chapter 12

revenue

An increase in owners equity caused by selling your product or service.

cost of goods sold budget

A schedule that shows the predicted cost of product actually sold during the accounting period.

cash flow statement

A statement of the sources and uses of cash in a business for a specific period of time.

balance sheet

A statement of what a business owns (assets), what it owes to others (liabilities), and how much value the owners have invested in it (equity).

Income Statement

A statement that lists revenues and expenses and shows the amount of profit a business makes for a specified period of time.

tax accounting

An accounting approach based on specific accounting requirements set by governmental taxing agencies.

activity based cost estimates

An accounting method which assigns costs based on the different types of work a business does in order to sell a particular product or service.

MACRS rate

lets taxpayers depreciate more of the cost earlier

Computerized system

simplify the accounting process by providing automatic error checking, entry screens that look like the common business forms, and automatic production of financial statements and management reports.

master budget

A budget which consists of sets of budgets that detail all projected receipts and spending for the budgeted period.

public business

A business that has its stock bought and sold on an organized stock exchange, such as the New York Stock Exchange.

Managerial Accounting

Accounting methods that are specifically intended to be used by managers for planning, directing, and controlling a business.

Operating Activities

Activities involved in producing and selling goods and services.

financing activities

Activities through which cash is obtained from and paid to lenders, owners, and investors.

Internal (cost) factors

Aspects of or choices within the business which could cause the business's costs to change.

External (cost) factors

Aspects of the world outside the business which could cause the business's costs to change.

Financial Statements

Formal summaries of the content of an accounting system's records of transactions

account

In terms of accounting practice, an account is a chronological list of all additions to and subtractions from a single type of asset (e.g., cash, receivables, loans outstanding).

depreciation

Regular and systematic reduction in income that transfers asset value to expense over time.

financial strength

The ability of a business to survive adverse financial events.

Going Concern Concept

The accounting concept that a business is expected to continue in existence for the foreseeable future.

economy of scale

The idea that it is cheaper (per item) to make many of an item than few.

Variance Analysis

The process of determining the effect of price and quantity changes on revenues and expenses

Investing Activities

The purchase and sale of land, buildings, equipment, and securities.

Generally Accepted Accounting Principles (GAAP)

The standardized rules for accounting procedures set out by the Financial Accounting Standards Board and used in all audits and submissions of accounting reports to the government.

retained earnings

The sum of all profits and losses, less all dividends paid since the beginning of the business.

variable costs

Those costs that change with each unit produced, for example, raw materials.

fixed costs

Those costs that remain constant regardless of quantity of output, for example, rent.

financial flexibility

A business's ability to manage cash flows in such a manner that the company can respond appropriately to unexpected opportunities and needs.

Business Entity Concept

The concept that a business has an existence separate from that of its owners.

articulate

The concept that information flows from the income statement through the statements of retained earnings and owners' equity to the balance sheet.

variance

The difference between an actual and budgeted revenue or cost

breakeven point

the point at which the costs of producing a product equal the revenue made from selling the product

expense

A decrease in owners' equity caused by consuming your product or service

Financial Accounting

A formal, rule-based set of accounting principles and procedures intended for use by outside owners, investors, banks, and regulators.

Cost-Volume-Profit Analysis

A managerial accounting technique which looks at the fixed and variable costs of a business to arrive at a number of unit sales (volume) to maximize profits.

Liquidity

A measure of how quickly a company can raise money through internal sources by converting assets to cash.

permanent accounts

The accounts of assets, liabilities, and owners' equity, excluding accounts for revenues and expenses.