Absolute Cell Reference

A cell reference that remains constant when a formula is pasted into a new cell.

An accounting record in which the results of transactions are accumulated; shows increases, decreases, and a balance.

A system for providing quantitative, financial information about economic entities that is useful for making sound economic decisions. Accounting provides the means of recording and communicating business activities and the results of those activities.

The procedure for analyzing, recording, summarizing, and reporting the transactions of a business.

An algebraic equation that expresses the relationship between assets (resources), liabilities (obligations), and owner’s equity (net assets, or the residual interest in a business after all liabilities have been met): Assets = Liabilities + Owners’ Equity

The procedures and processes used by a business to analyze transactions, handle routine bookkeeping tasks, and structure information so it can be used to evaluate the performance and health of the business.

Activity-based Costing (ABC)

A method of attributing overhead costs to products based on measurable factors that relate to activities that create overhead costs.

Actual Manufacturing Overhead

Manufacturing costs other than direct materials and direct labor.

American Institute of Certified Public Accountants (AICPA)

A professional organization for CPAs in which membership is voluntary.

A document that summarizes the results of operations and financial status of a company for the past year and outlines future plans.

Applied Manufacturing Overhead

The amount of the manufacturing overhead that is assigned to the goods produced. This is usually done by using a predetermined annual overhead rate.

Arm’s-length Transaction

A transaction in which a buyer and seller act independently to get the best possible deal.

The interrelationships among the financial statements.

Economic resources that are owned or controlled by a company.

Sheet A summary of the financial position of a company at a particular date.

The value of a company is measured by the amount of owner’s equity in the company.

To make just enough income to cover costs without any profit or loss.

The amount of sales at which total costs of the number of units sold equal total revenues; the point at which there is no profit or loss.

A quantitative expression of a plan that shows how a firm or organization will acquire and use resources over some specified period of time.

An organization operated with the objective of making a profit from the sale of goods or services.

Records of transactions used as the basis for recording accounting entries; include invoices, check stubs, receipts, and similar business papers.

Systematic planning for long-term investments in operating assets.

The portion of stockholder’s equity that represents investment by owners in exchange for shares of stock; also referred to as paid-in capital.

A short-term schedule of expected cash inflows and outflows during a period of time.

Certified Public Accountant (CPA)

An accountant who has met specified professional requirements established by the AICPA and local and state societies. A key service provided by CPAs is the performance of independent audits of financial statements.

Classified Balance Sheet

A balance sheet that distinguishes between current and long-term assets.

Comparative Financial Statements

Financial statements that include information for both the current year and preceding year(s) that are prepared for users to identify any significant changes in particular items.

The difference between total sales and variable costs; the portion of sales revenue available to cover fixed costs and provide a profit.

Contribution Margin Ratio

The percentage of net sales revenue left after variable costs are deducted; the contribution margin divided by net sales revenue.

Costs over which a manager has direct authority and can change.

Tracking the actual performance of a company.

An accountant who is specially trained to prepare and analyze accounting information for internal decision-making.

The way a cost is affected by changes in activity levels.

An organizational unit in which a manager has control over and is held accountable for cost performance.

A numerical measure used to reflect the amount of a specific cost that is associated with a particular activity.

An output of a business, such as a product, service, or division.

Total cost being generated by a specific overhead cost activity.

A difference between the actual cost and the budgeted cost.

Cost of Goods Manufactured Statement

A schedule supporting the income statement that summarizes the total cost of goods manufactured and transferred out of the work-in process inventory account during a period. These costs include direct materials, direct labor, and applied manufacturing ove

Cost of Goods Sold Statement

A statement that sums the cost of goods sold for an accounting period based on the cost of goods sold formula.

Cost-volume-profit (C-V-P)

Analysis Techniques for determining how changes in revenues, costs, and level of activity affect the profitability of an organization.

Cash and other assets that are expected to be converted to cash within a year.

Liabilities expected to be satisfied within a year or the current operating cycle, whichever is longer.

Decentralized Company

An organization in which managers at all levels have the authority to make decisions concerning the operations for which they are responsible.

Future costs that change as a result of a decision; also called incremental or relevant costs.

Costs that are specifically traceable to a unit of business or segment being analyzed.

Wages paid to those who physically work on direct materials to transform them into a finished product and are traceable to specific products.

A schedule of direct labor requirements for the budget period.

Materials that become part of the product and are traceable to it.

Direct Materials Budget

A schedule of direct materials to be used during the budget period and direct materials to be purchased during that period.

A sum of money distributed to the owners (stockholders) of a corporation.

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FMA

D196A Financial and Managerial Accounting Vocabulary

Term	Definition
Absolute Cell Reference	A cell reference that remains constant when a formula is pasted into a new cell.
Account	An accounting record in which the results of transactions are accumulated; shows increases, decreases, and a balance.
Accounting	A system for providing quantitative, financial information about economic entities that is useful for making sound economic decisions. Accounting provides the means of recording and communicating business activities and the results of those activities.
Accounting Cycle	The procedure for analyzing, recording, summarizing, and reporting the transactions of a business.
Accounting Equation	An algebraic equation that expresses the relationship between assets (resources), liabilities (obligations), and owner’s equity (net assets, or the residual interest in a business after all liabilities have been met): Assets = Liabilities + Owners’ Equity
Accounting System	The procedures and processes used by a business to analyze transactions, handle routine bookkeeping tasks, and structure information so it can be used to evaluate the performance and health of the business.
Activity-based Costing (ABC)	A method of attributing overhead costs to products based on measurable factors that relate to activities that create overhead costs.
Actual Manufacturing Overhead	Manufacturing costs other than direct materials and direct labor.
American Institute of Certified Public Accountants (AICPA)	A professional organization for CPAs in which membership is voluntary.
Annual Report	A document that summarizes the results of operations and financial status of a company for the past year and outlines future plans.
Applied Manufacturing Overhead	The amount of the manufacturing overhead that is assigned to the goods produced. This is usually done by using a predetermined annual overhead rate.
Arm’s-length Transaction	A transaction in which a buyer and seller act independently to get the best possible deal.
Articulation	The interrelationships among the financial statements.
Assets	Economic resources that are owned or controlled by a company.
Balance	Sheet A summary of the financial position of a company at a particular date.
Book Value	The value of a company is measured by the amount of owner’s equity in the company.
Break Even	To make just enough income to cover costs without any profit or loss.
Break-even Point	The amount of sales at which total costs of the number of units sold equal total revenues; the point at which there is no profit or loss.
Budget	A quantitative expression of a plan that shows how a firm or organization will acquire and use resources over some specified period of time.
Business	An organization operated with the objective of making a profit from the sale of goods or services.
Business Documents	Records of transactions used as the basis for recording accounting entries; include invoices, check stubs, receipts, and similar business papers.
Capital Budgeting	Systematic planning for long-term investments in operating assets.
Capital Stock	The portion of stockholder’s equity that represents investment by owners in exchange for shares of stock; also referred to as paid-in capital.
Cash Budget	A short-term schedule of expected cash inflows and outflows during a period of time.
Certified Public Accountant (CPA)	An accountant who has met specified professional requirements established by the AICPA and local and state societies. A key service provided by CPAs is the performance of independent audits of financial statements.
Classified Balance Sheet	A balance sheet that distinguishes between current and long-term assets.
Comparative Financial Statements	Financial statements that include information for both the current year and preceding year(s) that are prepared for users to identify any significant changes in particular items.
Contribution Margin	The difference between total sales and variable costs; the portion of sales revenue available to cover fixed costs and provide a profit.
Contribution Margin Ratio	The percentage of net sales revenue left after variable costs are deducted; the contribution margin divided by net sales revenue.
Controllable Costs	Costs over which a manager has direct authority and can change.
Controlling	Tracking the actual performance of a company.
Cost Accountant	An accountant who is specially trained to prepare and analyze accounting information for internal decision-making.
Cost Behavior	The way a cost is affected by changes in activity levels.
Cost Center	An organizational unit in which a manager has control over and is held accountable for cost performance.
Cost Drivers	A numerical measure used to reflect the amount of a specific cost that is associated with a particular activity.
Cost Objects	An output of a business, such as a product, service, or division.
Cost Pool	Total cost being generated by a specific overhead cost activity.
Cost Variance	A difference between the actual cost and the budgeted cost.
Cost of Goods Manufactured Statement	A schedule supporting the income statement that summarizes the total cost of goods manufactured and transferred out of the work-in process inventory account during a period. These costs include direct materials, direct labor, and applied manufacturing ove
Cost of Goods Sold Statement	A statement that sums the cost of goods sold for an accounting period based on the cost of goods sold formula.
Cost-volume-profit (C-V-P)	Analysis Techniques for determining how changes in revenues, costs, and level of activity affect the profitability of an organization.
Current Assets	Cash and other assets that are expected to be converted to cash within a year.
Current Liabilities	Liabilities expected to be satisfied within a year or the current operating cycle, whichever is longer.
Decentralized Company	An organization in which managers at all levels have the authority to make decisions concerning the operations for which they are responsible.
Differential Costs	Future costs that change as a result of a decision; also called incremental or relevant costs.
Direct Costs	Costs that are specifically traceable to a unit of business or segment being analyzed.
Direct Labor	Wages paid to those who physically work on direct materials to transform them into a finished product and are traceable to specific products.
Direct Labor Budget	A schedule of direct labor requirements for the budget period.
Direct Materials	Materials that become part of the product and are traceable to it.
Direct Materials Budget	A schedule of direct materials to be used during the budget period and direct materials to be purchased during that period.
Dividends	A sum of money distributed to the owners (stockholders) of a corporation.
Earnings (Loss) Per Share (EPS)	The amount of net income (earnings) related to each share of stock; computed by dividing net income by the number of shares of stock outstanding during this period.
Economy of Scale	A pattern of decreasing costs per unit as unit volume increases.
Estimated Manufacturing Overhead	Budgeted manufacturing overhead costs that are used to establish the predetermined overhead rate.
Ethics	The basic moral principles that govern an individual’s behavior.
Evaluating	Analyzing results, rewarding performance, and identifying problems.
Expenses	The amount of assets consumed through business operations; the costs incurred in normal business operations to generate revenues.
External Transaction	An exchange that occurs between a company and an external party and that is recorded in the financial records of the company.
Financial Accounting	The area of accounting concerned with reporting financial information to interested external parties.
Financial Accounting Standards Board (FASB)	The organization responsible for studying accounting issues and establishing accounting standards to govern financial reporting in the United States.
Financial Statement Analysis	The examination of both the relationships among financial statement numbers and the trends in those numbers over time.
Financial Statements	Reports such as the balance sheet, income statement, and statement of cash flows, which summarize the financial status and results of operations of a business entity.
Financing Activities	Activities whereby cash is obtained from or repaid to owners and creditors.
Finished Goods Inventory	Inventory that has completed the production process and is ready for sale to customers.
Fixed Costs	Costs that remain constant in total, regardless of activity level, over a certain range of activity.
Form 10-K	A form required by the SEC for businesses to report a comprehensive summary of financial performance, including the three primary financial statements.
Form 10-Q	Quarterly financial reports that publicly traded companies must file with the SEC.
Gains	Money made on activities outside the normal business of a company.
Generally Accepted Accounting Principles (GAAP)	Authoritative guidelines that define accounting practice at a particular time in the United States.
Governmental Accounting Standards Board (GASB)	An independent private organization that sets the accounting and financial reporting standards for state and local governments following GAAP.
Gross Margin	The difference between sales and cost of goods sold; gross profit.
Gross Profit	The difference between sales and cost of goods sold; gross margin.
Horizontal Analysis	A method of financial statement analysis that compares a firm’s results from year to year.
Illiquid	Assets that take time and effort to convert into cash.
Income Statement	The financial statement that reports the amount of net income earned by a company during a period.
Indirect Costs	Costs normally incurred for the benefit of several segments within the organization; sometimes called common costs or joint costs.
Indirect Labor	Labor that is necessary to a manufacturing or service business but is not directly related to the actual production of the product.
Indirect Materials	Materials that are necessary to a manufacturing or service business but are not directly included in or are not a significant part of the actual product.
Internal Revenue Service (IRS)	A government agency that prescribes the rules and regulations that govern the collection of tax revenues in the United States.
Internal Transaction	A transaction that occurs within a company, does not involve an external party, and is not recorded in the company’s financial records.
International Accounting Standards Board (IASB)	A committee formed to develop international accounting standards.
Investing Activities	Activities associated with buying and selling long-term assets.
Investment Center	An organizational unit in which a manager has control over and is held accountable for cost, revenue, and asset performance.
Job	An individual product produced or service rendered in a job order costing system.
Job Order Costing	A method of product costing whereby each job, product, or batch of products is cost separately.
Liabilities	Obligations to pay cash, transfer other assets, or provide services to someone else.
Liquid	Assets that are in the form of cash or can be easily converted into cash.
Long-term Assets	Assets that are illiquid and that are needed to operate a business over an extended period of time.
Long-term Liabilities	Liabilities that are not expected to be satisfied within a year.
Losses	Money lost on activities outside the normal business of a company.
Management Accounting	The area of accounting concerned with providing internal financial reports to assist management in making decisions.
Manufacturing Business	Any organization whose main economic activity involves using components or raw materials to make finished goods for sale to customers.
Manufacturing Overhead	All costs incurred in the manufacturing process other than direct materials and direct labor.
Manufacturing Overhead Budget	A schedule of production costs other than those for direct labor and direct materials.
Market Value	The value of a company as measured by the number of shares of stock outstanding multiplied by the current market price of the stock; the current value of a business.
Master Budget	A network of many separate schedules and budgets that together constitute the overall operating and financing plan for the coming operating period.
Merchandising Business	Any organization whose main economic activity involves purchasing finished goods and reselling them to customers.
Mixed Costs	Costs that contain both variable and fixed costs components.
Net Income	A line on the income statement that reports a company’s operating income minus interest expense and taxes.
Noncontrollable Costs	Costs over which a manager does not have direct authority and cannot change.
Nonprofit Organization	An entity without a profit objective, oriented toward providing services efficiently and effectively.
Operating Activities	Activities that are part of the day-to-day business of a company.
Operating Capital	Funds available for use in financing the day‑to‑day activities of a business.
Operating Income	A line on the income statement that reports the results of what a company does on a daily basis; calculated by sales minus cost of goods sold minus operating expenses.
Operational Budgeting	Managerial planning decisions regarding current and immediate future (a year or less) operations that are characterized by regularity and frequency.
Opportunity Costs	The benefits lost or forfeited as a result of selecting one alternative course of action over another.
Out-of-pocket Costs	Costs that require an outlay of cash or other resources.
Overapplied Manufacturing Overhead	The excess of applied manufacturing overhead (based on a predetermined application rate) over the actual manufacturing overhead costs for a period.
Owners’ Equity	The remaining claim against the assets of a business after the liabilities have been deducted.
Per-unit Contribution Margin	The excess of the sales price of one unit over its variable costs.
Period Costs	Costs not directly related to a product, service, or asset. They are charged as expenses to the income statement in the period in which they are incurred.
Planning	Outlining the activities that need to be performed for an organization to achieve its objectives.
Primary Financial Statements	The balance sheet, income statement, and statement of cash flows, which are used by external groups to assess a company’s economic standing.
Pro Forma Financial Statements	Financial statements that show a forecast of a company’s future performance based on certain assumptions rather than historical data.
Process Costing	A method of product costing whereby costs are accumulated by process or work centers and averaged over all products manufactured in a center or department during a production period.
Product Costs	Costs associated with products or services offered.
Product-line Activities	Activities that take place in order to support a product line, regardless of the number of batches or individual units produced.
Production Budget	A schedule of production requirements for the budget period.
Production Prioritizing	Management’s continual evaluation of various product lines and division profitability in order to analyze and identify opportunities to improve profits.
Profit Center	An organizational unit in which a manager has control over and is held accountable for both cost and revenue performance.
Raw Materials Inventory	Inventory of raw materials that have not yet begun the production process.
Relative Cell References	A cell reference that automatically updates when a formula is pasted into a new cell.
Relevant Range	The range of operating level, or volume of activity, over which the relationship between total costs (variable plus fixed) and activity level is approximately linear.
Responsibility Accounting	A system of evaluating performance in which managers are held accountable for the costs, revenues, assets, or other elements over which they have control.
Responsibility Center	An organizational unit in which a manager has control over and is held accountable for its performance.
Retailers	Second-tier merchants who typically purchase products from wholesalers to distribute to end-user customers.
Retained Earnings	The amount of accumulated earnings of the business that have not been distributed to owners.
Return On Investment	A measure of operating performance and efficiency in utilizing assets; computed in its simplest form by dividing net income by average total assets (also known as return on assets or ROA).
Return On Sales Revenue	A measure of operating performance; computed by dividing net income by total sales revenue. Similar to profit margin.
Revenues	The amount of assets created through the sale of goods and services.
Sales Budget	A schedule of projected sales over the budget period, which often includes a measure of revenue earned and cash collected from customers.
Securities and Exchange Commission (SEC)	The government body responsible for regulating the financial reporting practices of most publicly owned corporations in connection with the buying and selling of stocks and bonds.
Segment	A subsection of a company that is distinct from the whole of the company based on its operational activities, customers, or geographic location.
Segment Margin Statement	A profit and loss statement that identifies costs directly chargeable to a segment and further divides them into variable and fixed cost behavior patterns.
Segment Margins	The difference between segment revenue and direct segment costs; a measure of the segment’s contribution to cover indirect fixed costs and provide costs; in effect, the operating profit created by the segment.
Segment-margin Ratios	The segment margin divided by the segment’s net sales revenue; a measure of the efficiency of the segment’s operating performance and, therefore, its profitability.
Segments	Parts of an organization requiring separate reports for evaluation by management.
Selling and Administrative Expense Budget	A schedule of all nonproduction spending expected to occur during the budget period.
Service Business	Any organization whose main economic activity involves producing a nonphysical product that provides value to a customer.
Shareholders	Those who own a corporation by owning shares of stock in that corporation; also called stockholders.
Statement of Cash Flows	The financial statement that reports the amount of cash collected and paid out by a company during a period of time.
Statement of Retained Earnings	A financial statement that identifies the changes in accumulated investments by owners and earnings or profits since day one.
Stepped Costs	Costs that change in total in a stair-step fashion (in large amounts) with changes in volume of activity.
Stockholders	Those who own a corporation by owning shares of stock in that corporation; also called shareholders.
Stockholders’ Equity	The owners’ equity section of a corporate balance sheet.
Sunk Costs	Costs that are past costs and do not change as a result of a future decision.
Target Income	A profit level desired by management.
Transaction	Two parties exchanging something of value.
Underapplied Manufacturing Overhead	The excess of actual manufacturing overhead costs over the applied overhead costs for a period (based on a predetermined application rate).
Unit-level Activities	Activities that take place each time a unit of product is produced.
Variable Cost Ratio	The ratio of variable costs to sales.
Variable Costs	Costs that change in total in direct proportion to changes in activity level.
Vertical Analysis	A method of financial statement analysis in which each line item is displayed as a percentage of another item to allow for comparison to other companies within the same industry.
Wholesalers	Top-tier merchants who typically deal directly with the original manufacturers to distribute products to retailers.
Work-in-process Inventory	Inventory that is partly completed in the production process, but not yet ready for sale to customers.
Accounting	A system that provides quantitative financial information useful for making economic decisions.
Accounting System	A structured process involving: Analysis: Determining which events to record Bookkeeping: Daily recording of transactions Evaluation: Assessing data for decision-making
Bookkeeping	The systematic recording of financial transactions; a component of the accounting process.
Business Activities	Operational, investing, and financing actions undertaken by a business.
Business Performance	An evaluation of how well a business is achieving its goals, often measured using accounting data.
Capital	Resources used to operate a business, including money, equipment, buildings, and more. Sourced from: Investors Creditors Retained earnings
Decision-Making Process	A structured approach to making choices: Identify the issue Gather and analyze information Consider alternatives Select the best option
Double-Entry Bookkeeping	An accounting method developed in Italy during the 1300s–1400s where each transaction affects at least two accounts, maintaining balance.
Economic Decisions	Choices made by individuals or businesses based on financial data and goals.
Evaluation	The process of interpreting accounting data to assess financial health and make informed decisions.
Financial Health	A measure of a business's ability to meet its obligations, grow, and generate profit.
Financial Information	Quantitative data related to the financial activities and performance of a business.
Financial Reporting	The process of compiling and presenting accounting data, often in the form of financial statements.
Financing	The act of securing funds to support business operations, often through borrowing or investment.
Quantitative Data	Numerical data, especially related to money, used in accounting to support decision-making.
Resources	Assets used in business operations, such as: Land Buildings Equipment Workforce Inventory
Retained Earnings	Profits reinvested into the business rather than distributed to shareholders.
Stakeholders	People or entities (e.g., investors, managers, creditors) who use accounting information to make decisions.
Users of Accounting Information	Include managers, investors, creditors, government agencies, and others interested in the financial status of a business.
Accountants	Professionals who measure, report, and analyze financial data. They: Track and report financial performance Advise managers based on financial insights
Assets	Resources owned by a business, such as cash, inventory, equipment, and property.
Balance Sheet	A financial statement showing a company’s assets, liabilities, and equity at a specific point in time.
Breakeven Analysis	A calculation used to determine the sales volume at which total revenues equal total costs (no profit or loss).
Budgeting	The process of creating a financial plan that estimates future revenues and expenses.
Business Valuation	The process of determining the economic value of a business, often used in sales or investment decisions.
Cash Flow	The movement of money in and out of a business, tracked in the Statement of Cash Flows.
Competitors	Other businesses in the same market who may use financial data to analyze and respond to industry performance.
Credit Analysis	The evaluation of a company’s ability to repay borrowed money, often conducted by lenders.
Creditors (Lenders)	Individuals or institutions that lend money to a business and use financial data to assess risk and repayment ability.
Employees	Internal stakeholders who use accounting information to assess job security, benefits, and company health.
Equity	The residual interest in the assets of a business after deducting liabilities; essentially, the owner's claims.
External Reports	Financial summaries (e.g., balance sheet, income statement) prepared for outside parties like investors and regulators.
External Users	Parties outside the company who rely on accounting reports, including investors, creditors, and regulators.
Financial Accounting	The branch of accounting focused on producing external financial reports for stakeholders outside the business.
Financial Health	A company’s ability to generate profits, meet obligations, and sustain operations over time.
Financial Statements	Formal reports that include the balance sheet, income statement, and statement of cash flows, showing a company’s financial position and performance.
Government Agencies	Regulatory bodies that use financial information to ensure compliance with laws and regulations.
Income Statement	A financial report that summarizes revenues and expenses over a specific period, showing net income or loss.
Internal Reports	Detailed financial data used by management for planning, control, and decision-making.
Internal Users	People within the organization (e.g., managers, employees) who use accounting information for operational decisions.
Investors	Individuals or organizations that invest capital into a company and use financial data to assess risk and return.
Liabilities	Obligations a company owes to others, such as loans, accounts payable, and other debts.
Management	Internal leadership (e.g., executives, managers) that uses accounting information to operate and guide the company.
Managerial Accounting (Management Accounting)	The field of accounting focused on providing detailed internal reports to help management with planning, decision-making, and control.
Performance Evaluation	The assessment of departments, teams, or individuals based on financial and operational results.
Product Costs	The total costs incurred to produce a product, including materials, labor, and overhead.
Regulatory Compliance	Adhering to laws and regulations, often through required financial disclosures.
Revenues	Income earned from selling goods or services.
Special Decisions	Unique or strategic business choices, such as outsourcing or relocating operations, guided by internal financial data.
Statement of Cash Flows	A financial statement that details cash inflows and outflows from operations, investing, and financing activities.
Suppliers	Vendors who provide goods or services to a company and may assess financial data to gauge stability and reliability.
AICPA (American Institute of Certified Public Accountants)	A professional organization that certifies CPAs, enforces ethical standards, and supports the accounting profession in the U.S.
Automation	The use of technology to perform routine accounting tasks like data entry, payroll, or invoicing without manual input.
Blockchain	A decentralized digital ledger technology being explored in accounting for secure and transparent transaction tracking.
Cloud Accounting	Use of internet-based accounting platforms that provide real-time data access and collaboration.
Comparability	The ability to evaluate and compare financial information across different companies or time periods, enabled by standardized rules.
Confidentiality	An ethical principle requiring accountants to protect sensitive financial information from unauthorized disclosure.
Consistency	The use of the same accounting methods over time to ensure reliable comparison of financial data.
CPA (Certified Public Accountant)	A licensed accounting professional who has met education, exam, and experience requirements and adheres to ethical and professional standards.
Data Analysis	The process of examining financial information to uncover insights, trends, and support business decisions.
Enron & WorldCom Scandals	Major corporate fraud cases that led to greater regulatory involvement and changes in accounting rules and practices.
Ethics	Moral principles that guide behavior and decision-making in accounting, including honesty, integrity, and professionalism.
FASB (Financial Accounting Standards Board)	A private U.S. organization that establishes Generally Accepted Accounting Principles (GAAP) for public companies.
Financial Accounting Standards	Authoritative rules and guidelines for preparing financial statements to ensure accuracy and transparency.
GAAP (Generally Accepted Accounting Principles)	Standardized accounting rules in the U.S. developed by FASB and enforced through regulatory oversight.
GASB (Governmental Accounting Standards Board)	A private-sector body that establishes accounting standards for U.S. state and local governments.
IASB (International Accounting Standards Board)	A global organization that develops and promotes International Financial Reporting Standards (IFRS).
IFRS (International Financial Reporting Standards)	International accounting standards designed to bring consistency and comparability across countries.
Integrity	A core ethical principle in accounting involving honesty, fairness, and strong moral character.
Internal Revenue Service (IRS)	The U.S. government agency responsible for tax collection and tax law enforcement; sets rules for tax accounting.
International Business	Operations involving multiple countries, which influence the need for standardized accounting practices.
International Standards	Accounting guidelines developed to unify global financial reporting, primarily created by the IASB.
Objectivity	An ethical principle requiring accountants to remain unbiased and impartial when preparing or reviewing financial information.
Professional Behavior	Conduct expected of accountants, including compliance with laws, standards, and ethical codes.
Public Process (FASB)	A transparent method where FASB gathers public input before issuing or changing accounting standards.
Regulatory Bodies	Organizations responsible for setting and enforcing accounting and financial reporting standards (e.g., SEC, IRS, FASB, IASB).
SEC (Securities and Exchange Commission)	A U.S. government agency that regulates financial markets and oversees financial reporting of publicly traded companies.
Standardization	The process of developing and applying consistent accounting methods and rules across entities and countries.
Technology in Accounting	Tools and systems that automate, streamline, and improve accounting processes (e.g., cloud computing, data analytics, blockchain).
Transparency	Openness in financial reporting that allows users to clearly understand a company’s financial status and practices.
WorldCom	A company involved in one of the largest U.S. accounting scandals, which contributed to reforms in accounting regulation.
AICPA (American Institute of Certified Public Accountants)	A professional organization that certifies CPAs and enforces ethical standards. It can sanction members for unethical behavior, including revoking CPA licenses.
Analysis	The process of reviewing and interpreting financial data to evaluate performance and make informed decisions.
Certified Public Accountant (CPA)	A licensed accounting professional who has met education, exam, and experience requirements and adheres to ethical and professional standards.
Credibility	The trustworthiness of an accountant or accounting information. Maintaining credibility is essential for a successful career in accounting.
Economic Incentive (for Ethics)	The idea that ethical conduct increases user trust in accounting information, thereby enhancing the value of that information.
Enron Scandal	A major corporate fraud case that highlighted unethical accounting practices and led to stricter regulations and oversight.
Ethics	Moral principles that guide behavior. In accounting, ethics ensure honesty, integrity, and transparency in financial reporting.
Ethical Dilemma	A situation in which an individual must choose between two or more conflicting ethical principles.
Ethical Standards	Formal guidelines that accountants must follow to maintain integrity, objectivity, and professionalism.
False Financial Statements	Financial reports that misrepresent a company’s true financial position, often used to deceive stakeholders.
Financial Reports (or Financial Statements)	Formal records of a business's financial activities, including the balance sheet, income statement, and statement of cash flows.
GAAP (Generally Accepted Accounting Principles)	Standardized accounting rules used in the U.S. These provide guidance, but ethical judgment is still essential to prevent manipulation.
Integrity	A core ethical principle requiring accountants to be honest and have strong moral character in all professional activities.
IRS (Internal Revenue Service)	The U.S. federal agency that regulates tax accounting and ensures businesses file taxes in accordance with the law.
Misleading Financial Statements	Reports that may technically follow GAAP but distort reality due to biased assumptions or unethical intent.
Objectivity	An ethical standard that requires accountants to remain impartial and avoid personal bias in their professional judgment.
Professional Sanctions	Penalties imposed by professional bodies like the AICPA on accountants who violate ethical standards. These may include suspension or revocation of licenses.
Public Confidence	The trust that the public places in financial reporting and the accounting profession, which is critical for the effectiveness of financial markets.
Reliability (of Information)	The quality of financial information being trustworthy, consistent, and free from bias or error.
SEC (Securities and Exchange Commission)	A U.S. government agency that enforces securities laws and accounting regulations to protect investors and maintain public trust.
Trust in Accounting	The belief that financial information is truthful and accurate. Trust is essential for investors, lenders, and other stakeholders to make informed decisions.
Tyco Scandal	A corporate fraud case similar to Enron, in which executives were found guilty of unethical financial behavior.
Accounting Cycle	A four-step process that transforms individual financial transactions into organized financial statements. Steps include: Analyze transactions Record transactions Summarize effects Prepare reports
Adjusting Entries	Journal entries made at the end of an accounting period to update account balances before preparing financial statements.
Analyze Transactions	The first step in the accounting cycle where each transaction is examined to determine its economic essence and monetary value.
Automated Accounting System	Computer-based systems used by large businesses to record and process financial data efficiently and accurately.
Balance Sheet	A financial report showing a company’s assets, liabilities, and equity at a specific point in time.
Business Documents	Physical or digital evidence of transactions (e.g., invoices, purchase orders) that confirm and support entries in the accounting system.
Closing the Books	The process of resetting revenue and expense account balances to zero at the end of an accounting period in preparation for the next cycle.
Credit	An entry in accounting that typically increases liabilities or equity and decreases assets or expenses, depending on the account type.
Debit	An entry in accounting that typically increases assets or expenses and decreases liabilities or equity, depending on the account type.
Economic Essence	The true nature of a transaction (e.g., earning revenue, incurring an obligation) regardless of its form or label.
Exchange Transactions	Business interactions where something of value is exchanged, such as sales, purchases, or wage payments.
Financial Accounting Cycle	The structured process used to gather, record, summarize, and report financial transactions for external use.
Financial Reports (Financial Statements)	Formal summaries of a business's financial activities, including: Balance Sheet Income Statement Statement of Cash Flows
Income Statement	A financial report showing a company’s revenues and expenses over a specific time period to determine net income or loss.
Journal Entry	A record of a business transaction entered into the accounting system using debits and credits.
Manual Accounting System	A non-automated process of recording financial transactions, typically used by small businesses.
Monetary Amount	The financial value associated with a business transaction.
Prepare Reports	The final step in the accounting cycle, where financial statements are created for decision-making.
Record Transactions	The second step in the accounting cycle where transactions are entered into the accounting system using debits and credits.
Sales Invoice	A document sent by a seller to a buyer indicating the products sold, prices, and payment terms—used as proof of a sales transaction.
Statement of Cash Flows	A financial report showing how cash moves into and out of a business through operations, investing, and financing.
Summarize Transactions	The third step in the accounting cycle where recorded entries are grouped and organized into trial balances or summaries.
Timely Analysis	The practice of analyzing transactions as they occur to ensure accurate and relevant financial tracking.
Transaction	An economic event or interaction involving an exchange of value between two parties.
Accounting Equation	The foundation of financial accounting: Assets = Liabilities + Owner’s Equity It must always remain balanced after every transaction.
Account	A specific financial record used to categorize and track similar types of transactions (e.g., cash, inventory, revenue).
Accounts Payable	A liability account representing amounts a company owes to suppliers for purchases made on credit.
Arm’s-Length Transaction	An exchange between two independent and unrelated parties, conducted fairly and without pressure.
Assets	Resources owned by a business (e.g., cash, equipment, inventory) that provide future economic benefit.
Borrowing	A financial transaction in which a company receives money (asset) and incurs a liability (loan payable) to be repaid later.
Cash	A liquid asset representing money on hand or in bank accounts, used in many accounting transactions.
Complex Transactions	Business activities involving multiple components (e.g., partial payments, long-term contracts), which are broken down for accurate recording.
Dividends	Distributions of a company’s earnings to its owners/shareholders, which reduce owner’s equity.
Economic Event	An occurrence that may affect a company’s financial position. Only those measurable in monetary terms are recorded.
Equipment	A long-term asset account for tools, machinery, or other physical resources used in operations.
Equity (Owner’s Equity)	The residual interest in the business after liabilities are subtracted from assets; represents the owner's claim.
External Transaction	A financial exchange between the business and an outside party (e.g., sale to a customer, borrowing from a bank).
Expense	A cost incurred by a business in the process of earning revenue; expenses reduce owner’s equity.
Financial Accounting Cycle	The process of turning financial transactions into financial statements. Steps include: analyze, record, summarize, and prepare.
Internal Transaction	An event that occurs entirely within the company (e.g., depreciation, use of supplies) and may or may not affect accounting records.
Inventory	An asset account representing goods held for sale in the normal course of business.
Liability	An obligation to pay money or provide services to another party (e.g., loans, accounts payable).
Loans Payable (Notes Payable)	A liability account representing amounts borrowed that must be repaid with interest.
Monetary Measurement Concept	Only transactions that can be measured in monetary terms (dollars and cents) are recorded in the accounting system.
Net Income	The difference between revenues and expenses. Increases owner’s equity.
Owner’s Equity	The owner's residual interest in the company after liabilities are subtracted from assets.
Purchasing on Credit	Buying goods or services without immediate payment. The asset (e.g., inventory) increases, and a liability (e.g., accounts payable) is created.
Revenue	Income earned from selling goods or services. Revenue increases owner’s equity.
Sale on Account	A transaction in which a product is sold, but payment is received later. Increases both accounts receivable (asset) and revenue (owner’s equity).
Transaction	A specific financial event that affects the accounting equation and is measurable in monetary terms.
Annual Report	A comprehensive financial summary published yearly by a company, often including the Form 10-K, management insights, and audited financial statements.
Assets	Resources owned or controlled by a company that are expected to bring future economic benefit (e.g., cash, buildings, equipment).
Balance Sheet	A financial statement that shows a company’s financial position at a specific point in time, detailing assets, liabilities, and owners’ equity.
Central Index Key (CIK)	A unique identifier assigned by the SEC to each entity that files documents through the EDGAR system, used to search filings.
EDGAR (Electronic Data Gathering, Analysis, and Retrieval)	The SEC’s public online database for accessing filings (like Form 10-K and 10-Q) from publicly traded companies.
Equity (Owner’s Equity)	The residual interest in the assets of a company after deducting liabilities; includes invested capital and retained earnings.
Expenses	Costs incurred in the process of earning revenue, such as salaries, rent, or cost of goods sold.
Financing Activities	Section of the statement of cash flows that reports inflows and outflows of cash from borrowing, repaying debt, or issuing dividends.
Financial Statements	Formal reports showing a company’s financial performance and position, including the balance sheet, income statement, and statement of cash flows.
Form 10-K	An annual report filed with the SEC that includes audited financial statements and detailed information about a company’s operations, risks, and performance.
Form 10-Q	A quarterly report filed with the SEC that includes unaudited financial statements and management updates.
Income Statement	A financial statement that shows a company’s revenues, expenses, and net income (or loss) over a specific time period.
Investing Activities	Part of the cash flow statement showing cash used for or provided by investments in long-term assets such as property or equipment.
Liabilities	Obligations the company owes to others, such as loans, accounts payable, or bonds payable.
Management Discussion and Analysis (MD&A)	A section of the 10-K or annual report where company executives explain the financial results, performance trends, and future outlook.
Net Income	The amount of profit remaining after all revenues and expenses are accounted for: Net Income = Revenues - Expenses
Operating Activities	Section of the cash flow statement reflecting cash inflows and outflows from core business operations.
Owners’ Equity	Represents the owner's share in the business; includes capital contributions, retained earnings, and changes from net income or dividends.
Publicly Traded Company	A company whose shares are listed on a stock exchange and must comply with SEC reporting requirements.
Revenues	Income generated from the company’s normal business operations, such as selling goods or services.
SEC (Securities and Exchange Commission)	A U.S. government agency that regulates financial markets and enforces laws requiring transparent and accurate financial reporting.
Statement of Cash Flows	A financial report showing the flow of cash in and out of a company over a specific period, categorized by operating, investing, and financing activities.
Statement of Retained Earnings	A financial statement that explains the changes in retained earnings during a period due to net income and dividends.
Accounting Equation	A foundational formula in accounting: Assets = Liabilities + Owners’ Equity Ensures every transaction maintains balance in financial reporting.
Accounts Payable	A current liability representing amounts a business owes to suppliers for purchases made on credit.
Assets	Resources owned or controlled by a company expected to provide future economic benefits. Examples: Cash, Accounts Receivable, Inventory, Property, Equipment.
Balance Sheet	A financial statement that provides a snapshot of a company’s financial position at a specific point in time, listing assets, liabilities, and owners’ equity.
Capital Stock	The total amount of funds received from shareholders in exchange for ownership shares in a corporation.
Current Assets	Assets expected to be used or converted into cash within one year. Examples: Cash, Accounts Receivable, Inventory.
Current Liabilities	Obligations a company expects to settle within one year. Examples: Accounts Payable, Taxes Payable, Short-Term Loans.
Double-Entry Accounting	A system in which every financial transaction is recorded in at least two accounts to maintain balance in the accounting equation.
Historical Cost	The original purchase price of an asset, used for reporting purposes on the balance sheet rather than current market value.
Intangible Assets	Non-physical assets that often carry significant value but are not usually recorded on the balance sheet. Examples: Brand reputation, customer loyalty, intellectual property.
Inventory	Goods held for sale in the ordinary course of business; classified as a current asset.
Liabilities	Obligations to pay cash, transfer assets, or provide services to others. Examples: Loans, Taxes Payable, Unearned Revenue.
Liquidity	The ability of a company to meet its short-term financial obligations.
Long-Term Assets	Assets expected to provide economic benefit for more than one year. Examples: Buildings, Equipment, Machinery.
Long-Term Liabilities	Obligations not due within one year. Examples: Mortgages Payable, Long-Term Debt.
Market Value	The current price at which an asset could be sold. Often different from the book (historical) value listed on the balance sheet.
Mortgage Payable	A long-term liability representing a loan taken out to purchase real estate.
Owners’ Equity	The residual interest in the assets of the entity after deducting liabilities; represents ownership. Components: Paid-in Capital, Retained Earnings.
Paid-in Capital	Funds contributed by owners or shareholders to the business in exchange for equity.
Property, Plant, and Equipment (PPE)	Long-term physical assets used in business operations, such as buildings, machines, and land.
Retained Earnings	Cumulative profits of a company that are reinvested in the business rather than distributed to shareholders as dividends.
Solvency	A company’s ability to meet its long-term financial obligations.
Unearned Revenue	Cash received before goods or services are delivered; recognized as a liability until fulfilled.
Assets	Resources owned or controlled by a company that provide future economic benefits.
Balance Sheet	A financial statement that shows a company’s assets, liabilities, and owners' equity at a specific point in time.
Comparative Income Statement	An income statement that shows financial data for multiple time periods, enabling performance comparison over time.
Cost of Goods Sold (COGS)	The direct costs of producing or purchasing the goods sold during a period.
Earnings Per Share (EPS)	A measure of net income earned per share of common stock. Formula: Net Income ÷ Outstanding Shares
Equity (Owner’s Equity)	The residual interest in the assets of a company after deducting liabilities.
Expenses	Costs incurred in generating revenues. Examples: salaries, rent, cost of goods sold, utilities.
Gains	Profits from activities outside a company’s core operations (e.g., selling a building at a profit).
Gross Profit	Sales revenue minus cost of goods sold. Formula: Sales – COGS = Gross Profit
Gross Margin Percentage	A profitability metric showing what percentage of revenue exceeds COGS. A profitability metric showing what percentage of revenue exceeds COGS.
Income Statement	A financial report showing a company’s revenues, expenses, and net income (or loss) over a specific period.
Interest Expense	The cost of borrowing money, often listed separately on the income statement.
Liabilities	Obligations to pay cash, transfer assets, or provide services to other parties.
Multistep Income Statement	An income statement format that separates gross profit, operating income, and net income for greater detail.
Net Income	The amount by which revenues exceed expenses during a period. Formula: Revenues – Expenses = Net Income
Net Loss	Occurs when a company’s expenses exceed its revenues during a period.
Non-Operating Items	Revenue, gains, expenses, or losses that are not part of core business operations (e.g., interest income, asset sales).
Operating Income	Income from normal business activities after deducting operating expenses. Formula: Gross Profit – Operating Expenses
Outstanding Shares	The number of shares of a company’s stock currently held by shareholders and used in EPS calculations.
Period of Time	The duration covered by an income statement (e.g., a month, quarter, or year).
Revenues	Income generated from normal business activities, such as selling goods or services.
Satisfying Liabilities	Generating revenue by fulfilling an obligation rather than paying it with cash (e.g., delivering services instead of repaying in money).
Accounting Equation (Expanded)	An expanded version of the basic accounting equation:Assets = Liabilities + Capital Stock + Retained Earnings. It breaks down equity into capital stock and retained earnings.
Beginning Retained Earnings	The retained earnings balance at the start of a reporting period; carried over from the previous period.
Capital Stock (Paid-in Capital)	Money invested directly into the company by shareholders in exchange for ownership.
Cumulative Dividends	The total amount of dividends paid to shareholders over the life of the company.
Cumulative Net Income	The total profit a company has earned over its lifetime, before subtracting dividends.
Dividends	Distributions of earnings to shareholders, reducing retained earnings and assets (typically cash).
Ending Retained Earnings	The retained earnings balance at the end of a period after accounting for net income and dividends.
Expanded Accounting Equation	An accounting equation that includes components of equity: Assets = Liabilities + Capital Stock + Retained Earnings
Net Income	The profit earned during a period when revenues exceed expenses. Increases retained earnings.
Paid-in Capital	Another term for capital stock; funds invested by owners or shareholders into the business.
Retained Earnings	Cumulative net income that has been kept in the business instead of being paid out as dividends.
Retained Earnings Formula	Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings. Used to calculate changes in retained earnings over a period.
Statement of Retained Earnings	A financial statement showing how retained earnings have changed over a period due to net income and dividends.
Statement of Stockholders’ Equity	A more detailed financial report that includes changes in all components of equity, such as capital stock and retained
Articulation	The concept that all three primary financial statements (balance sheet, income statement, and statement of cash flows) are interconnected and explain each other’s changes in values over time.
Balance Sheet	A financial statement showing a company’s financial position at a point in time, including assets, liabilities, and equity.
Borrowing	Obtaining funds through loans or credit, classified as a financing activity in the statement of cash flows.
Cash Flows from Financing Activities	Cash received from or paid to investors and creditors. Examples: issuing stock, borrowing money, repaying loans, paying dividends.
Cash Flows from Investing Activities	Cash used for or generated by buying and selling long-term assets. Examples: purchasing or selling property, equipment, or investments.
Cash Flows from Operating Activities	Cash received or spent in the company’s normal business operations. Examples: cash from customers, paying employees, buying inventory.
Cash Inflows	Cash received by the business. Examples: sales revenue, asset sales, investment contributions, loans.
Cash Outflows	Cash paid out by the business. Examples: wages, utilities, taxes, asset purchases, loan repayments.
Dividends	Payments made to shareholders from a company’s earnings, reported as a financing outflow in the statement of cash flows.
Financing Activities	Transactions involving raising or repaying capital to fund business operations. Includes issuing stock, borrowing funds, paying back loans, and dividends.
Income Statement	A report showing a company’s revenues, expenses, and net income over a specific period. Net income impacts retained earnings and connects to the statement of retained earnings.
Investing Activities	Cash flows related to acquiring or disposing of long-term assets and investments (not securities trading). Examples: buying buildings, selling equipment.
Net Cash Flow	The overall change in a company’s cash balance during a period, combining cash flows from operating, investing, and financing activities.
Operating Activities	Day-to-day activities of running a business, such as selling products, collecting receivables, and paying bills.
Retained Earnings	The portion of net income not paid as dividends, reflected in the equity section of the balance sheet. It connects with both the income statement and the statement of retained earnings.
Statement of Cash Flows	A financial report that shows how a company’s cash changed during a period, organized into three categories: operating, investing, and financing activities.
Statement of Retained Earnings	A report showing how net income and dividends affect the retained earnings balance over a period.
Additional Information About Summary Totals	Detailed breakdowns of aggregate figures (e.g., total debt, inventory) shown on the financial statements. These notes help clarify the composition of large summary numbers.
Assumptions	Estimates or conditions believed to be true and used in preparing financial statements (e.g., useful life of an asset). Included in the notes for transparency.
Business Segments	Divisions of a company (e.g., AWS, Whole Foods, Online Sales at Amazon) for which separate financial information is disclosed to show performance across different operations.
Depreciation Methods	Approaches used to allocate the cost of a long-term asset over its useful life (e.g., straight-line or declining balance). Disclosed in the notes.
Disclosure of Unrecognized Information	Information not directly recorded in the financial statements but disclosed in the notes due to its significance (e.g., lawsuits, contingencies, post-balance sheet events).
Estimates	Approximations used when exact amounts are not available. Important in accounting for items like depreciation, warranty liabilities, and loan collectibility.
FASB (Financial Accounting Standards Board)	A U.S. organization that sets accounting standards and requires certain disclosures in the notes to ensure consistency and transparency.
Footnotes	Another term for the notes to the financial statements, providing additional explanations and context for the main financial reports.
Geographical Breakdown	Disclosure of how sales or operations are divided across regions (e.g., U.S., Europe, Asia), useful for evaluating risk exposure and market diversity.
Inventory Breakdown	Details about types of inventory reported as a single number on the balance sheet. Categories include raw materials, work-in-process, and finished goods.
Litigation Disclosures	Notes that explain current or potential legal proceedings a company is involved in. While amounts may not be quantifiable, the notes provide status updates and risk assessments.
Notes to the Financial Statements	Explanatory sections that accompany financial statements, offering details about accounting policies, assumptions, unrecognized risks, and supplementary data.
Proved Reserves	In oil and gas industries, reserves that are confirmed to be recoverable under existing economic and operational conditions. Disclosed in the notes for companies like ExxonMobil.
Revenue Recognition	Accounting policy that defines when and how revenue is recorded. Notes explain how and when a company recognizes income from sales or services.
Seasonality	Business fluctuations during certain periods (e.g., holidays), often disclosed in the notes to help users understand performance trends.
SEC (Securities and Exchange Commission)	A U.S. federal agency that regulates public companies and requires financial disclosures, including supplementary information in the notes.
Significant Accounting Policies	Section in the notes describing the methods, assumptions, and estimates used in preparing the financial statements. Essential for comparing financials across companies.
Supplementary Information	Additional details required by regulators (e.g., FASB, SEC), such as quarterly results, segment data, and geographic sales, to aid financial interpretation.
Useful Life	An estimate of how long an asset will be useful to the company. Used in calculating depreciation and disclosed in the notes.
Absolute Cell Reference	An Excel reference that remains fixed when copying a formula. Notated with dollar signs (e.g., $A$1).
Common-Size Financial Statement	A financial statement where each line item is shown as a percentage of a base amount. For income statements: each item is a percentage of total sales. For balance sheets: each item is a percentage of total assets.
Directional Change	A shift in financial line items (e.g., income turning into expense) that shows a meaningful change in company operations or performance.
Financial Statement Analysis	The process of evaluating the relationships among financial data and identifying trends over time to assess a company’s performance and financial health.
Horizontal Analysis	A method of financial analysis that compares line items across multiple periods (usually years) to identify trends and percentage changes.
Impairment Charges	Costs recorded when the carrying amount of an asset exceeds its recoverable value; often associated with restructuring or discontinued operations.
Integration and Restructuring Charges	Expenses related to reorganizing business operations, often after mergers or acquisitions. Can significantly impact financial results.
Net Income Increase Despite Revenue Decline	A situation where profits grow even if sales fall, often indicating effective cost-cutting or one-time gains.
Outliers	Unusually large or unexpected changes in financial data that stand out from normal patterns and may require deeper investigation.
Percentage Change	The amount a financial metric has increased or decreased compared to a previous period. Formula: (Current – Prior) ÷ Prior × 100%
Relative Cell Reference	An Excel reference that changes when a formula is copied to another cell (e.g., A1 becomes A2 when copied down a row).
Restructuring	Reorganizing a company’s operations, often involving layoffs, asset write-offs, or facility closures. Reflected in restructuring charges.
Revenue-to-Income Analysis	An evaluation of how changes in revenue impact net income. For instance, identifying when net income increases despite revenue declines.
Sales Decline	A drop in revenue over a given period. Often analyzed to determine if it reflects broader market trends, internal issues, or restructuring.
Tax Expense Drop	A decrease in tax payments, which may result from lower income, tax benefits, or operational changes. Can significantly affect net income.
Trend Analysis	The examination of financial data over time to identify consistent patterns or emerging changes that inform strategic decisions.
Vertical Analysis	A method that expresses each financial statement item as a percentage of a base amount for a single period, useful for comparing companies of different sizes.
Year-Over-Year Comparison	Comparing financial results from one year to another to evaluate performance and highlight trends or anomalies.
Balance Sheet Vertical Analysis	A method of evaluating a company’s balance sheet by expressing each line item as a percentage of total assets.
Common-Size Financial Statement	A financial statement in which each line item is presented as a percentage of a common base—typically sales for the income statement and total assets for the balance sheet.
Expense Allocation	The breakdown of company expenses (e.g., cost of goods sold, marketing, R&D) as a percentage of total revenue, used to evaluate efficiency and spending patterns.
Financial Structure	The proportion of various components such as revenue, cost, operating income, and taxes relative to total sales or total assets. Used in vertical analysis to assess business strategy and efficiency.
Gross Margin	The percentage of sales revenue remaining after subtracting cost of goods sold. Formula: Gross Margin = (Revenue − Cost of Goods Sold) ÷ Revenue × 100
Industry Comparison	Using vertical analysis to compare financial statement data across companies in the same industry to assess differences in cost structure and profitability.
Net Income Margin	Also called Net Profit Margin, this is the percentage of total revenue that remains as net income after all expenses, taxes, and costs have been deducted. Formula: Net Income ÷ Revenue × 100
Operating Income	Income generated from regular business operations, excluding taxes and interest. Used in vertical analysis to assess core operational efficiency. Formula: Operating Income ÷ Revenue × 100
Percentage of Sales	A standardization technique in vertical analysis where each line item on the income statement is divided by total sales to express it as a percentage.
Provision for Income Taxes	The amount a company sets aside to pay income taxes, often shown as a percentage of total revenue in vertical analysis to evaluate tax burden.
Research and Development (R&D)	An expense category representing investments in innovation and new product development. Compared as a percentage of sales to assess how much companies invest in future growth.
Sales and Marketing Expenses	Costs associated with promoting and selling products or services. In vertical analysis, these are often evaluated as a percentage of total revenue.
Standardization	Converting raw financial data into percentages (e.g., of total sales or assets) to allow for comparisons between companies of different sizes.
Total Revenue (or Total Sales)	The base figure used in income statement vertical analysis. All other income statement items are expressed as a percentage of this amount.
Vertical Analysis	A financial analysis method that expresses each item in a financial statement as a percentage of a base amount within the same period (e.g., total sales or assets), allowing for cross-company or industry comparison.
Accounts Payable	The amount a company owes to suppliers for goods and services purchased on credit.
Accounts Receivable	The amount of money customers owe a company for goods or services delivered on credit.
Budgeting Cash Inflows	The process of forecasting expected cash receipts from sources like cash sales and collections from credit customers.
Budgeting Cash Outflows	The process of forecasting expected payments for expenses such as inventory, payroll, and rent.
Cash Budget	A financial plan that estimates a company’s expected cash inflows and outflows over a specific period to anticipate and manage cash needs.
Cash Collections Forecast	An estimate of the timing and amount of cash that will be collected from credit sales in future periods.
Cash Deficit	Occurs when cash outflows exceed inflows during a specific time period, requiring borrowing or expense adjustments.
Cash Flow	The total amount of cash moving into and out of a business over a period, used to evaluate liquidity and operational efficiency.
Cash Flow Forecasting	The practice of predicting future cash inflows and outflows to ensure adequate liquidity for business operations.
Cash Inflows	Money received by a business, typically from cash sales or collection of receivables.
Cash Outflows	Payments made by a business for expenses, purchases, debt repayments, or dividends.
Cash Sales	Sales transactions in which payment is received at the time of sale.
Collection Pattern	A company’s historical schedule of when credit sales are typically collected, used for forecasting cash receipts.
Cost of Goods Sold (COGS)	The direct costs attributable to the production or purchase of goods sold by a company.
Credit Sales	Sales made on account, where payment is received after the transaction date.
Forecast Sales Data	Estimated future sales figures used to project cash inflows and inventory needs.
Inventory Purchases Forecast	Predicted future inventory purchases, used in budgeting outflows related to inventory replenishment.
Line of Credit	A pre-approved borrowing limit that a company can draw from when it experiences a cash shortfall.
Net Cash Flow	The difference between total cash inflows and total cash outflows over a given period.
Payment Schedule	The timing and percentage breakdown of how and when a company pays for purchases, such as splitting payments across months.
Proactive Planning	Anticipating future cash flow needs and taking early action (e.g., borrowing or delaying payments) to avoid shortfalls.
Short-Term Financing	Temporary borrowing, such as through a line of credit or loan, used to cover immediate cash needs.
Surplus	Occurs when cash inflows exceed outflows in a given period, allowing for debt repayment or reinvestment.
Spreadsheet application	A software tool like Excel used to organize, calculate, and analyze data in tabular form.
Excel environment	The working interface and tools available within Microsoft Excel.
Chart Menu	A context-specific menu in Excel that appears when a chart is selected, offering tools for editing and formatting.
Design (menu)	Excel menu used for making high-level changes to a chart’s layout and style.
Labels (menu)	Excel menu used to edit chart elements like titles, legends, and axis labels.
Format (menu)	Menu used to customize chart colors, text, and other visual elements.
Insert tab	A section of the Excel ribbon where users can insert charts, tables, and other objects.
Insert chart	The process of selecting and adding a specific type of chart (e.g., column, pie) to display data visually.
2-D column chart	A vertical bar chart that shows values using two-dimensional columns.
Column chart	A chart type that uses vertical bars to compare data across categories or over time.
Side-by-side column chart	A chart where multiple columns are placed next to each other to compare related data sets.
Bar chart	A chart that uses horizontal bars to display and compare data across categories.
Pie chart	A circular chart divided into slices to represent parts of a whole.
Line chart	A chart that displays data trends over time using connected lines.
Chart title	The main heading of a chart, describing its contents.
Legend	A key that explains the symbols, colors, or patterns used in a chart.
Axis titles	Labels on the chart’s axes that describe what each axis represents.
Axis options	Settings to adjust the appearance and behavior of chart axes.
Data labels	Values displayed directly on a chart to indicate the data for each point.
Horizontal Axis Labels	The labels displayed along the horizontal axis (usually categories like months or names).
Edit button	A control in Excel used to modify elements such as axis labels or data sources.
Cash receipts	Money received by a business, typically from sales or collections.
Cash disbursements	Money paid out by a business, such as for expenses or loan repayments.
Cash collections	Cash received from customers, especially from sales made on credit.
Cash inflows	All sources of cash entering a business during a period.
Cash outflows	All expenditures or payments of cash during a period.
Cash budgeting	The process of estimating a business’s future cash needs and flows.
Cash balance	The amount of cash available at any given time.
Cash flow budget	A forecast of expected cash inflows and outflows over a specific period.
Cash flow patterns	Trends or behaviors in how cash moves into and out of a business over time.
Forecasting	Predicting future financial conditions or trends based on current data.
Excess cash	Surplus funds available after meeting all financial obligations.
Short-term loan terms	Conditions associated with borrowing money for a brief period.
Decision-making	The process of selecting a course of action among multiple alternatives.
Business operations	The day-to-day activities required to run a business and generate value.
Company management	The team responsible for planning and directing the company’s activities.
Compare categories	Evaluating data across different groups to identify differences or trends.
Time periods	Specific spans of time (e.g., months) used in financial analysis.
Time series	A sequence of data points collected or recorded at regular intervals over time.
Credit sales	Sales made where the customer agrees to pay at a later date.
Cash sales	Sales where payment is received immediately at the time of the transaction.
Master budget	A comprehensive financial plan combining all operating and financial budgets for a set period, guiding overall business operations.
Budgeting process	The sequence of steps involved in creating a budget, including sales estimation, production planning, and financial forecasting.
Sales budget	A projection of expected sales revenue, typically based on market analysis and internal sales goals.
Production budget	A plan that determines how many units need to be produced to meet expected sales and maintain inventory levels.
Product cost budget	A budget estimating the costs of manufacturing a product, including materials, labor, and overhead.
Inventory purchase budget	A plan for the amount of inventory that needs to be purchased, often used by retailers.
Cost and expenditure budgets	Budgets that forecast spending in various departments such as marketing, IT, and administration.
Direct materials budget	A projection of the raw materials required to meet production targets.
Direct labor budget	A forecast of the labor hours and costs needed to meet production requirements.
Manufacturing overhead budget	An estimate of indirect manufacturing costs, such as utilities and depreciation.
Selling and administrative expenses budget	A budget for operational costs outside of production, like office salaries and advertising.
Cash budget	A financial plan showing expected cash inflows and outflows during a budget period.
Pro forma financial statements	Budgeted versions of the income statement and balance sheet, based on planned activities.
Operating plan	A detailed strategy covering daily business activities during the budget period.
Financing plan	A section of the budget that outlines how the business will obtain and use funds.
Quarterly budget	A budget broken into three-month periods for better tracking and adjustments.
Profitability	A business's ability to generate more revenue than expenses.
Forecast	A prediction of future financial performance based on current and historical data.
Sales forecast	An estimate of future sales volumes, often the starting point for the budgeting process.
Scheduling	Planning when production activities or other operations will occur.
Pricing	Setting the selling price for products or services.
Borrowing	Acquiring funds through loans to support business activities.
Investing	Allocating resources to generate future profits.
Cost control	Managing and reducing expenses to increase profitability.
External factors	Elements outside the business that influence operations (e.g., economic conditions, competition).
Internal factors	Business-controlled elements like pricing strategies or product quality.
Sales forecasting	Techniques used to estimate future sales, from basic customer feedback to complex statistical analysis.
Statistical models	Mathematical tools used to predict outcomes like sales volumes or market trends.
Customer insights	Information gained from analyzing customer behavior, preferences, and feedback.
Analytical tools	Software or methods used to examine data and support decision-making.
Accountability	The obligation of managers to report and justify outcomes for areas under their control.
Analytical tools	Software or techniques used to analyze data for decision-making.

Controllable costs	Expenses that a manager can influence or adjust directly.
Controllable fixed costs	Fixed costs that a manager can influence, such as department staffing or local budgets.
Contribution margin	Sales revenue minus variable costs; shows the amount available to cover fixed costs.
Cost center	A responsibility center where the manager is accountable only for managing costs.
Cost control	Managing and minimizing expenses efficiently.
Cost variance	The difference between actual and budgeted costs.
Decision-making authority	The level of autonomy a manager or division has to make operational choices.
Depreciation	A non-cash expense representing the reduction in value of fixed assets over time.
Direct labor	Labor directly involved in producing goods or services.
Direct materials	Raw materials used directly in the production of a product.
Exception reports	Reports highlighting deviations from budget or expectations, both favorable and unfavorable.
External factors	Influences outside the organization, like economic conditions or competitors.
Fixed costs	Costs that remain constant regardless of production or sales volume.
Investment center	A responsibility center where the manager controls revenues, costs, and assets.
Managerial performance	The effectiveness with which a manager controls their assigned responsibilities.
Operating profit	Profit earned from core business operations (sales minus operating expenses).
Operating profit margin	A ratio indicating the percentage of revenue left after operating expenses; Operating Profit ÷ Sales.
Organizational segments	Distinct units within a business, such as divisions or regions, with assigned responsibilities.
Participation (in budgeting)	Involvement of managers in setting goals
Ad campaign effectiveness	A measure of how well a marketing campaign influences sales or customer behavior.
Audience (Accounting)	The intended users of accounting information—internal users (managers) for managerial accounting, external users (investors, creditors) for financial accounting.
Comparability	The quality of accounting information that allows users to identify similarities and differences between companies.
Cost Center Report	A document comparing budgeted vs. actual expenses for a specific department, used for cost control.
Cross-tabulation	A method of analyzing relationships between two or more data variables to support decision-making.
Data (Financial vs. Managerial)	Financial accounting uses summary financial data; managerial accounting includes detailed financial and non-financial data.
Decision-making	The process of choosing among alternatives, often informed by accounting data.
Demographics of buyers	Data that describes the characteristics of customers, such as age, location, or income.
External stakeholders	Individuals or entities outside the company (e.g., investors, creditors, regulators) who use financial accounting reports.
Financial Accounting	The branch of accounting focused on standardized, regulated reports for external stakeholders.
GAAP (Generally Accepted Accounting Principles)	A set of accounting rules and standards used in the U.S. for financial reporting.
IFRS (International Financial Reporting Standards)	A global set of accounting standards used for financial reporting outside the U.S.
Internal stakeholders	Individuals within the company (e.g., managers, employees) who use managerial accounting data.
Management Accounting (Managerial Accounting)	Accounting focused on providing internal decision-makers with data to guide operations and strategy.
Non-financial data	Information not measured in monetary terms (e.g., customer satisfaction, employee turnover), used in managerial accounting.
Performance evaluation	Assessing how well departments or products meet goals using accounting metrics.
Product-Line Income Statement	A report showing profitability by product line, used in managerial accounting.
Product-Line Profitability Report	A detailed report analyzing each product line's revenues, variable costs, and fixed costs.
Regulations (Accounting)	Standards that govern how financial reports are prepared and presented (e.g., GAAP, IFRS).
Resource allocation	The distribution of resources (money, labor, etc.) among different parts of a business.
Sales budget	A projection of future sales, often the first step in the budgeting process.
Standardization	The use of consistent formats and rules in reporting, typical of financial accounting.
Strategic decisions	Long-term decisions that shape a company’s future direction, often based on managerial accounting data.
Summary data	Aggregated figures reflecting overall company performance, typical in financial accounting.
Target clients	A defined group of potential customers that a business aims to serve.
Walmart Case Study	An example used to illustrate the contrast between internal managerial data and external financial reporting.
Accounting cycle	The full sequence of steps in recording and processing financial transactions, from identifying to reporting.
Bookkeeper	A person responsible for recording day-to-day financial transactions.
Budgeting	The process of creating a financial plan to allocate resources and forecast future activities.
Capital budgeting	The process of planning and evaluating investments in long-term assets like equipment or technology.
Controlling	Monitoring actual performance against plans and making necessary adjustments to stay on track.
Controllers	High-level accounting professionals responsible for overseeing financial reporting and compliance.
Cost accountant	A specialist who analyzes and manages costs related to production and operations.
Evaluating	Assessing performance by comparing actual results with planned goals and providing feedback.
External stakeholders	Individuals or groups outside the organization (e.g., investors, creditors) who use financial reports for decision-making.
Financial accounting	The area of accounting focused on creating standardized financial statements for external users.
Financial statements	Standardized reports (income statement, balance sheet, cash flow statement) used to present financial performance.
Internal stakeholders	Managers and employees within the organization who use accounting data for internal decisions.
Long-run planning	Strategic planning that focuses on decisions and resource allocation over a 3–5 year horizon.
Managerial accounting	The branch of accounting focused on providing detailed financial and non-financial information for internal decision-making.
Operational budgeting	A short-term financial planning process for daily, weekly, or monthly operations.
Outsourcing	Contracting a third party to perform tasks or produce goods instead of handling them internally.
Pitcher performance	A metaphor/example used to explain real-time data monitoring and performance adjustments.
Planning	The process of identifying goals, analyzing alternatives, and choosing actions to achieve strategic or operational objectives.
Process prioritizing	Determining which tasks or processes should be completed first to best meet operational goals.
Real-time data	Information that is available immediately as events occur, used for making quick, informed decisions.
Short-run planning	Operational decisions focused on immediate or near-future activities, such as weekly or monthly tasks.
Strategic planning	Long-term planning that defines an organization’s overall goals and direction.
Variance	The difference between budgeted and actual figures, used to evaluate performance.
Variance analysis	The process of analyzing deviations from planned performance to guide corrective actions.
Direct labor	The wages paid to workers who are directly involved in the production of goods or delivery of services.
Direct materials	The raw materials that can be directly traced to the production of specific finished goods.
Finished goods	Completed products that are ready for sale to customers.
Manufacturing business	A company that uses raw materials and labor to produce tangible products for sale.
Merchandising business	A company that purchases finished goods from suppliers and resells them to customers without altering the product.
Overhead costs	Indirect manufacturing costs that are not directly traceable to specific products, such as utilities, maintenance, and factory rent.
Period costs	Non-manufacturing expenses like administrative salaries and office rent that are expensed in the period they occur.
Product costs	Costs tied to the production or purchase of goods, including materials, labor, and overhead, which are capitalized as inventory until the goods are sold.
Raw materials	Basic materials used to produce goods in a manufacturing process.
Resale	The act of buying goods from a supplier and selling them to a consumer, often at a markup.
Service business	A company that provides intangible products (services) rather than physical goods.
Tangible product	A physical item that can be touched and stored, typically produced or sold by manufacturing or merchandising businesses.
Administrative expenses	Costs related to the overall management of the company (e.g., executive salaries, office rent); classified as period costs.
Cost of Goods Manufactured (COGM)	The total cost of manufacturing products during a specific period, including direct materials, direct labor, and manufacturing overhead.
Cost of Goods Sold (COGS)	The cost of inventory that has been sold during the period; appears on the income statement.
Depreciation (factory)	A manufacturing overhead cost that represents the allocation of a factory asset’s cost over time.
Direct labor	Wages paid to workers directly involved in manufacturing products.
Direct materials	Raw materials that are physically and directly incorporated into the final product.
Factory maintenance	Costs incurred for cleaning and upkeep of the production facility; part of manufacturing overhead.
Factory rent	The cost of renting a manufacturing facility; considered manufacturing overhead.
Finished goods inventory	Completed products ready for sale, awaiting transfer to COGS when sold.
Gross profit	Revenue minus the cost of goods sold; a measure of profitability before operating expenses.
Income statement	A financial statement showing revenue, expenses, and profit over a period.
Machinery costs	Costs for operating and maintaining machinery used in production; part of manufacturing overhead.
Manufacturing business	A business that produces finished goods from raw materials through labor and overhead processes.
Manufacturing overhead	All indirect costs associated with production that are not direct materials or direct labor.
Operating expenses	Costs associated with running the business outside of production (e.g., sales, general, and administrative costs).
Operating income	Income from core business operations, calculated as gross profit minus operating expenses.
Period costs	Costs not directly tied to production (e.g., administrative, marketing, R&D); expensed in the period incurred.
Product costs	Costs incurred inside the factory (direct materials, direct labor, and manufacturing overhead); capitalized as inventory.
Property tax (administrative)	A tax on administrative facilities; classified as a period cost.
Property tax (factory)	A tax expense on factory property; considered manufacturing overhead.
Raw materials	Basic materials used to produce finished goods in manufacturing.
Raw materials inventory	A storage account for raw materials awaiting use in the production process.
Research and development (R&D)	Costs associated with developing new products or services; considered period costs.
Sales revenue	The total amount earned from selling goods or services before expenses.
Utilities (factory)	Utility expenses used in the manufacturing process (e.g., electricity, water); part of manufacturing overhead.
Wages (supervisory staff)	Salaries for staff who oversee production; included in manufacturing overhead.
Work-in-process inventory	Inventory that includes goods currently in production but not yet completed.
Administrative costs	Expenses related to the general operation of a business, such as executive salaries, office rent, and supplies; classified as period costs.
Cost allocation	The process of assigning costs to specific departments, products, or services to ensure accurate financial reporting.
Cost of Goods Sold (COGS)	The cost of inventory that has been sold; includes product costs like direct materials, direct labor, and manufacturing overhead.
Direct labor	Wages paid to workers who are directly involved in producing goods or delivering services.
Direct materials	Raw materials that can be directly traced to the production of specific finished goods or services.
Home Depot (example)	A merchandising business where product costs include goods purchased for resale and period costs include advertising and salaries.
Manufacturing overhead	Indirect costs related to the manufacturing process, such as factory utilities, depreciation, and maintenance.
Merchandiser	A business that purchases finished goods for resale; product costs include the purchase price of goods, and period costs include sales-related expenses.
Operational efficiency	The ability to deliver products or services cost-effectively, often monitored using period cost data.
Period costs	Costs not directly tied to production, such as selling and administrative expenses; expensed in the period incurred.
Pricing and profitability	The use of product cost data to set prices and assess whether a product generates profit.
Product costs	Costs directly associated with manufacturing or service delivery, including direct materials, direct labor, and overhead; capitalized as inventory until sold.
Service company	A business that provides services rather than physical goods; product costs may include labor, while period costs include general operating expenses.
Walmart (example)	A merchandiser where product costs are tied to purchased inventory and period costs include corporate operations.
Billable hours	The hours worked by professionals that can be charged to a client; often used as a basis for overhead allocation in service businesses.
Cost of Goods Manufactured (COGM)	The total production cost of goods completed during a specific period in a manufacturing business.
Cost of Goods Sold (COGS)	The expense recognized when goods or services are sold; includes the cost of production or purchase.
Cost of Services	The total accumulated cost for services delivered, similar to COGS in manufacturing.
Direct labor	Wages and benefits paid to employees who are directly involved in the production of goods or delivery of services.
Direct materials	Raw materials used directly in the production of goods; not typically applicable in service companies.
Finished goods inventory	Completed products in a manufacturing company awaiting sale.
Indirect labor	Wages for employees who support production but do not directly produce the product (e.g., supervisors); part of manufacturing overhead.
Indirect materials	Materials used in production that are not directly traceable to a specific product (e.g., glue, nails); part of manufacturing overhead.
Manufacturing overhead	Indirect production costs including factory rent, utilities, maintenance, and supervisor salaries.
Merchandise inventory	Goods purchased by a merchandising company for resale without modification.
Merchandising business	A company that purchases finished goods for resale to customers.
Overhead allocation	The process of assigning indirect costs to products or services using a predetermined basis such as billable hours or miles driven.
Period costs	Costs not directly tied to production (e.g., selling, administrative expenses); expensed when incurred.
Predetermined overhead rate	A calculated rate used to allocate overhead costs to products or services, based on estimated activity levels.
Product costs	Costs that are directly associated with the creation of a product or service, such as direct labor, direct materials, and manufacturing overhead.
Raw materials	Basic inputs used in the manufacturing process to produce finished goods.
Service business	A company that provides intangible products (services) such as consulting, legal, or engineering work.
Service overhead	Indirect costs in a service business used to support service delivery, including infrastructure and administrative support.
Supplies (service business)	Items used in providing services (e.g., paper, toner, office tools), often treated as overhead.
Trucking firm overhead	Example of service overhead allocated by miles driven to ensure accurate service costing.
Work-in-Process (WIP) Inventory	Inventory of products that are in the process of being manufactured but not yet completed.
Work-in-Process Services	A service-specific term similar to WIP, representing client services in progress before completion.
Break-even point	The level of sales at which total revenue equals total costs, resulting in zero profit.
Car dealership rent	An example of a mixed cost including a fixed monthly base plus a variable component tied to sales.
Cost behavior	The way in which a cost changes as the level of business activity changes.
Cost-Volume-Profit (C-V-P) analysis	A tool used to evaluate how changes in costs and volume affect a company’s profit.
Direct labor	Wages paid to workers who directly produce goods or provide services; a variable cost.
Economy of scale	The concept that the fixed cost per unit decreases as production increases.
Fixed cost	A cost that remains constant in total, regardless of changes in the level of production or sales.
Fixed cost per unit	The fixed cost allocated to each unit produced; it decreases as more units are made.
Graphing fixed costs	Displays a horizontal line showing total fixed costs do not change with activity.
Graphing variable costs	Displays a straight, upward-sloping line starting from the origin, showing total cost rising with activity.
Input measures	Units of activity such as labor hours or machine hours used in production analysis.
Margin (C-V-P)	The difference between revenue and variable costs; used to cover fixed costs and generate profit.
Mixed cost	A cost that includes both fixed and variable components (e.g., base rent plus commission).
Predicted profit	Profit calculated after covering all fixed and variable costs based on expected sales volume.
Relevant range	The range of activity levels within which cost behavior assumptions (fixed or variable) hold true.
Sales commission	A variable cost tied directly to sales volume.
Sales volume	The number of units or services sold during a period.
Stepped cost	A cost that stays fixed over a range but increases to a new level once a threshold is passed.
Total fixed cost	A lump-sum cost that does not change with activity, such as rent.
Total variable cost	A cost that increases proportionally with the number of units produced or sold.
Variable cost	A cost that varies directly with the level of activity or output.
Variable cost per unit	The cost incurred for each unit produced; remains constant regardless of volume.
Volkswagen Beetle example	Used to illustrate how fixed and variable costs behave as production increases.
Actual overhead	The real, incurred overhead costs recorded during the accounting period.
Applied overhead	The amount of overhead assigned to specific jobs using the predetermined overhead rate (POHR).
Cost center	A responsibility center where the manager controls only costs (e.g., IT department).
Depreciation	The reduction in value of a fixed asset over time, often recorded as an overhead cost.
Differential cost	A cost that changes based on a specific decision or business alternative.
Direct cost	A cost that can be directly traced to a specific product, department, or service.
Indirect cost	A cost that cannot be directly traced to a single product or unit; supports multiple departments.
Investment center	A responsibility center where the manager controls costs, revenues, and assets (e.g., company division).
Manufacturing Overhead account	A ledger account used to accumulate and track actual and applied overhead costs.
Opportunity cost	The value of the next best alternative foregone when a decision is made.
Out-of-pocket cost	An expense that requires a direct cash payment.
Overapplied overhead	When the applied overhead exceeds the actual overhead incurred; may result in overpriced products.
Overhead cost	Indirect costs related to production or operations, such as rent, maintenance, and utilities.
Predetermined Overhead Rate (POHR)	An estimated rate used to apply overhead costs, calculated as Estimated Overhead ÷ Estimated Activity Base.
Profit center	A responsibility center where the manager controls both revenues and costs (e.g., regional sales office).
Responsibility center	A unit within an organization where a manager is held accountable for specific financial outcomes.
Sunk cost	A cost that has already been incurred and cannot be recovered; irrelevant for future decisions.
Underapplied overhead	When the applied overhead is less than the actual overhead incurred; may result in underpricing.
Work-in-Process (WIP) Inventory	An account where costs are accumulated for jobs that are not yet completed during production.
Break-even analysis	A method used to determine the sales volume at which total revenue equals total costs, resulting in zero profit.
Break-even point	The sales volume where a company neither makes a profit nor incurs a loss.
CM per unit	Contribution margin for a single unit, calculated as Selling Price – Variable Cost per unit.
Contribution margin (CM)	The amount remaining from sales revenue after deducting variable costs; used to cover fixed costs and generate profit.
Contribution Margin Income Statement	An internal financial statement organized by cost behavior (variable vs. fixed) rather than function.
Cost behavior	The way costs change in relation to business activity levels (e.g., fixed vs. variable).
Cost-Volume-Profit (C-V-P) analysis	A managerial accounting tool used to analyze how changes in cost and sales volume affect profit.
Fixed costs	Costs that do not vary with the level of production or sales.
Internal planning	Strategic management use of financial data (e.g., contribution margin) to guide operational decisions.
Pricing strategy	The method used to set prices based on cost structure, market demand, and profitability analysis.
Profit forecasting	Projecting future profit based on anticipated sales volume, costs, and pricing strategies.
Regular income statement	A financial statement formatted by function (e.g., COGS), used for external reporting and GAAP compliance.
Sales volume	The quantity of products or services sold during a specific period.
Strategic decision-making	The use of financial data, such as break-even and contribution margin analysis, to guide long-term business choices.
Total revenue	The total amount earned from sales before any costs are deducted.
Variable costs	Costs that vary directly with the level of production or sales volume.
Differential cost	A future cost that varies depending on the decision made; also known as relevant, avoidable, or incremental cost.
Direct cost	A cost that can be directly traced to a specific product, service, or department.
Fixed cost	A cost that remains unchanged in total regardless of changes in production or sales volume.
Indirect cost	A cost shared across multiple departments or products and not directly traceable to a specific one.
Opportunity cost	The value of the next best alternative foregone as the result of a decision; not recorded in accounting systems.
Out-of-pocket cost	A cost that involves a real cash outlay, such as a payment for goods or services.
Period cost	A cost incurred outside the production process, such as administrative or office expenses.
Product cost	A cost incurred as part of the production process, including direct labor, materials, and manufacturing overhead.
Sunk cost	A cost that has already been incurred and cannot be recovered; should be ignored in future decisions.
Variable cost	A cost that varies directly with the level of production or sales activity.
Break-even point	The sales level at which total revenue equals total costs, resulting in zero profit.
Break-even sales (dollars)	The dollar amount of sales needed to cover all costs, calculated as Fixed Costs ÷ Contribution Margin Ratio.
Break-even sales (units)	The number of units that must be sold to cover all costs, calculated as Fixed Costs ÷ Contribution Margin per Unit.
Contribution margin (CM)	The amount remaining from sales after subtracting variable costs; used to cover fixed costs and contribute to profit.
Contribution margin per unit	The contribution margin for each unit sold, calculated as Sales Price – Variable Cost per Unit.
Contribution margin ratio	The percentage of each sales dollar remaining after covering variable costs; calculated as CM ÷ Sales Price.
Cost-Volume-Profit (CVP) analysis	A method for analyzing how changes in costs and volume affect a company’s operating profit.
Fixed costs	Costs that remain constant in total regardless of activity level, within a relevant range.
Profit forecasting	The process of estimating future profit levels based on projected sales volume and cost structure.
Sales revenue	Total income from sales before deducting any costs.
Target income	The desired level of profit that a business aims to achieve; used in CVP calculations to determine required sales.
Variable cost ratio	The proportion of each sales dollar that goes toward variable costs; calculated as Variable Costs ÷ Sales Revenue.
Variable costs	Costs that change in total directly in proportion to changes in activity or sales volume.
Admin Salaries	Salaries paid to administrative staff; classified as period costs since they are incurred outside the factory.
Auto Repairs	Services that vary by job and require tracking of labor, materials, and overhead; a real-world example of job order costing.
Capitalized	A cost recorded as part of an asset (such as inventory) rather than an expense until the product is sold.
Christmas Light Installation	An example of a service where each job is unique and requires tracking of time, materials, and overhead.
COGS (Cost of Goods Sold)	The expense recorded when a product is sold; includes direct materials, direct labor, and allocated overhead.
Consulting Projects	Services that are customized and require job order costing to track costs for each client engagement.
Custom Homes	Homes built to order; each is a separate job requiring its own cost tracking.
Custom Manufacturing	Production based on unique specifications for each job; appropriate for job order costing.
Depreciation	A non-cash expense that allocates the cost of tangible assets over their useful life; included in manufacturing overhead.
Direct Labor	Wages paid to workers who are directly involved in producing a specific product or completing a specific service.
Direct Materials	Raw materials that can be directly traced to a specific job or product.
Engine Repair	A type of service that varies job-to-job, used as an example of the need for job-specific cost tracking.
Factory Labor	Includes both direct labor and the labor costs incurred within the production facility.
Factory Rent	A manufacturing overhead cost that is included in product cost because it occurs inside the factory.
Finished Goods Inventory	Completed products that are awaiting sale; the final stage before costs move to COGS.
Gross Margin	The difference between sales revenue and the cost of goods sold; used to evaluate profitability.
Home Renovations	Custom remodeling projects requiring job-specific cost tracking; a practical example of job order costing.
Human Resources	A department that may use job order costing to allocate costs for specific projects like training rollouts.
Indirect Costs	Costs not directly traceable to a specific job or product, such as utilities and equipment usage; included in overhead.
IT Management	A business function where job order costing can be applied to projects like system implementations.
Job	A unique product or service order for which costs are tracked individually in a job order costing system.
Job Order Costing	A costing method where costs are tracked by individual jobs or projects; used for customized or unique production.
Legal Cases	Professional services that vary by client and require cost tracking per engagement.
Line Workers	Employees directly involved in the production of goods; usually part of direct labor.
Maintenance	An indirect cost related to keeping production equipment in working order; included in manufacturing overhead.
Manufacturing Overhead	All indirect factory-related costs needed to produce a product, such as utilities, rent, and supervision.
Marketing Campaigns	Custom projects that benefit from job order costing for accurate tracking of project expenses.
Office Utilities	Costs incurred outside of production; classified as period costs.
Oil Change	A routine service that varies from other services (e.g., engine repair), supporting the use of job order costing in auto shops.
Overhead	Indirect costs that support production but are not directly traceable to a specific product or service.
Packaged Foods	An example of mass production where process costing is more appropriate due to uniformity.
Period Cost	A cost incurred outside the factory that is expensed in the period incurred, such as admin salaries or office rent.
Predetermined Rate	A rate used to apply manufacturing overhead to jobs, calculated before the accounting period begins.
Process Costing	A costing system used when products are mass-produced and identical; not appropriate for custom jobs.
Product Cost	Costs associated with producing a product inside the factory, including direct materials, direct labor, and overhead.
Profitability	The ability of a product, job, or business to generate financial gain; job order costing helps measure this.
Property Taxes on Factory	Considered a product cost because they are incurred inside the production facility.
Property Taxes on Office	Considered a period cost because they are incurred outside of production operations.
Raw Materials	Basic materials used in production that can either be traced directly to a job (direct materials) or not (indirect materials).
Security	A support service in the factory considered part of manufacturing overhead.
Setting Prices	A key function of costing systems; job order costing provides accurate data to avoid underpricing or overpricing.
Software Development	Often requires job order costing to track resources used for each client or internal project.
Strategic Planning	Long-term decision-making that benefits from accurate job cost information.
Subcontractor Work	Work contracted out and included in the cost of a custom job; part of job order costing.
Supervisors	Their wages are included in manufacturing overhead if they oversee production.
Technicians	Skilled workers who may be classified under direct labor when their work is directly tied to job completion.
Training	A service cost in departments like HR or IT; tracked per project when job order costing is applied.
Utilities (Factory)	Indirect costs used to operate the production facility; part of manufacturing overhead.
Valuing Assets	The role of accurate product costing in reporting inventory values on the balance sheet.
Wages	Payments to workers; classified as direct labor or part of overhead depending on the nature of the work.
Work-in-Process Inventory	Partially completed goods that are still in the production process; includes accumulated costs.
Activity-Based Costing (ABC)	A costing method that assigns overhead to products or services based on multiple cost-driving activities, resulting in more accurate product costing.
Activity Rate	The overhead cost per cost driver unit, calculated by dividing the total cost pool by the number of cost driver units.
Batch-Level Activity	An activity performed each time a batch of products is processed, regardless of the number of units in the batch (e.g., machine setup).
Cost Driver	A measurable activity that causes overhead costs to occur (e.g., machine hours, number of design changes).
Cost Pool	The total overhead cost associated with a specific activity (e.g., design changes or home design).
Design Changes	A specific cost pool in the architectural services example, driven by the number of client-requested changes to home designs.
Flat Rate	A pricing method where all clients are charged the same amount regardless of how many resources they consume; shown in the lesson to lead to over- or under-charging.
Home Design	A specific cost pool in the architectural services example, allocated based on the number of homes designed.
Overhead Allocation	The process of assigning indirect costs to products or services using a systematic approach (e.g., based on cost drivers).
Product-Line Activity	An activity that supports an entire product line, not specific units or batches (e.g., research and development).
Traditional Costing	A costing method that assigns overhead using a single activity base, such as direct labor hours or machine hours, often resulting in less accurate cost data.
Tootie Fruitee Cheesecake	A complex product example in the ice cream case study requiring more ingredients and therefore allocated more overhead under ABC.
Unit-Level Activity	An activity performed each time a unit is produced (e.g., drilling a hole, stamping a label).
Vanilla	A simple product example in the ice cream case study with fewer ingredients and therefore less overhead cost.
Activity-Based Costing (ABC)	A costing method that focuses solely on assigning overhead using multiple cost drivers; used to improve accuracy within other costing systems like job order or process costing.
Average Cost per Unit	The total cost accumulated in a process divided by the number of units produced; used in process costing to assign equal cost to identical units.
Chevron Corporation	A real-world example of a company using process costing due to its mass production of petroleum products.
Cost Flow	The movement of costs through sequential stages: raw materials → production processes → finished goods inventory → cost of goods sold (COGS).
Cost of Goods Sold (COGS)	The expense recognized when finished goods are sold; includes all accumulated production costs.
Cost Pool	A grouping of similar overhead costs in a process that are averaged across units; relevant in both process and activity-based costing systems.
Finished Goods Inventory	Products that have completed all production stages and are ready to be sold.
Heinz	A process costing example company that mass-produces standardized products like ketchup and condiments.
Hershey	A company that uses process costing due to its high-volume, uniform production of items like Hershey’s Kisses.
Identical Units	Products that are uniform in nature, making it unnecessary to track individual costs; a key condition for using process costing.
Job Order Costing	A costing system used when products or services are customized; contrasts with process costing which is used for mass production.
Let-Down Process	A stage in paint production where additional ingredients are mixed into the mill base to form the final product.
Manufacturing Identical Residential Refrigerators	An example of a product best suited for process costing due to its standardized, repetitive production.
Mill-Base Preparation	A step in paint manufacturing where pigments are dispersed to ensure consistency and prevent clumping.
Packaging	One of the common stages in a process costing system where additional costs are added before moving to the next stage.
Paint Manufacturing	A classic example of a production environment where process costing is used, as the products are made in continuous, uniform processes.
PPG Paints	A company that mass-produces paint using process costing, reflecting uniform product characteristics.
Process Costing	A method of product costing in which costs are accumulated by process or department and averaged over all units produced during a set period.
Production	The initial stage in a multi-stage process costing system where raw materials are first transformed.
Quality Testing	The final process stage in some manufacturing systems, like paint production, to ensure consistency across all units.
Raw Materials	Basic materials used in production, added in the initial stages and then transformed as products move through processes.
Standardized Products	Items that are produced in high volume and are essentially identical; a requirement for using process costing.
Stages of Production	The sequential steps in a production system (e.g., production, packaging, finishing), where costs accumulate and are averaged.
Tax Company (Middle-Income Clients)	A service firm most likely to use process costing when client needs and services provided are nearly identical.
To Transfer Costs	The action of moving the accumulated average unit cost from one production process to the next.
Wrigley Company	An example of a business that uses process costing to mass-produce uniform items like chewing gum.

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VYC1 Principles of Accounting WGU

Financial markets and the investment banking process

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