from investing activities
    both outflows and inflows of cash caused by the acquisition and disposition of assets.
  55. Cash flows from operating activities
    both inflows and outflows of cash that result from activities reported on the income statement.
  56. Cash receipts journal
    record of cash receipts.
  57. Certified Public Accountants (CPAs)
    licensed individuals who can represent that the financial statements have been audited in accordance with generally accepted auditing standards.
  58. Change in accounting estimate
    a change in an estimate when new information comes to light.
  59. Change in accounting principle
    switch by a company from one accounting method to another.
  60. Change in reporting entity
    presentation of consolidated financial statements in place of statements of individual companies, or a change in the specific companies that constitute the group for which consolidated or combined statements are prepared.
  61. Closing process
    the temporary accounts are reduced to zero balances, and these temporary account balances are closed (transferred) to retained earnings to reflect the changes that have occurred in that account during the period.
  62. Commercial paper
    unsecured notes sold in minimum denominations of $25,000 with maturities ranging from 30 to 270 days.
  63. Committee on Accounting Procedure (CAP)
    the first private sector body that was delegated the task of setting accounting standards.
  64. Comparability
    the ability to help users see similarities and differences among events and conditions.
  65. Comparative financial statements
    corresponding financial statements from the previous years accompanying the issued financial statements.
  66. Compensating balance
    a specified balance (usually some percentage of the committee amount) a borrower of a loan is asked to maintain in a low-interest or noninterest-bearing account at the bank.
  67. Completed contract method
    recognition of revenue for a long-term contract when the project is complete.
  68. Composite depreciation method
    physically dissimilar assets are aggregated to gain the convenience of group depreciation.
  69. Compound interest
    interest computed not only on the initial investment but also on the accumulated interest in previous periods.
  70. Comprehensive income
    traditional net income plus other nonowner changes in equity.
  71. Conceptual framework
    deals with theoretical and conceptual issues and provides an underlying structure for current and future accounting and reporting standards.
  72. Conservatism
    practice followed in an attempt to ensure that uncertainties and risks inherent in business situations are adequately considered.
  73. Consignment
    the consignor physically transfers the goods to the other company (the consignee), but the consignor retains legal title.
  74. Consistency
    permits valid comparisons between different periods.
  75. Consolidated financial statements
    combination of the separate financial statements of the parent and subsidiary each period into a single aggregate set of financial statements as if there were only one company.
  76. Construction in progress
    asset account equivalent to the asset work-in-progress inventory in a manufacturing company.
  77. Conventional retail method
    applying the retail inventory method in such a way that LCM is approximated.
  78. Copyright
    exclusive right of protection given to a creator of a published work, such as a song, painting, photograph, or book.
  79. Corporation
    the dominant form of business organization that acquires capital from investors in exchange for ownership interest and from creditors by borrowing.
  80. Correction of an error
    an adjustment a company makes due to an error made.
  81. Cost effectiveness
    the perceived benefit of increased decision usefulness exceeds the anticipated cost of providing that information.
  82. Cost of goods sold
    cost of the inventory sold during the period.
  83. Cost recovery method
    deferral of all gross profit recognition until the cost of the item sold has been recovered.
  84. Cost-to-retail percentage
    ratio found by dividing goods available for sale at cost by goods available for sale at retail.
  85. Coupons bonds
    name of the owner was not registered; the holder actually clipped an attached coupon and redeemed it in accordance with instructions on the indenture.
  86. Credits
    represent the right side of the account.
  87. Current assets
    includes assets that are cash, will be converted into cash, or will be used up within one year or the operating cycle, whichever is longer.
  88. Current liabilities
    expected to require current assets and usually are payable within one year.
  89. Current maturities of long-term debt
    the current installment due on long-term debt, reported as a current liability.
  90. Current ratio
    current assets divided by current liabilities.
  91. Debits
    represent the left side of the account.
  92. Debt to equity ratio
    compares resources provided by creditors with resources provided by owners.
  93. Decision usefulness
    the quality of being useful to decision making.
  94. Default risk
    a company's ability to pay its obligations when they come due.
  95. Deferred annuity
    the first cash flow occurs more than the one period after the date the agreement begins.
  96. Depletion
    allocation of the cost of natural resources.
  97. Depreciation
    cost allocation for plant and equipment.
  98. Derivatives
    financial instruments usually created to hedge against risks created by other financial instruments or by transactions that have yet to occur but are anticipated and that "derive" their values or contractually required cash flows from some other security or index.
  99. Development costs
    for natural resources, costs incurred after the resource has been discovered but before production begins.
  100. Direct method
    the cash effect of each operating activity (i.e., income statement item) is reported directly on the statement of cash flows.
  101. Direct write-off method
    an allowance for uncollectible accounts is not used; instead bad debts that do arise are written off as bad debt expense.
  102. Disclosure notes
    additional insights about company operations, accounting principles, contractual agreements, and pending litigation.
  103. Discontinued operations
    The discontinuance of a component of an entity whose operations and cash flows can be clearly distinguished from the rest of the entity.
  104. Discount
    Arises when bonds are sold for less than face amount.
  105. Discounting
    the transfer of a note receivable to a financial institution.
  106. Distributions to owners
    decreases in equity resulting from transfers to owners.
  107. Dividend
    distribution to shareholders of a portion of assets earned.
  108. Dollar-value LIFO (DVL)
    Inventory is viewed as a quantity of value instead of a physical quantity of goods. Instead of layers of units from different purchases, the DVL inventory pool is viewed as comprising layers of dollar value from different years.
  109. Dollar-value LIFO retail method
    LIFO retail method combined with dollar-value LIFO.
  110. Double-declining-balance (DDB) method
    200% of the straight-line rate is multiplied by book value.
  111. Double-entry system
    dual effect that each transaction has on the accounting equation when recorded.
  112. DuPont framework
    depict return on equity as determined by profit margin (representing profitability), asset turnover (representing efficiency), and the equity multiplier (representing leverage).
  113. Earnings per share (EPS)
    the amount of income earned by a company expressed on a per share basis.
  114. Earnings quality
    refers to the ability of reported earnings (income) to predict a company's future earnings.
  115. Economic events
    any event that directly affects the financial position of the company.
  116. Effective rate
    the actual rate at which money grows per year.
  117. Equity multiplier
    depicts leverage as total assets divided by total equity.
  118. Equity/net assets
    called shareholders' equity or stockholders' equity for a corporation; the residual interest in the assets of an entity that remains after deducting liabilities.
  119. Estimates
    prediction of future events.
  120. Ethics
    a code or moral system that provides criteria for evaluating right and wrong.
  121. Expected cash flow approach
    adjusts the cash flows, not the discount rate, for the uncertainty or risk of those cash flows.
  122. Expected economic life
    useful life of an asset.
  123. Expenses
    outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing good, rendering services, or other activities that constitute the entity's ongoing major, or central, operations.
  124. Exploration costs
    for natural resources, expenditures such as drilling a well, or excavating a mine, or any other costs of searching for natural resources.
  125. External events
    exchange between the company and a separate economic entity.
  126. Extraordinary items
    material events and transactions that are both unusual in nature and infrequent in occurrence.
  127. F.O.B. (free on board) shipping point
    legal title to the goods changes hands at the point of shipment when the seller delivers the goods to the common carrier, and the purchaser is responsible for shipping costs and transit insurance.
  128. F.O.B. destination
    the seller is responsible for shipping and the legal title does not pass until the goods arrive at their destination.
  129. Factor
    financial institution that buys receivables for cash, handles the billing and collection of the receivables, and charges a fee for this service.
  130. Fair value hierarchy
    prioritizes the inputs companies should use when determinig fair value.
  131. Fair value option
    allows companies to report their financial assets and liabilities at fair value.
  132. Faithful representation
    exists when there is agreement between a measure or description and the phenomenon it purports to represent.
  133. Financial accounting
    provides relevant financial information to various external users.
  134. Financial Accounting Foundation (FAF)
    responsible for selecting the members of the FASB and its Advisory Council, ensuring adequate funding of FASB activities, and exercising general oversight of the FASB's activities.
  135. Financial Accounting Standards Board (FASB)
    the current private sector body that has been delegated the task of setting accounting standards.
  136. Financial activities
    cash inflows and outflows from transactions with creditors and owners.
  137. Financial instrument
    cash; evidence of an ownership interest in an entity; a contract that imposes on one entity an obligation to deliver cash or another financial instrument, and conveys to the second entity a right to receive cash or another financial instrument; and a contract that imposes on one entity an obligation to exchange financial instruments on potentially unfavorable terms and conveys to a second entity a right to exchange other financial instruments on potentially favorable terms.
  138. Financial leverage
    by earning a return on borrowed funds that exceeds the cost of borrowing the funds, a company can provide its shareholders with a total return higher than it could achieve by employing equity funds alone.
  139. Financial reporting
    process of providing financial statement information to external users.
  140. Financial statements
    primary means of communicating financial information to external parties.
  141. Finished goods
    costs that have accumulated in work in process are transferred to finished goods once the manufacturing process is completed.
  142. Fiscal year
    the annual time period used to report to external users.
  143. Fixed-asset turnover ratio
    used to measure how effectively managers used PP&E.
  144. Franchise
    contractual arrangement under which the franchisor grants the franchisee the exclusive right to use the franchisor's trademark or tradename within a geographical area, usually for specified period of time.
  145. Franchisee
    individual or corporation given the right to sell the franchisor's products and use its name for a specified period of time.
  146. Franchisor
    grants to the franchisee the right to sell the franchisor's products and use its name for a specific period of time.
  147. Freight-in
    transportation-in; in a periodic system, freight costs generally are added to this temporary account, which is added to purchases in determining net purchases.
  148. Full-cost method
    allows costs incurred in searching for oil and gas within a large geographical area to be capitalized as assets and expensed in the future as oil and gas from the successful wells are removed from that area.
  149. Full-disclosure principle
    the financial reports should include any information that could affect the decisions made by external users.
  150. Future value
    amount of money that a dollar will grow to at some point in the future.
  151. Gains
    increases in equity from peripheral, or incidental, transactions of an entity.
  152. General journal
    used to record any type of transaction.
  153. General ledger
    collection of accounts.
  154. Generally Accepted Accounting Principles (GAAP)
    set of both broad and specific guidelines that companies should follow when measuring and reporting the information in their financial statements and related notes.
  155. Going concern assumption
    in the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely.
  156. Goodwill
    unique intangible asset in that its cost can't be directly associated with any specifically identifiable right and it is not separable from the company itself.
  157. Government Accounting Standards Board (GASB)
    responsible for developing accounting standards for governmental units such as states and cities.
  158. Gross method
    For the buyer, views a discount not taken as part of the cost of inventory. For the seller, views a discount not taken by the customer as part of sales of revenue.
  159. Gross profit method (gross margin method)
    estimates cost of goods sold which is then subtracted from cost of goods available for sale to estimate ending inventory.
  160. Gross profit/ratio
    highlights the important relationship between net sales revenue and cost of goods sold.
  161. Group depreciation method
    collection of assets defined as depreciable assets that share similar service lives and other attributes.
  162. Half-year convention
    record one-half of a full year's depreciation in the year of acquisition and another half year in the year of disposal.
  163. Historical costs
    original transaction value.
  164. Horizontal analysis
    comparison by expressing each item as a percentage of that same item in the financial statements of another year (base amount) in order to more easily see year-to-year changes.
  165. Illegal acts
    violations of the law, such as bribes, kickbacks, and illegal contributions to political candidates.
  166. Impairment of value
    operational assets should be written down if there has been a significant impairment (fair value less than book value) of value.
  167. Improvements
    replacement of a major component of an operational asset.
  168. Income from continuing operations
    revenues, expenses (including income taxes), gain, and losses, excluding those related to discontinued operations and extraordinary items.
  169. Income statement
    statement of operations or statement of earnings is used to summarize the profit-generating activities that occurred during a particular reporting period.
  170. Income statement approach
    estimating bad debt expense as a percentage of each period's net credit sales; usually determined by reviewing the company's recent history of the relationship between credit sales and actual bad debts.
  171. Income summary
    account that is a bookkeeping convenience used in the closing process that provides a check that all temporary accounts have been properly closed.
  172. Income tax expense
    provision for income taxes; reported as a separate expense in corporate income statements.
  173. Indirect method
    the net cash increase or decrease from operating activities is derived indirectly by starting with reported net income and working backwards to convert that amount to a cash basis.
  174. In-process research and development
    the amount of the purchase price in a business acquisition that is allocated to projects that have not yet reached technological feasibility.
  175. Installment sales method
    recognizes revenue and costs only when cash payments are received.
  176. Institute of Internal Auditors
    national organization of accountants providing internal auditing services for their own organizations.
  177. Institute of Management Accountants (IMA)
    primary national organization of accountants working in industry and government.
  178. Intangible assets
    operational assets that lack physical substance; examples include patents, copyrights, franchises, and goodwill.
  179. Interest
    rent paid for the use of money for some period of time.
  180. Interest cost
    interest accrued on the projected benefit obligation calculated as the discount rate multiplied by the projected benefit obligation at the beginning of the year.
  181. Internal control
    a company's plan to encourage adherence to company policies and procedures, promote operational efficiency, minimize errors and theft, and enhance the reliability and accuracy of accounting data.
  182. Internal events
    events that directly affect the financial position of the company but don't involve an exchange transaction with another entity.
  183. International Accounting Standards Board (IASB)
    objectives are to develop a single set of high-quality, understandable global accounting standards, to promote the use of those standards, and to bring about the convergence of national accounting standards and International Accounting Standards.
  184. International Accounting Standards Committee (IASC)
    umbrella organization formed to develop global accounting standards.
  185. International Financial Reporting Standards
    developed by the ISAB and used by more than 100 countries.
  186. Intraperiod tax allocation
    associates (allocates) income tax expense (or income tax Gross profit Net sales benefit if there is a loss) with each major component of income that causes it.
  187. Intrinsic value
    the difference between the market price of the shares and the option price at which they can be acquired.
  188. Inventories
    goods awaiting sale (finished goods), goods in the course of production (work in process), and goods to be consumed directly or indirectly in production (raw materials).
  189. Inventory
    goods acquired, manufactured, or in the process of being manufactured for sale.
  190. Inventory turnover ratio
    measures a company's efficiency in managing its investment in inventory.
  191. Investing activities
    involve the acquisition and sale of long-term assets used in the business and non-operating investment assets.
  192. Investments by owners
    increases in equity resulting from transfers of resources (usually cash) to a company in exchange for ownership interest.
  193. Irregularities
    intentional distortions of financial statements.
  194. Journal
    a chronological record of all economic events affecting financial position.
  195. Journal entry
    captures the effect of a transaction on financial position in debit/credit form.
  196. Just-in-time (JIT) system
    a system used by a manufacturer to coordinate production with suppliers so that raw materials or components arrive just as they are needed in the production process.
  197. Land improvements
    the cost of parking lots, driveways, and private roads and the costs of fences and lawn and garden sprinkler systems.
  198. Last-in, first-out (LIFO) method
    assumes units sold are the most recent units purchased.
  199. Liabilities
    probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
  200. LIFO conformity rule
    if a company uses LIFO to measure taxable income, the company also must use LIFO for external financial reporting.
  201. LIFO inventory pools
    simplifies recordkeeping and reduces the risk of LIFO liquidation by grouping inventory units into pools based on physical similarities of the individual units.
  202. LIFO liquidation
    the decline in inventory quantity during the period.
  203. Limited liability company
    owners are not liable for the debts of the business, except to the extent of their investment; all members can be involved with managing the business without losing liability protection; no limitations on the number of owners.
  204. Limited liability partnership
    similar to a limited liability company, except it doesn't offer all the liability protection available in the limited liability company structure.
  205. Line of credit
    allows a company to borrow cash without having to follow formal loan procedures and paperwork.
  206. Liquidity
    period of time before an asset is converted to cash or until a liability is paid.
  207. Long-term solvency
    the riskiness of a company with regard to the amount of liabilities in its capital structure.
  208. Loss contingency
    existing, uncertain situation involving potential loss depending on whether some future event occurs.
  209. Losses
    decreases in equity arising from peripheral, or incidental, transactions of the entity.
  210. Lower-of-cost-or-market (LCM)
    recognizes losses in the period that the value of inventory declines below its cost.
  211. Management discussion and analysis (MDA)
    provides a biased but informed perspective of a company's operations, liquidity, and capital resources.
  212. Managerial accounting
    deals with the concepts and methods used to provide information to an organization's internal users (i.e., its managers).
  213. Matching principle
    expenses are recognized in the same period as the related revenues.
  214. Materiality
    if a more costly way of providing information is not expected to have a material effect on decisions made by those using the information, the less costly method may be acceptable.
  215. Measurement
    process of associating numerical amounts to the elements.
  216. Modified accelerated cost recovery system (MACRS)
    The federal income tax code allows taxpayers to compute depreciation for their tax returns using this method.
  217. Monetary assets
    money and claims to receive money, the amount of which is fixed or determinable.
  218. Monetary liabilities
    obligations to pay amounts of cash, the amount of which is fixed or determinable.
  219. Multiple-deliverable arrangements
    require allocation of revenue to multiple elements that qualify for separate revenue recognition.
  220. Multiple-step
    income statement format that includes a number of intermediate subtotals before arriving at income from continuing operations.
  221. Natural resources
    oil and gas deposits, timber tracts, and mineral deposits.
  222. Net income/net loss revenue + gains - (expenses and losses for a period)
    income statement bottom line.
  223. Net markdown
    net effect of the change in selling price (increase, decrease, increase).
  224. Net markup
    net effect of the change in selling price (increase, increase, decrease).
  225. Net method
    For the buyer, considers the cost of inventory to include the net, after-discount amount, and any discounts not taken are reported as interest expense. For the seller, considers sales revenue to be the net amount, after discount, and any discounts not taken by the customer as interest revenue.
  226. Net operating loss
    negative taxable income because tax-deductible expenses exceed taxable revenues.
  227. Net realizable less a normal profit margin (NRV - NP)
    lower limit of market.
  228. Net realizable value:
    the amount of cash the company expects to actually collect from customers.
  229. Net realizable value (NRV)
    upper limit of market.
  230. Neutrality
    neutral with respect to parties potentially affected.
  231. Noncash investing and financing activities
    transactions that do not increase or decrease cash but that result in significant investing and financing activities.
  232. Noninterest-bearing note
    notes that bear interest, but the interest is deducted (or discounted) from the face amount to determine the cash proceeds made available to the borrower at the outset.
  233. Nonoperating income
    includes gains and losses and revenues and expenses related to peripheral or incidental activities of the company.
  234. Note payable
    A promissory note (essentially an IOU) that obligates the issuing corporation to repay a stated amount at or by a specified maturity date and to pay interest to the lender between the issue date and maturity.
  235. Notes receivable
    receivables supported by a formal agreement or note that specifies payment terms.
  236. Objectives-oriented/principles-based accounting standards
    approach to standard setting stresses professional judgment, as opposed to following a list of rules.
  237. Operating activities
    inflows and outflows of cash related to transactions entering into the determination of net income.
  238. Operating cycle
    period of time necessary to convert cash to raw materials, raw materials to finished product, the finished product to receivables, and then finally receivables back to cash.
  239. Operating income
    includes revenues and expenses directly related to the principal revenue-generating activities of the company.
  240. Operating segment
    a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other companies of the same enterprise); whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; for which discrete financial information is available.
  241. Operational assets
    property, plant, and equipment, along with intangible assets.
  242. Operational risk
    how adept a company is at withstanding various events and circumstances that might impair its ability to earn profits.
  243. Ordinary annuity
    cash flows occur at the end of each period.
  244. Other comprehensive income
    certain gains and losses that are excluded from the calculation of net income, but included in the calculation of comprehensive income.
  245. Parenthetical comments/modifying comments
    supplemental information disclosed on the face of financial statements.
  246. Patent
    exclusive right to manufacture a product or to use a process.
  247. Percentage-of-completion method
    allocation of a share of a project's revenues and expenses to each reporting period during the contract period.
  248. Periodic inventory system
    the merchandise inventory account balance is not adjusted as purchases and sales are made but only periodically at the end of a reporting period when a physical count of the period's ending inventory is made and costs are assigned to the quantities determined.
  249. Periodicity assumption
    allows the life of a company to be divided into artificial time periods to provide timely information.
  250. Permanent accounts
    represent assets, liabilities, and shareholders' equity at a point in time.
  251. Perpetual inventory system
    account inventory is continually adjusted for each change in inventory, whether it's caused by a purchase, a sale, or a return of merchandise by the company to its supplier.
  252. Pledging
    trade receivables in general rather than specific receivables are pledged as collateral; the responsibility for collection of the receivables remains solely with the company.
  253. Point-of-sale
    the goods or services sold to the buyer are delivered (the title is transferred).
  254. Post-closing trial balance
    verifies that the closing entries were prepared and posted correctly and that the accounts are now ready for next year's transactions.
  255. Posting
    transferring debits and credits recorded in individual journal entries to the specific accounts affected.
  256. Prepaid expense
    represents an asset recorded when an expense is paid in advance, creating benefits beyond the current period.
  257. Prepayments/deferrals
    the cash flow precedes either expense or revenue recognition.
  258. Present value
    today's equivalent to a particular amount in the future.
  259. Product costs
    costs associated with products and expensed as cost of goods sold only when the related products are sold.
  260. Profit margin on sales
    net income divided by net sales; measures the amount of net income achieved per sales dollar.
  261. Pro forma earnings
    actual (GAAP) earnings reduced by any expenses the reporting company feels are unusual and should be excluded.
  262. Property, plant, and equipment
    land, buildings, equipment, machinery, autos, and trucks.
  263. Prospective approach
    the accounting change is implemented in the present, and its effects are reflected in the financial statements of the current and future years only.
  264. Proxy statement
    contains disclosures on compensation to directors and executives; sent to all shareholders each year.
  265. Purchase commitments
    contracts that obligate a company to purchase a specified amount of merchandise or raw materials at specified prices on or before specified dates.
  266. Purchase discounts
    reductions in the amount to be paid if remittance is made within a designated period of time.
  267. Purchase return
    a reduction in both inventory and accounts payable (if the account has not yet been paid) at the time of the return.
  268. Purchases journal
    records the purchase of merchandise on account.
  269. Ratio analysis
    comparison of accounting numbers to evaluate the performance and risk of a firm.
  270. Raw materials
    cost of components purchased from other manufacturers that will become part of the finished product.
  271. Realization principle
    requires that the earnings process is judged to be complete or virtually complete, and there is reasonable certainty as to the collectibility of the asset to be received (usually cash) before revenue can be recognized.
  272. Rearrangements
    expenditures made to restructure an asset without addition, replacement, or improvement.
  273. Receivables
    a company's claims to the future collection of cash, other assets, or services.
  274. Receivables turnover ratio
    indicates how quickly a company is able to collect its accounts receivable.
  275. Recognition
    process of admitting information into the basic financial statements.
  276. Related-party transactions
    transactions with owners, management, families of owners or management, affiliated companies, and other parties that can significantly influence or be influenced by the company.
  277. Relevance
    one of the primary decision-specific qualities that make accounting information useful; made up of predictive value and/or feedback value, and timeliness.
  278. Reliability
    the extent to which information is verifiable, representationally faithful, and neutral.
  279. Replacement cost (RC)
    the cost to replace the item by purchase or manufacture.
  280. Replacement depreciation method
    depreciation is recorded when assets are replaced.
  281. Representational faithfulness
    agreement between a measure or description and the phenomenon it purports to represent.
  282. Residual value
    or salvage value, the amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs.
  283. Restoration costs
    costs to restore land or other property to its original condition after extraction of the natural resource ends.
  284. Retail inventory method
    relies on the relationship between cost and selling price to estimate ending inventory and cost of goods sold; provides a more accurate estimate than the gross profit method.
  285. Retained earnings
    amounts earned by the corporation on behalf of its shareholders and not (yet) distributed to them as dividends.
  286. Retirement depreciation method
    Records depreciation when assets are disposed of and measures depreciation as the difference between the proceeds received and cost.
  287. Retrospective approach
    financial statements issued in previous years are revised to reflect the impact of an accounting change whenever those statements are presented again for comparative purpose.
  288. Return on assets (ROA)
    indicates a company's overall profitability.
  289. Return on shareholders' equity:
    Amount of profit management can generate from the assets that owners provide.
  290. Revenues
    inflows or other enhancements of assets or settlements of liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major, or central, operations.
  291. Reversing entries
    optional entries that remove the effects of some of the adjusting entries made at the end of the previous reporting period for the sole purpose of simplifying journal entries made during the new period.
  292. Right of return
    customers' right to return merchandise to retailers if they are not satisfied.
  293. Rules-based accounting standards
    a list of rules for choosing the appropriate accounting treatment for a transaction.
  294. S corporation
    characteristics of both regular corporations and partnerships.
  295. SAB No. 101
    Staff Accounting Bulletin 101 summarizes the SEC's views on revenue recognition.
  296. Sales journal
    records credit sales.
  297. Sales return
    the return of merchandise for a refund or for credit to be applied to other purchases.
  298. Sarbanes-Oxley Act
    law provides for the regulation of the key players in the financial reporting process.
  299. Securities and Exchange Commission (SEC)
    responsible for setting accounting and reporting standards for companies whose securities are publicly traded.
  300. Service life (useful life)
    the estimated use that the company expects to receive from the asset.
  301. Short-term investments
    investments not classified as cash equivalents that will be liquidated in the coming year or operating cycle, whichever is longer.
  302. Simple interest
    computed by multiplying an initial investment times both the applicable interest rate and the period of time for which the money is used.
  303. Single-step
    income statement format that groups all revenues and gains together and all expenses and losses together.
  304. Source documents
    relay essential information about each transaction to the accountant, e.g., sales invoices, bills from suppliers, cash register tapes.
  305. Special journal
    record of a repetitive type of transaction, e.g., a sales journal.
  306. Specific identification method
    each unit sold during the period or each unit on hand at the end of the period to be matched with its actual cost.
  307. Specific interest method
    for interest capitalization, rates from specific construction loans to the extent of specific borrowings are used before using the average rate of other debt.
  308. Start-up costs
    whenever a company introduces a new product or service, or commences business in a new territory or with a new customer, it incurs one-time costs that are expensed in the period incurred.
  309. Statement of cash flows
    change statement summarizing the transactions that caused cash to change during the period.
  310. Statement of shareholders' equity
    statement disclosing the source of changes in the shareholders' equity accounts.
  311. Straight line
    an equal amount of depreciable base is allocated to each year of the asset's service life.
  312. Straight-line method
    recording interest each period at the same dollar amount.
  313. Subsequent event
    a significant development that takes place after the company's fiscal year-end but before the financial statements are issued.
  314. Subsidiary ledger
    record of a group of subsidiary accounts associated with a particular general ledger control account.
  315. Successful efforts method
    requires that exploration costs that are known not to have resulted in the discovery of oil or gas be included as expense in the period the expenditures are made.
  316. Sum-of-the-years'-digits (SYD) method
    systematic acceleration of depreciation by multiplying the depreciable base by a fraction that declines each year.
  317. Supplemental financial statements
    reports containing more detailed information than is shown in the primary financial statements.
  318. T-account
    account with space at the top for the account title and two sides for recording increases and decreases.
  319. Taxable income
    comprises revenues, expenses, gains, and losses as measured according to the regulations of the appropriate taxing authority.
  320. Technological feasibility
    established when the enterprise has completed all planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features, and technical performance requirements.
  321. Temporary accounts
    represent changes in the retained earnings component of shareholders' equity for a corporation caused by revenue, expense, gain, and loss transactions.
  322. Time-based methods
    allocates the cost base according to the passage of time.
  323. Timeliness
    information that is available to users early enough to allow its use in the decision process.
  324. Times interest earned ratio
    a way to gauge the ability of a company to satisfy its fixed debt obligations by comparing interest charges with the income available to pay those charges.
  325. Time value of money
    money can be invested today to earn interest and grow to a larger dollar amount in the future.
  326. Trade discounts
    percentage reduction from the list price.
  327. Trademark (tradename)
    exclusive right to display a word, a slogan, a symbol, or an emblem that distinctively identifies a company, a product, or a service.
  328. Transaction analysis
    process of reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved.
  329. Transactions
    economic events.
  330. Unadjusted trial balance
    a list of the general ledger accounts and their balances at a particular date.
  331. Understandability
    users must understand the information within the context of the decision being made.
  332. Unearned revenues
    cash received from a customer in one period for goods or services that are to be provided in a future period.
  333. Units-of-production method
    computes a depreciation rate per measure of activity and then multiplies this rate by actual activity to determine periodic depreciation.
  334. Unqualified opinion
    auditors are satisfied that the financial statements present fairly the company's financial position, results of operations, and cash flows and are in conformity with generally accepted accounting principles.
  335. Verifiability
    implies a consensus among different measurers.
  336. Vertical analysis
    expression of each item in the financial statements as a percentage of an appropriate corresponding total, or base amount, but within the same year.
  337. Weighted-average interest method
    for interest capitalization, weighted-average rate on all interest-bearing debt, including all construction loans, is used.
  338. Without recourse
    the buyer assumes the risk of bad debts.
  339. With recourse
    the seller retains the risk of uncollectibility.
  340. Working capital
    differences between current assets and current liabilities.
  341. Work-in-process inventory
    products that are not yet complete.
  342. Worksheet
    used to organize the accounting information needed to prepare adjusting and closing entries and the financial statements.

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