Final Accounting Exam 3

Partnership

A business owned by two or more people who share profits.

General Partnership

All partners share management, profits, and unlimited liability.

Limited Partnership

Includes at least one general partner and one limited partner.

Partner

An individual or organization in a partnership.

Low Cost

Cheaper and easier to start than a corporation.

Less Regulation

Fewer government rules than corporations.

No Double Taxation

Income passes through to partners’ personal tax returns.

Mutual Agency

One partner can make decisions that bind the entire partnership.

Unlimited Liability

Partners are personally responsible for partnership debts.

Flow-Through Entity

Income goes directly to partners’ tax returns, not taxed at the partnership level.

Capital Account

Shows a partner’s share in the partnership’s assets.

Capital Account Increases

Investments and income allocations.

Capital Account Decreases

Withdrawals and net losses.

Capital Account Format

Partner name followed by 'Capital' (e.g., Alex, Capital).

Partnership Agreement

Contract between partners that outlines operations and rules.

Income Statement (Partnership)

Same as a corporation’s income statement.

Balance Sheet (Partnership)

No stock or retained earnings; uses partner capital accounts.

Statement of Changes in Capital

Tracks beginning capital, investments, income, withdrawals, and ending capital.

Fixed Ratio

Income/loss is split in a set proportion.

Interest Allowance

Extra allocation for partners who invested more money.

Salary Allowance

Extra allocation for partners doing more work.

Bonus

Extra income based on specific terms, like a percentage of profit.

New Partner by Purchase

Buys interest from existing partner; no change in total capital.

New Partner by Investment

Adds assets to the partnership; may create a bonus.

Bonus to Existing Partners

New partner invests more than the capital they receive.

Bonus to New Partner

New partner invests less than the capital they receive.

No Bonus

New partner’s investment equals capital given.

Withdrawal by Sale

Partner sells interest to someone else; no change in partnership assets.

Withdrawal by Payment

Partner receives assets from the partnership to leave.

Bonus to Retiring Partner

Assets received > capital account balance.

Bonus to Remaining Partners

Assets received < capital account balance.

No Bonus on Withdrawal

Assets received = capital account balance.

Managerial Accounting

Accounting focused on internal users, helping managers plan, control, and make decisions.

Financial Accounting

Accounting aimed at external users like stockholders and creditors, focused on historical performance.

Direct Materials

Raw materials used directly in the production of a product.

Direct Labor

Labor costs directly tied to the production of a product.

Manufacturing Overhead

All manufacturing costs other than direct materials and direct labor.

Variable Costs

Costs that change in total with changes in activity level but remain constant per unit.

Fixed Costs

Costs that remain constant in total regardless of activity level but change per unit.

Mixed Costs

Costs with both variable and fixed components.

Relevant Range

The activity range within which cost behavior assumptions are valid.

Cost Behavior

How a cost reacts to changes in activity level.

High-Low Method

Separates mixed costs into fixed and variable components using high and low activity levels.

Contribution Margin

Sales revenue minus variable costs; the amount available to cover fixed costs and profit.

Contribution Margin Per Unit

Selling price per unit minus variable cost per unit.

Contribution Margin Ratio

Contribution margin divided by sales revenue, expressed as a percentage.

Break-Even Point

Sales level at which total revenue equals total costs, resulting in zero profit.

CVP Analysis

Cost-volume-profit analysis; shows how changes in costs and volume affect profit.

Traditional Income Statement

Separates costs by function (COGS and operating expenses).

Contribution Income Statement

Separates costs by behavior (variable and fixed).

Variable Cost Ratio

Variable costs divided by sales revenue; percentage of sales consumed by variable costs.

Fixed Costs in High-Low

Total cost at either activity level minus (variable cost × units).

Target Profit Analysis

Determines the sales needed to achieve a specific profit.

Manufacturing Costs

Direct materials, direct labor, and manufacturing overhead.

Indirect Materials

Materials used in production that cannot be traced directly to a product; included in overhead.

Indirect Labor

Factory labor not directly tied to product; included in overhead.

Non-Manufacturing Costs

Selling and administrative expenses.

S&A Costs

Selling and administrative costs; non-manufacturing.

Product Costs

DM, DL, and OH; recorded as inventory then expensed as COGS.

Period Costs

Non-manufacturing; expensed as incurred.

Direct Costs

Costs easily traced to a product (e.g., DM, DL).

Indirect Costs

Costs not easily traced to a product (e.g., OH).

Pre-Determined Overhead Rate (PDR)

Estimated OH / Estimated activity level.

Estimated Activity Level

Expected base to apply OH (e.g., DL hours, machine hours).

Applied Overhead

OH applied using PDR and actual activity.

Actual Activity

Actual amount of the activity base used.

Actual Overhead

Total OH actually incurred.

Under-Applied Overhead

Applied OH < Actual OH.

Over-Applied Overhead

Applied OH > Actual OH.

Overhead T-Account

Visual showing actual vs. applied OH.

Cost of Goods Manufactured (COGM)

Total cost of goods completed; includes DM, DL, OH.

Cost of Goods Sold (COGS)

Cost of goods sold during a period; includes COGM and OH variance.

Prime Costs

Direct materials + Direct labor.

Conversion Costs

Direct labor + Overhead.

Raw Materials Inventory

Materials available for use.

Work in Process Inventory

Partially completed goods.

Finished Goods Inventory

Completed goods awaiting sale.

Direct Materials Used

Beginning raw materials + Purchases - Ending raw materials.

COGM Equation

Beginning WIP + DM used + DL + OH - Ending WIP.

COGS Equation

Beginning FG + COGM - Ending FG = Unadjusted COGS.

Cost Accounting

Tracks product cost info.

Job-Order Costing

Costing for unique jobs; costs tracked per job.

Budget

A financial plan for achieving goals.

Planning

Developing objectives for resource use.

Control

Steps to ensure objectives are met.

Master Budget

Summary of all budgets.

Sales Budget

Expected sales in dollars and units.

Sales Forecast

Predicted future sales.

Schedule of Expected Cash Collections

Breakdown of cash collections.

Accounts Receivable

Sales not yet collected.

Production Budget

Units needed to meet sales and ending inventory.

Ending Inventory (FG)

Desired inventory at end of period.

Beginning Inventory (FG)

Inventory from previous period.

Production Budget Formula

Budgeted sales + Ending inventory - Beginning inventory = Units to produce.

DM Purchases Budget

Shows DM needed for production and inventory.

DM Needs per Unit

DM required per unit.

Ending Inventory (DM)

Based on % of next month’s production.

Beginning Inventory (DM)

Prior period’s ending inventory.

DM Purchases Formula

(Units × DM per unit + Desired ending - Beginning) × Cost = DM to purchase.

Operating Expense Budget

Estimates variable, fixed, and mixed operating costs.