ACCT2020 - Exam 1 DEFINITIONS

1 - Certified Internal Auditor (CIA)

passed exam to ensure technological competence and has at least 2 years of experience

1 - Certified Management Accountant (CMA)

passed exam, met experience requirement, and participates in continuous education

1 - Certified Public Accountant (CPA)

passed national exam & licensed by the state

• ex. audit, tax, etc

1 - Continuous Improvement

searching for ways to increase the overall efficiency & productivity of activities by reducing waste, increasing quality, and managing costs

1 - Controller

MANAGERIAL ACCT - chief accounting officer in an organization

Controlling

1 of 3 objectives → monitoring a plan’s implementation & taking corrective action as needed

1 - Decision-making

1 of 3 objectives → process of choosing among competitive alternatives

1 - Ethical behavior

choosing actions that are right, proper, and just

1- Financial Accounting

type of accounting focused primarily on the creation of financial information for external users (follows GAAP & is objective)

1 - Lean Accounting

a practice that organizes costs according to the value chain to help managers eliminate waste and, ultimately, reduce costs and improve financial performance.

1 - Line positions

positions that have direct responsibility for the basic objectives of an organization

1 - Managerial Accounting

type of accounting focused on providing internal users with the necessary financial and nonfinancial information to help them make the best possible decisions. SUBJECTIVE and no GAAP

1 - Planning

1 of 3 objectives → detailed formulation of action to achieve a particular end

1 - Quality product or service

product/service that meets or exceeds customer expectation

1 - Sarbanes-Oxley Act (SOX)

passed in response to misconduct → GOAL to limit securities fraud and accounting misconduct

1 - Staff Positions

positions supportive in nature and only have INDIRECT responsibility for an org’s basic objectives (ex. accountants, HR)

1 - Total Quality Management

philosophy in which manufacturers strive to create an environment that will enable workers to manufacture perfect (zero-defect) products

1 - Treasurer

FINANCIAL ACCT - individual responsible for finance function; raises capital and managed cash/investments

1 - Value Chain

set of activities required to design, develop, produce,market, and deliver and service customers for the company’s products/services

1 - Cost leadership

ex. walmart - to provide the lowest price in a broad market

1 - Product Differentiation

to offer unique and superior value products that justifies a higher, premium price

1 - Ethical Professional Practice Pillars

1. integrity

2. confidentiality

3. integrity

4. credibility

1 - Financial v. Managerial Acct

1. Financial

   1. externally focussed

   2. follows GAAP

   3. objective financial information

   4. historical orientation (past focused)

   5. information about the firm as a whole

   6. self-contained (1 BS/IS)

2. Managerial

   1. internally focused

   2. no rules

   3. financial & non financial information; subjective info possible (est. budgets)

   4. emphasis on the future/present

   5. internal evaluation and decisions based on detailed info

   6. broad, multidisciplinary

1 - 3 Types of Companies

1. Merchandising

   1. buys pre-made goods & sells

   2. ex. COSTCO

2. Manufacturing

   1. makes products & sells them

   2. ex. Nike

3. Service

   1. sells services

   2. ex. Hotels, nail salons, airports, etc.

1 - premise of ethical behavior

DO NO HARM

1 - Current Ratio Equation

= current assets/current liabilities

1 - Current Assets

assets expected to be converted to cash within 12 months or less

• ex. cash, accts receivable, inventory

1 - Long-term Assets

assets expected NOT to be converted to cash within 12 months or less

ex. buildings, land, equipment → get depreciated

1 - Working Capital Equation

= Current Assets - Current Liabilities

1 - Retained Earnings

cumulative amount of earnings of a company that have not been distributed as dividends

1 - Retained Earnings Equation

Retained Earnings End of Year = Retained Earnings @ Beg. of Year + Net Income - Dividends

1 - Net Income Equation

= Revenue - Expenses

2 - Direct Costs

Easily traced & tracked to cost object

2 - Indirect Costs

NOT easily traced or tracked to cost object

2 - Cost

amount of cash (or cash equivalent) sacrificed for goods/services that are expected to bring future benefit

2 - Expense

expired costs

2 - Price

Revenue per unit

• cost DOES NOT EQUAL price

  • price = revenue

2 - Cost Object

any item for which cost are measured & assigned

2 - Accumulating Costs

way costs are measured and recorded → informs company on HOW MUCH was spent

2 - Administrative Costs

all costs associated with research, development, and general admin of the org

2 - Allocation

when an indirect cost is assigned to a cost object using a reasonable & convenient method

2 - Assigning Costs

way that a cost is linked to some cost object

• goal = measure & assign costs as well as possible

  • Direct Costs - easily traced

  • Indirect Costs - not easily traced

2 - Business Sustainability

practice of creating long-term organizational value through internally understanding, measuring, and managing key threats

2 - Conversion Cost Equation

= Direct Labor + Manufacturing Overhead

2 - Corporate sustainability reporting (CSR)

the voluntary public disclosure of qualitative and/or quantitative information about an organization’s performance on one or more financial and/or nonfinancial dimensions.

2 - Cost of Good Manufactured

total product costs of goods completed during the current period

2 - Cost of Goods Sold

total product cost of goods sold during the period

2 - Data Analytics

process in which a company utilizes various amounts and types of data to help connect strategy and key goals t improve decision-making throughout the company

2.- Direct Labor

labor that can be easily traced to the goods or services being produced

2 - Direct material

materials that are a part of the final product and can be easily traced to the goods or services produced

2 - Expenses

costs that are used up (expired) in the production of revenue

2 - fixed cost

doesn’t change as output increases (ex. rent of a jean company)

2 - Variable cost

increases as total output increases (ex. denim in jean making)

2 - Greenwashing

situation when stakeholders believe that an org’s sustainability report is biased

2 - Gross Margin Equation

= Sales revenue - CoGS

• First 3 lines of Income Statement

2 - manufacturing overhead

all product costs other than DL & DM

2 - Opportunity Cost

net benefit given up or sacrificed when one alternative is chosen over another

2 - Period Costs

costs that ARE NOT product costs (all areas of value chain except for production)

2 - prime cost

= Direct Labor + Direct Materials

2 - product costs

= DL, DM, & MO

2 - Selling Costs

costs necessary to market, distribute, and service a product or service

2 - Stakeholders

those individuals or groups that (1) are affected by an organization’s pursuit of its strategy or (2) can affect an organization’s ability to achieve its strategy. Stakeholders can include investors, creditors, customers, employees, regulators, suppliers, competitors, lobbyists, community members, and nongovernment organizations.

2 - Work in Process (WIP)

cost of the partially completed goods that are still being worked on at the end of the time period (phase after raw materials, but before finished goods)

2 - Total Product Cost Equation

TPC = DL + DM + MO

2 - CoGS Equation

= CoGM + Beg. FG inv - ending FG inv

2 - # of units sold equation

= beg FG inv + units of finished during production - ending FG inv

2 - Examples of Current Assets on BS

• ending inventory

• finished goods

• WIP

2 - IS of Manufacturing Firm v Service Firm

1. Manufacturing

   1. HAS CoGS & Gross Margin

2 - Types of inventory across 3 types of companies

1. Manufacturer

   1. Raw materials, WIP, and Finished Goods

2. Service

   1. NO INVENTORY

3. Merchandiser

   1. ONLY FG

2 - When is inventory expensed?

when sold out of FG (manufacturer/merchandiser)

2 - Product Costs (Merchandiser v. Manufacturer)

1. Merchandiser

   1. purchase price, transport costs, taxes/tariffs/other costs associated with purchase

2. Manufacturer

4 - Actual Cost System

uses ONLY acc costs of direct materials, direct labor, and overhead to determine unit cost

4 - Adjusted CoGS

adjusted for overhead variance

• underapplied is ADDED back

• overapplied is SUBTRACTED

expenses on IS

4 - Applied Overhead Equation

= (Predetermined OH Rate)(Actual Amount)

4 - Departmental OH Rate Equation

= estimated OH for a department/department estimated activity level

4 - Job

one distinct unit or set of units

• costs are unique and must be kept track of on an individual job basis

4 - Job Order Cost Sheet

document prepared for EVERY job

• subsidiary for the WIP account

4 - Job Order Costing System

costing system in which costs are accumulated by job

4 - Material Requisition Form

source document that assigns the cost of direct materials to a job

4 - Normal CoGS

cost of goods solds BEFORE any adjustment for an overhead variance

4 - normal cost system

cost of production consists of DM, DL, and applied (est.) OH

• solved problems with actual costing since its hard to exactly track OH

4 - Overapplied OH

acc OH < app OH (est)

4 - OH Variance Equation

= Applied OH - Actual OH

4 - Plantwide OH rate

single OH rate

= ALL est OH/est. activity level (across entire factory)

4 - Process Costing System

accumulates production costs by process/department for a given period

4 - Time Ticket

source doc that records time spent on each job by each employee (used to assign direct labor costs to jobs)

4 - Underapplied OH

occurs when acc OH > app (est) OH

4 - Steps of Normal Costing

1. calculate predetermined OH rate

2. apply OH to production throughout the year

3. reconcile the difference between the total acc OH incurred during the year and the total OH applied to production

1 - An organizational chart

a. shows line and staff positions within an organization.

b. shows informal channels of communication within an organization.

c. shows the most efficient manufacturing process within an organization.

d. shows whether an organization is centralized or decentralized.

a. shows line and staff positions within an organization.

1 - The value chain is a

a. set of parameters used by managers for decision-making.

b. set of activities required to design, develop, produce, market, and deliver products and services to customers.

c. set of activities required to achieve quality control within the accounting function.

d. code of ethical conduct established for management accountants.

b. set of activities required to design, develop, produce, market, and deliver products and services to customers.

1 - Positions that have direct responsibility for the basic objectives of an organization are referred to as:

a. staff positions.

b. control positions.

c. employee positions.

d. line positions.

d. line positions

Which of the following is true of ethical behavior?

a. It involves choosing actions that are right, proper, and just.

b. It is followed by the top management group of an organization only.

c. It is practiced only in large organizations with a separate treasury department.

d. It focuses only on the accounting aspects of an organization.

a. It involves choosing actions that are right, proper, and just.

Which of the following is true of financial accounting?

a. It focuses on providing historical information to internal users only.

b. It focuses on providing only subjective information about future events.

c. It provides historically oriented information about a firm.

d. It provides both financial and nonfinancial information about future events.

c. It provides historically oriented information about a firm.

Which of the following certifications provides minimal professional qualification for external auditors?

a. The Certificate in Internal Auditing

b. The Certificate in Management Accounting

c. The Certificate in Public Accounting

d. The Certificate in Fraud Examination

c. The Certificate in Public Accounting

Corporate sustainability reporting

a. is largely voluntary.

b. must be audited annually.

c. is required by the SEC.

d. must be included in a public company's annual 10-K report.

a. is largely voluntary.

Which of the following questions refers to descriptive data analytics?

a. What is likely to happen?

b. What do I need to do?

c. Why is it happening?

d. What is happening?

d. What is happening?

Which of the following is an example of a variable cost?

a. Property tax

b. Cost of direct materials

c. Factory rent

d. Depreciation of machinery

b. Cost of direct materials

Which of the following questions refers to diagnostic data analytics?

a. What is likely to happen?

b. What do I need to do?

c. Why is it happening?

d. What is happening?

c. Why is it happening?

The cost of goods sold is the

a. total of direct materials, direct labor, and selling overhead.

b. cost of producing the units that were sold during a time period.

c. sum of cost of goods manufactured and administrative expenses.

d. cost of selling the units that were sold during a time period.

b. cost of producing the units that were sold during a time period.

Which of the following is a reason for the occurrence of overhead variances?

a. Only nonuniform actual overhead costs

b. Nonuniform production and nonuniform actual overhead costs

c. Nonuniform production and nonuniform direct materials cost

d. Only nonuniform production costs

b. Nonuniform production and nonuniform actual overhead costs