Accounting for Decision Makers (WGU C213) Lecture Notes

Comprehensive vocabulary flashcards covering the key accounting terms, financial statement components, accounting principles, and managerial ratios from the C213 lecture notes.

Accounting

A system of providing quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.

American Institute of Certified Public Accountants (AICPA)

The professional organization of certified public accountants (CPAs) in the United States.

Certified Public Accountant (CPA)

A person who has taken a minimum number of college-level accounting classes, has passed the CPA exam, and has met other requirements set by his or her state.

Balance Sheet

A document that reports the assets (resources), liabilities (obligations), and owners' equity (investments) of a company at a specific point in time.

Bookkeeping

The preservation of a systematic, quantitative record of an activity.

Financial Accounting Standards Board (FASB)

A private, non-profit body that sets accounting standards in the United States.

Income Statement

A document that reports the amount of net income earned by a company during a period, such as annual or quarterly.

Statement of Cash Flows

A document that reports the amount of cash collected and paid out by a company in three categories: operating, investing, and financing activities.

Operating Activities

Activities involved in producing and selling goods and services, comprising the day-to-day business of a company.

Investing Activities

The purchase and sale of land, buildings, and equipment, as well as buying and selling stocks of other companies.

Financing Activities

Activities whereby cash is obtained from, or repaid to, owners and creditors.

Internal Revenue Service (IRS)

The government agency responsible for tax collection and tax law enforcement.

International Accounting Standards Board (IASB)

An independent, international body formed to develop worldwide accounting standards.

International Financial Reporting Standards (IFRS)

The accounting standards produced by the IASB.

Managerial Accounting

Accounting systems designed for internal users within a company.

Financial Accounting

Accounting information provided for and used by external users.

Securities and Exchange Commission (SEC)

The government body responsible for regulating the financial reporting practices of most publicly owned corporations.

Public Company Accounting Oversight Board (PCAOB)

A private, non-profit organization that serves as an arm of the SEC in registering, inspecting, and disciplining the auditors of publicly traded companies.

Sarbanes-Oxley Act

A law passed by Congress in 2002 that increased U.S. federal government scrutiny of the production of financial statements.

Accounting Equation

$$\text{Assets} = \text{Liabilities} + \text{Owners' Equity}$$

Assets

Economic resources that provide probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

Liabilities

Future sacrifices of economic benefits that an entity is presently obliged to make to other entities due to past transactions or events.

Net Assets

$$\text{total assets} - \text{total liabilities}$$

Book Value

$$\text{Asset cost} - \text{accumulated depreciation}$$

Conservatism

A principle where in doubt, all losses are recognized, but no gains are recognized.

Materiality

The concept that weighs whether a certain dollar amount is large enough to make a difference to a decision maker.

Earnings Per Share (EPS)

The amount of net income associated with each share of stock.

Historical Cost Convention

An accounting technique that values an asset at the price paid for it at the time of its acquisition.

Liquidity

The ease with which an item can be turned into cash.

Treasury Stock

The amount a corporation has spent to buy back its own shares from stockholders.

Accounts Payable

Obligations created when a company buys on credit.

Accounts Receivable

Amounts owed to a business by its credit customers typically collected within 10 to 60 days.

Executory Contract

An exchange of promises about the future where no money has yet been exchanged; typically not recorded on financial statements.

Accrual Accounting

The process of adjusting raw transaction data into refined measures of a firm's economic performance by matching revenues with expenses.

Gross Profit

The difference between the selling price of the product and the cost of the product.

Current Ratio

$\frac{\text{total current assets}}{\text{total current liabilities}}$; indicates a company's ability to pay short-term debts.

Debt Ratio

$\frac{\text{total liabilities}}{\text{total assets}}$; interpreted as the proportion of borrowed funds used to acquire assets.

Return On Equity (ROE) Ratio

$\frac{\text{net income}}{\text{stockholders' equity}}$; measures pennies in profit for each dollar invested by stockholders.

Segregation of Duties

A strategy to provide an internal check by separating the authorization of transactions, custody of related assets, and record-keeping.

Direct Costs

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

Opportunity Costs

The benefits lost or forfeited as a result of selecting one alternative course of action over another.

Sunk Costs

A past cost that cannot be changed by any decision made now.

Product Costs

Costs associated with products including direct materials, direct labor, and manufacturing overhead.

Period Costs

Costs not directly related to production, such as administrative and selling expenses, charged as expenses in the period incurred.

Break-even Point

The amount of sales at which total costs equal total revenues, resulting in no profit or loss.

Contribution Margin

$$\text{total sales} - \text{variable costs}$$

Activity-based Costing (ABC)

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