IA Knowledge VII Flashcards
Bonds that carry zero or very low interest but are instead issued at a substantial discount from par value, resulting in amortized discounts (a tax deduction) to maturity and no payments until maturity.
Zero-coupon bonds
Disbursement accounts that are maintained at a zero balance.
Zero-balance accounts (ZBAs)
A type of budget that starts with zero dollars allocated to budget items rather than making incremental changes to already existing allocations.
Zero-based budget
Paper or electronic documents arranged in columnar format for accumulating and recording adjusting entries when preparing financial statements.
Working papers
The combination of the present values of separate cash flows.
Yield-to-maturity (YTM)
A method for calculating the equivalent units of production for a department that uses the number of units transferred to the next department or to finished goods plus the equivalent units in the department’s ending WIP inventory.
Weighted average method
The incremental cost required to surpass the prior marginal cost of capital break point.
Weighted marginal cost of capital
The extent to which a high degree of consensus can be formed between independent measurers when using the same techniques.
Verifiability
The proportion of debt used in an organization times the after-tax cost of debt, plus the proportion of equity used times the cost of equity.
Weighted average cost of capital (WACC)
A method of inventory costing in which all variable manufacturing costs are included as inventoriable costs except for fixed manufacturing costs, which are treated as costs of the period in which they are incurred.
Variable costing
Costs that rise and fall as a firm’s output level rises and falls.
Variable costs
A tax that applies the equivalent of a sales tax to every operation that creates value.
Value-added tax (VAT)
A transfer pricing model that sets transfer prices at the unit’s variable cost, or the actual cost to produce the good or service less all fixed costs.
Variable cost model
A tax that is collected for a particular need, such as a gas tax levied to maintain roads.
Use tax
A ratio used as a prospecting tool to determine the maximum loss over a future period of time given an assigned level of probability.
Value at risk
Stock that has been repurchased by the issuing organization, reducing both assets and stockholders’ equity.
Treasury stock
The accumulated net incomes (losses) that have been retained in an organization.
Undistributed earnings
The risk that fluctuations in exchange rates will affect reported income.
Translation exposure
The most common money market instrument; government securities that are highly liquid with an active secondary market and that mature in a year or less.
Treasury bills (T-bills)
The use of fixed interest in the form of debt or preferred equity stock with the expectation of earning a greater return than the cost of the fixed interest.
Trading on the equity
A system for pricing products or services that are transferred from one organizational subunit to another within the same organization.
Transfer pricing
Symbols or words that distinguish an organization or product.
Trademarks
The risk of poorly trained investors making poor choices.
Trader risk
The practice of manufacturers inducing their wholesalers to carry more inventory than they can reasonably sell.
Trade loading
Symbols or words that distinguish an organization or product.
Trade names
A measure of an organization’s ability to service all of its liabilities; the number of times a company can cover fixed obligations with earnings before interest and taxes (EBIT).
Times interest earned
The financing advanced to a buyer to facilitate sales; results in an account receivable.
Trade credit
The concept that money received today is worth more than money received tomorrow because the money could be invested to earn a return greater than the original investment.
Time value of money
The concept that information must be available at the time the decisions need to be made or it will be of no value.
Timeliness
An issue of bonds that all have the same maturity date.
Term bonds
Loans with floating or fixed interest and a fixed maturity.
Term loans
Any costs that have already been incurred and that cannot be changed by any decision made now or in the future.
Sunk costs
An over-the-counter (possibly dealer-orchestrated) exchange or swap between two counterparties of required payment streams for a specific time period.
Swap
Bonds that have a lesser claim to cash in a default situation than other bonds.
Subordinate bonds
Events that occur after the balance sheet date (usually the end of the fiscal year) but before the financial statement issuance date; they should be disclosed if material (i.e., useful to users), such as sale of a plant.
Subsequent events
A financial statement that starts with the balances from the end of the prior period and shows changes due to net income (loss) and dividends for the period or any new issuances or repurchases of stock.
Statement of shareholders’ equity
Dividends that pay shares of stock, reclassifying a portion of retained earnings as paid-in capital instead of reducing total assets or shareholders’ equity.
Stock dividends
A cost measurement system in which costs are assigned to products using quantity and price standards for direct materials, direct labor, and overhead using a predetermined (standard) rate.
Standard costing system
A financial statement used to show cash levels as of two moments in time: the beginning of the period and the end.
Statement of cash flows
An inventory cost flow method in which each specific item in inventory held or sold is tracked separately; most often used for special order or low-volume, high-cost goods.
Specific identification method
The counterparty that accepts the opposite position from the hedger in a derivative transaction, taking on higher market risk with the expectation of greater returns.
Speculator
Bonds that have staggered maturity dates.
Serial bonds
A liability that accrues interest expense based on a settlement rate determined by actuaries, reflecting the interest rate needed to settle the assets if the plan were terminated.
Service cost
An asset-backed security that makes a pool of assets into a type of mutual fund by selling shares in the pooled principal and interest payments.
Securitization
A type of budget that includes nonmanufacturing expenses.
Selling and administrative expenses budget
A percentage of the amount paid for some purchases of goods and services.
Sales tax
The estimated value of an asset if sold at the end of its depreciation period or service life.
Salvage value
A 12- to 18-month budget system that rolls forward one month (or quarter) as the current month (or quarter) is completed.
Rolling budget
A projection of expected sales in units and expected selling prices.
Sales budget
The accumulated net incomes (losses) that have been retained in an organization.
Retained earnings
Enhancements or inflows of assets and/or settlements of liabilities generated when an organization makes or delivers goods or services as part of its primary ongoing operations.
Revenues
The process of recognizing subunits (responsibility centers) within an organization, assigning responsibilities to the managers of those subunits, and evaluating the performance of those managers.
Responsibility accounting
Any portion of an organization in which the manager is given responsibility for costs, profits, revenues, or investments; can be a single individual, a department, a functional area, or a division.
Responsibility center
An economic element applied or used to perform activities (such as salaries and materials).
Resource
A measurement of the amount of resources consumed by an activity.
Resource cost driver
The sale of product or inventory with an agreement to buy back the goods in the future; (2) a type of money market instrument in which a securities dealer issues a government security, agreeing to repurchase it on a specific date.
Repurchase agreement
A methodical process or search designed to discover new knowledge.
Research
The currency in which a parent company presents its financial statements.
Reporting currency
The assurance that descriptions of events and financial transactions correspond closely to what occurred in reality.
Representational faithfulness
The range of activity within which the assumptions about variable and fixed costs are valid.
Relevant range
A measure of the neutrality of the sources of information, faith that the information represents what it purports to represent, and its independent verifiability.
Reliability
To record revenue as a journal entry.
Recognize
Costs yet to be incurred that differ between alternatives.
Relevant costs
Describes assets such as goods or services that are exchanged for cash or claims to cash.
Realized
A type of processing in which a record is processed as soon as it is submitted.
Real-time processing
A ratio that is similar to the current ratio but eliminates inventory, which is considered the least liquid portion of current assets and therefore the least available for reducing current debts.
Quick ratio
Describes assets that can be readily converted to cash without significant extra expense through sale in an active market at prices that can be easily determined.
Realizable
A tax based on the value of taxable property, including residential housing, farms, factories, and business equipment.
Property tax
In standard costing, the amount of input that should be used per unit of output.
Quantity standard
A type of budget that is used when a project is completely separate from other elements of an organization or is the only element of a company.
Project budget
A type of dividend paid in the form of property, investments, etc., accounted for at the fair value of the assets given.
Property dividends
Those costs associated with the manufacture of goods or the provision of services.
Product costs
The plan for acquiring resources and combining them to meet sales goals and maintain a specific level of inventory.
Production budget
A costing system that accumulates product or service costs by process or department and then assigns them to a large number of nearly identical products by dividing the total costs by the total number of units produced.
Process costing system
The process of accumulating, classifying, and assigning direct materials, direct labor, and factory overhead costs to products and services.
Product costing
Either prepaid expenses, which are cash paid for goods or services prior to their consumption and treated as assets, or unearned revenues, which are cash received from customers as prepayment for goods or services and treated as liabilities.
Prepayments
In standard costing, the amount that should be paid for the quantity of input to be used.
Price standard
To record an item from the journal into the general ledger, including summarizing and classifying the items.
Posting
Stock that has both debt and equity qualities; gives preference in liquidation and has a fixed but optional dividend.
Preferred stock
A control that involves preparing a log of all checks to be disbursed and sending it to the bank; the bank then pays only items that reconcile.
Positive pay
A balance that is prepared after closing to show that debits and credits of the real accounts (assets, liabilities, and shareholders’ equity) are equal.
Post-close trial balance
The use of debt contracts that use money that the organization doesn’t have; occurs because derivatives require little or no money up front.
Portfolio leverage risk
A theory that states that as most financial assets are held in portfolios, measuring portfolio risk and finding the value of the portfolio are more important than individual asset risks and returns.
Portfolio theory
All the items that cannot be included in product costs and must be expensed in the period in which they occur.
Period costs
Type of asset-backed security in which finance companies (acting as factors) purchase receivables and collect payments from customers directly, also charging a fee to the seller to compensate for bad debts.
Pledging receivables/factoring
Tax that is levied directly on wages and salaries.
Payroll tax
Deferred employee compensation to be paid during retirement.
Pension
A capital investment decision model that focuses on the payback period.
Payback method
The time required for an organization to recover its original investment in a project.
Payback period
An association between two or more persons or corporations to be co-owners in a business for profit, such as a law firm.
Partnership (business type)
The exclusive right to sell, use, or manufacture something for a period of 20 years.
Patent
Privately arranged trades (no exchange intermediary); allow customization to meet investors’ needs.
Over-the-counter trading
(1) The amount of a bond owed at maturity; (2) a nominal price per share, set at issuance, usually at a low price to make it unlikely that a stock price will go below this value.
Par value
An annuity that requires payment at the end of each period.
Ordinary annuity
A type of budget that includes all production costs other than direct materials and direct labor.
Overhead budget
The potential benefits given up when one alternative is selected over another.
Opportunity costs
Type of derivative in which the buyer pays a premium or a percentage of the underlying asset’s value to get the right, but not the obligation, to purchase or sell the asset over a particular period.
Option-type contract
A measure of operational efficiency as well as effective pricing and cost controls. Calculated as the proportion of net sales less cost of goods sold plus operating expenses (i.e., selling, general, and administrative expenses) to net sales.
Operating profit margin
A hybrid costing system that incorporates elements of job costing and process costing; assigns direct materials to each job or batch but assigns direct labor and overhead in a manner similar to process costing.
Operation costing
Short-term, pure rental agreements where the asset and the related liability remain off the lessee’s books (they simply debit lease expense and credit cash).
Operating leases
The proportion of fixed costs used in the production of goods or services.
Operating leverage
Plans that identify needed resources and the way these resources will be acquired for all day-today activities of an organization, including sales and services, production, purchasing, marketing, and research and development.
Operating budgets
All the items that cannot be included in product costs and must be expensed in the period in which they occur.
Operating expenses
A cost measurement system that applies actual costs for direct materials and direct labor to a job, process, or other cost center and then uses a predetermined rate to assign overhead to cost centers.
Normal costing system
Legal loopholes that allow organizations to acquire funds without having to report a related liability on the balance sheet.
Off-balance-sheet accounting (OBSA) methods
Any assets that do not qualify as current assets, including property, plant, and equipment.
Noncurrent assets
All the items that cannot be included in product costs and must be expensed in the period in which they occur.
Nonmanufacturing costs
