Accounting

Discount Terms

(2/10, n/30) shortened way to communicate the amount of the discount and the time period within which it's available.

Net Revenues

A company's total revenues less any amounts for discounts, returns, and allowances. Are similar to accounts receivable but are more formal credit agreements.

Accumulated Depreciation

A contra asset account representing the total depreciation taken to date.

Sales Return

A customer returns a product.

Sales Allowance

A deficiency in the company's product or service, the seller reduces the customer's balance owed or provide at least a partial refund while allowing the customer to keep the product.

Liability

A present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past.

Sales Discount

A reduction in the amount to be paid by a credit customer if payment is made within a specific period of time.

Trade Discount

A reduction in the listed price of a product or service.

Notes Payable

A signed note promising to repay the amount borrowed plus interest.

Unemployment Taxes

A tax on behalf of employees.

Trademark

A word, slogan, or symbol that distinctively identifies a company, product, or service.

Net Realizable Value

Accounts receivables reported at the amount of cash the firm expects to collect.

Accelerated Depreciation Method

Allocates a higher depreciation in the earlier years of the asset's life and lower depreciation in later years.

Activity-Based Method

Allocates an asset's cost based on its use

Straight-Line Method

Allocates an equal amount of depreciation to each year of the asset's service life.

Depletion

Allocation of the cost of a natural resource over its service life.

Depreciation

Allocation of the cost of a natural resource over its service life.

Amortization

Allocation of the cost of an intangible asset over its service life.

Allowance Method

Allowing for the possibility that some accounts will be uncollectable at some point in the future.

Interest Payable

Amount of interest owed.

Declining-Balance Method

An accelerated depreciation method that records more depreciation method that records more depreciation in earlier years and less depreciation in later years.

Contra Revenue Account

An account with a balance that is opposite to that of its related revenue account.

LIFO Adjustment

An adjustment used to convert a company's own inventory records maintained on a FIFO basis to LIFO basis for preparing financial statements.

Debt Covenant

An agreement between a borrower and a lender that requires that certain minimum financial measures be met or the lender can recall the debt.

Interest

An annual percentage rate to be applied to the face value of a loan.

Copyright

An exclusive right of protection given to the creator of a published work such as song, film, painting, photograph, book, or computer software.

Patent

An exclusive right to manufacture a product or to use a process.

Contingent Gain

An existing uncertain situation that might result in a gain.

Contingent Liability

An existing uncertain situation that might result in a loss.

Multiple-Step Income Statement

An income statement that reports multiple levels of income (or profitability).

Line of Credit

An informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork.

Average Days in Inventory

Approximate number of days the average inventory is held. It equals 365 days divided by the inventory turnover ratio.

Natural Resources

Assets like oil, natural gas, and timber that we can physically use up or deplete.

Quick Assets

Cash, current investments, and accounts receivable.

Cost of Goods Sold

Cost of the inventory.

Freight-in

Cost to transport inventory to the company, which is included as part of inventory cost.

Freight-out

Cost to transport shipments to customers, which is included in the income statement either as part of cost of goods sold or as a selling expense.

Uncollectable Accounts

Customer's accounts that we no longer consider collectible. (bad debts)

Net Income

Difference between all revenues and all expenses for the period.

Current Ratio

Dividing current assets by current liabilities.

Acid-Test Ratio (Quick Ratio)

Dividing quick assets by current liabilities.

Fringe Benefits

Employee benefits paid for by the employer.

Book Value

Equal to the original cost of the asset minus the current balance in Accumulated Depreciation.

Percentage-of-Receivables Method

Estimating uncollectable accounts based on the percentage of accounts receivable expected not to be collected.

Repairs and Maintenance

Expenses that maintain a given level of benefits in the period incurred.

Liquidity

Having sufficient cash to pay currently maturing debts.

Interest Receivable

How a bank records interest payable.

Note Receivable

How a bank records notes payable.

Service Life

How long the company expects to receive benefits from the asset before disposing of it; also referred to as useful life.

LIFO Conformity Rule

IRS rule requiring a company that uses LIFO for tax reporting to also use LIFO for financial reporting.

Land Improvements

Improvements to land such as paving, lighting, and whose existence is often based on a legal contract.

Raw Materials

Includes the cost of components that will become part of the finished product but have not yet been used in production. (direct goods).

Capitalized Interest

Interest cost recorded as assets rather than interest expense.

Weighted-Average Cost Method

Inventory costing method that assumes both cost cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale.

First-in, First-out Method (FIFO)

Inventory costing method that assumes the first units purchased are the first ones sold.

Last-in, First-out Method (LIFO)

Inventory costing method that assumes the last units purchased are the first ones sold.

Specific Identification Method

Inventory costing method that matches or identifies each unit of inventory with its actual cost.

Periodic Inventory System

Inventory system that maintains a continual record of inventory purchased and sold.

Perpetual Inventory System

Inventory system that maintains a continual record of inventory purchased and sold.

Inventory

Items a company intends for sale to customers.

Finished Goods

Items for which the manufacturing process is complete.

Material

Large enough to influence a decision.

Long-Term Liabilities

Liabilities that are payable more than one year from now.

Current Liabilities

Liabilities that are payable within one year,

Franchise

Local outlets that pay for the exclusive right to use the franchisor company's name and to sell its products within a specified geographical area.

Intangible Assets

Long-term assets that lack physical substance, and whose existence is often based on a legal contract.

Gross Profit Ratio

Measure of the amount by which the sale price of inventory exceeds its cost per dollar of sales. It equals gross profit divided by net sales.

Lower-of-Cost-or-Market (LCM) Method

Method where companies report inventory in the balance sheet sheet at the lower of cost or market value, where market value equals replacement cost

Asset Turnover

Net Sales divided by average total assets, which measures the sales per dollar of assets invested.

Return on Assets

Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets.

Profit Margin

Net income divided by net sales; indicates the earnings per dollar of sales

Addition

Occurs when a new major component is added to an to an existing asset.

Impairment

Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation).

Income Before Income Taxes

Operating income plus non-operating revenues less non-operating expenses.

Operating Income

Profitability from normal operations that equals gross profit less operating expenses.

Basket Purchase

Purchase of more than one asset at the same time for one purchase price.

Notes Receivable

Receivables that are accompanied by formal credit arrangements made written debt instruments.

Nontrade Receivables

Receivables that originate from sources other than customers. (tax refund claims, interest receivable, and loans by the company to other entities).

Capitalize

Record expenditure as an asset.

Big Bath

Recording all losses in one year to make to make a bad year even worse.

Direct Write-Off Method

Recording bad debt expense at the time we know the account to be uncollectible.

Receivables Turnover Ratio

Shows the number of times during a year that the average accounts recievable balance is collected. (= Net Credit Sales/ Average Accounts Receivables)

FICA Taxes

Social Security and Medicare taxes.

Allowance for Uncollectable Accounts

The amount of accounts receivable we do not expect to collect.

accounts receivable

The amount of cash owed by a company by its customers from the sale of products or services on account.

Current-Portion of Long-Term Debt

The amount that will be paid within the next year.

Residual Value

The amount the company expects to receive from selling the asset at the end of its service life; also referred to as salvage value.

Improvement

The cost of replacing a major component of an asset.

Bad Debt Expense

The cost of the estimated future bad debts.

Replacement Cost

The cost to replace an inventory item in its identical form.

Working Capital

The difference between current assets and current liabilities.

Gross Profit

The difference between sales revenue and cost of goods sold.

Net Accounts Receivable

The difference between total accounts receivable and the allowance for uncollectible accounts.

Trade Receivables

The legal right to receive cash is valuable and represents an asset of the company.

Inventory Turnover Ratio

The number of times a firm sells its average inventory balance during a reporting period. it equals cost of goods divided by average inventory

Aging Method

The older the account, the less likely it is to be collected.

Work-in-Progress

The products that have started the production process but are not yet complete at the end of the period.

Goodwill

The value of a company as a whole, over and above the value of its identifiable net assets. Goodwill equals the purchase price less the fair value of the net assets acquired.

Contingencies

Uncertain situations that can result in a gain or a loss for a company.

Average Collection Period

Way to express the same efficiency. (= 365 Days/ Receivables Turnover Ratio)

Commercial Paper

When a company borrows from another company rather than from a bank.

Credit Sales

transfer products and services to a customer today while bearing the risk of collecting payment from that customer in the future (AKA Sales on Account or Services on Account).