Accounting Vocab

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Account Receivable Turnover

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Measure a company's ability to collect cash from credit customers.

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Acid-Test Ratio

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Tells whether the entity can pay all of its current liabilities if they come due immediately. Also called Quick Ratio

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Benchmarking

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The practice of comparing a company with other companies that are leaders.

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Book Value per Share of Common Stock

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Common stockholders' equity divided by the number of shares of common stock outstanding. The recorded amount for each share of common stock outstanding.

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Collection Period

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Indicates how many days' sales remain in Accounts Receivable awaiting collection.

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Common-Size Treatment

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A financial statement that reports only percentages (no dollar amounts)

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Current Ratio

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Measures ability to pay current liabilities with current assets.

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Days' Sales in Receivables

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Indicates how many days' sales remain in Accounts Receivable awaiting collection.

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Debt Ratio

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Shows the proportion of a company's assets that is financed with debt.

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Dividend Yield

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Tells the percentage of a stock's market value that the company returns to stockholders annually as dividends.

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Earnings Per Share (EPS)

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Amount of a company's net income for each share of it's outstanding common stock

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Horizontal Analysis

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Study of percentage changes in comparative financial statements.

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Interest-Coverage Ratio

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Measure the number of times that operating income can cover interest expense. Also called times-interest-earned ratio.

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Inventory Turnover

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Indicates ow rapidly inventory is sold

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Leverage

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Earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business. Also called Trading on Equity

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Price/Earnings Ratio

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Measure the value that the stock market places on $1 of a company's earnings.

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Rate of Return on Common Stockholders' Equity

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Net Income minus preferred dividends, divided by average common stockholders equity. A measure of profitability. Also called return on equity

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Rate of Return on Net Sales

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Ratio of net income to net sales. A measure of profitability. Also called return on sales

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Rate of Return on Total Assets.

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This ratio measures a company's success in using its assets to earn income for the persons who finance the business. Also called return on assets.

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Trend Percentages

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A form of horizontal analysis in which percentages are computed by selecting a base year as 100% and expressing amounts for following years as a percentage of the base amount.

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Vertical Analysis

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Analysis of a financial statement that reveals the relationship of each statement item to a specified base, which is the 100% figure.

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Working Capital

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Measures a business's ability to meet its short-term obligations with its current assets.

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Controlling

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Implementing plans and evaluating the results of business operations by comparing the actual results to the budget.

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Cost/Benefit Analysis

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Weighing costs against benefits to help make decisions

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Cost of Goods Manufactured

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The manufacturing or plant-related costs of the goods that finished the production process this period.

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Direct Cost

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A cost that can be traced to a cost object.

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Direct Labor

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The compensation of employees who physically convert materials into finished products.

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Direct Materials

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Materials that become a physical part of a finished product and whose costs are traceable to the finished product

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Enterprise Resource Planning (ERP)

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Software systems that can integrate all of a company's worldwide functions, departments, and data into a single system.

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Factory Overhead

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All manufacturing costs other than direct materials and direct labor. Also called Manufacturing overhead or indirect manufacturing costs.

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Finished Goods Inventory

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Completed goods that have not yet been sold

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Indirect Cost

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A cost that cannot be traced to a cost object

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Indirect Labor

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Labor costs that are difficult to trace to specific products.

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Indirect Materials

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Materials whose costs cannot conveniently be directly traced to particular finished products.

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Inventoriable Product Costs

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All costs of a product that GAAP requires companies to treat as an asset for external financial reporting

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Just-In-Time (JIT)

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A system in which a company produces just in time to satisfy needs.

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Management Accountability

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The manager's fiduciary responsibility to manage the resources of an organization.

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Management Accounting

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The branch of accounting that focuses on information for internal decision makers of a business.

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Manufacturing Company

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A company that uses labor, plant and equipment to convert raw materials into new finished products.

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Materials Inventory

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Raw materials for use in manufacturing

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Merchandising Company

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A company that resells products previously bought from suppliers

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Period Costs

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Operating costs that are expensed in the period in which they are incurred.

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Planning

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Choosing goals and deciding how to achieve them

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Service Company

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A company that sells intangible services, rather than tangible products

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Total Manufacturing Costs

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Costs that include direct materials, direct labor, and manufacturing overhead.

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Total Quality Management (TQM)

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A philosophy of delighting customers by providing them with superior products and services.

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Work in Process Inventory

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Goods that are partway trough the manufacturing process but not yet complete.

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Cash Equivalents

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Highly liquid short-term investments that can be readily converted into cash.

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Cash Flows

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Cash receipts and cash payments

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Direct Method

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lists the major categories of operating cash receipts and cash payments.

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Financing Activities

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Activities that obtain the cash needed to launch and sustain the business

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Free Cash Flow

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The amount of cash available from operations after paying for planned investments in plant, equipment, and other long-term assets.

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Indirect Method

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Starts with the net income and reconciles to net cash provided by operating activities.

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Investing Activities

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Activities that increase or decrease long-term assets.

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Operating Activities

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Activities that create revenue or expense in the entity's major line of business.

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Statement of Cash Flows

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Reports cash receipts and cash payments during the period.

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Allocation Base

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A common denominator that links indirect costs to cost objects. Ideally, the allocation base is the primary cost driver of the indirect costs.

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Cost Allocation

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Assigning indirect costs (such as manufacturing overhead) to cost objects (such as jobs or production processes)

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Cost Driver

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The primary factor that causes a cost

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Cost Tracing

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Assigning direct costs (such as direct materials and direct labor) to cost objects (such as jobs or production processes) that used those costs.

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Job Cost Record

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Document that accumulates the direct materials, direct labor, and manufacturing overhead costs assigned to an individual job

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Job Order Costing

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A system that accumulates costs for each job

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Labor Time Record

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Identifies the Employee, the amount of time spent on a particular job, and the labor cost charged to the job.

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Materials Requisition

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Request for the transfer of materials to the production floor, prepared by the production team.

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Overallocated (manufacturing) overhead.

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The manufacturing overhead allocated to Work in Progress inventory is more than the amount of manufacturing overhead costs actually incurred.

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Predetermined Manufacturing Overhead Rate

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Estimated manufacturing overhead cost per unit of the allocation base, computed at the beginning of the year

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Process Costing

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System for assigning costs to large numbers of identical units that usually proceed in a continuous fashion through a series of uniform productions steps or processes

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Time Record

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Source document used to trace direct labor to specific jobs

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Underallocated (manufacturing) Overhead

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The manufacturing overhead allocated to Work in Progress Inventory is less than the amount of manufacturing overhead costs actually incurred.