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25 Cards in this Set

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  • Back
Basic Characteristics of a sole proprietorship
Business type with characteristics such as: one owner, unlimited liability, limited life, benefits from all profits but suffers all losses, capital limited by funds owner has or can borrow, income / loss reported on owner's individual tax return
Basic characteristics of general partnership
Business type with characteristics such as: two or more co-owners, unlimited liability, limited life, share profits / losses, as per partnership agreement (if agreement is absent as to formula, then share equally), partnership files an informational return with income / loss and certain items flowing through to individual partners for reporting on his / her individual tax return.
Basic characteristics of corporation
Business type with characteristics such as: limited liability (generally only shareholder's investment is at risk), ease of transfer of ownership, continuous life, separate entity, often easier to raise capital, may have funds to obtain professional management, income tax-paying entity so double taxation may occur.
Declared by the board of directors of a corporation for payment to shareholders, generally no right to a dividend until so declared.
Common Stock (shareholders of)
The ultimate owners of the corporation entitled to a residual claim to income after the creditors and preferred shareholders are paid, last in line to receive earnings and distributions upon liquidation of the firm; return includes dividends and appreciation in the value of the stock.
Preferred Stock (shareholders of)
A hybrid security, entitled to receive a stipulated dividend, and, generally must receive the stipulated amount before the payment of liquidation of the corporation, usually does not have voting rights.
Cumulative Preferred Stockholders
have a cumulative claim to dividends meaning that if dividends are not declared in a particular year, the amount becomes in arrears and the amount must be paid in addition to current dividends before common shareholders can receive a dividend.
Electronic Funds Transfer (EFT)
Making cash payments between two or more organizations or individuals electronically rather than by using checks or cash, EFT systems are vulnerable to risk of unauthorized access to proprietary data and to risk of fraudulent activity
Compensating Balance
a minimum bank account balance that company must maintain with a commercial bank
Product Costs
Costs that can be associated with the production of specific goods, attach to a physical unit and become cost of goods sold when sold, components include direct materials, direct labor, and manufacturing overhead.
Period Costs
Cannot be associated (or matched) with the manufactured goods; become expenses when incurred
Direct Materials Inventory
Cost of materials awaiting entry into the production system
Work in Process Inventory
Cost of units being produced but not yet completed
Finished Goods Inventory
Cost of units completed but unsold
Formula for Direct Materials used (for manufacturing entity)
Direct Materials Inventory, beginning of period
+ Purchases during period
= Direct materials available for use
- Direct materials inventory, end of period
= Direct materials used
Fixed costs
costs that do not vary in total with the level of activity within the relevant range for a given period of time (usually one year) (e.g. depreciation)
Variable costs
Costs that vary proportionately in total with the activity level throughout the relevant range (e.g. direct materials)
Mixed costs (semi-variable)
Costs that have a fixed component and a variable component; components are separated using the scattergraph, high-low, or linear regression methods, may relate to manufacturing (e.e. may be product costs) or may be period costs
Relevant Range
The operating range of activity in which cost behavior patterns are valid;
The production range for which total fixed costs costs remain constant
to pass, to pass by - # 334
Master Budget
A comprehensive expression of management's operating and financial plans for a future period that is summarized as budgeted financial statements; consist of operating and financial budgets
Operating Budget
Budgeted income statement and related schedules
Financial Budget
Cash budget, capital budget, budgeted balance sheet, and budgeted statement of cash flows
Cash Management and Discount Periods
Credit terms of sale are usually expressed as a percentage discount if paid within a certian number of days (e.g. "2/10, net 30" means that the purchaser can take a 2% discount if paid within 10 days with the net amount due within 30 days if the discount is not taken)
Favorable cash management practices would be to pay the invoice on the 10th day taking advantage of the discount on the last day of the discount period
Liquidity and Profitability Measures
Liquidity ratios measure the firm's ability to meet its short-term obligations as they come due
Profitability ratios measure how effectively a company generates profit from operations
Return on Sales = Net Income / Net Sales
(aka profit margin)