exam 3 vocab acct 102

Accounting Rate of Return

project evaluation tool that focuses on accounting income rather than cash flows; average annual increase in income by the amount of initial investment

Annuity Due

- Also known as an annuity in advance; involves a level stream of payments, with the payments being made at the beginning of each period

capital expenditure decision

Also known as capital budgeting; planning and decision making related to longer term projects and expenditures

future value

- Or "compound interest;" amount that a current payment (or stream of payments) will grow in time; includes interest on previous interest based on frequency of compounding

net present value

- Or NPV, a method of evaluating capital projects that uses a predetermined interest rate to determine the present value of an investment's cash net cash inflows and outflows

ordinary annuity

Also known as an annuity in arrears; involves a level stream of payments, with the payments being made at the end of each time period

Payback Method

- Easy method for evaluating capital projects; calculated by dividing the initial investment by the annual cash inflow

present value

- Also known as discounting; determines the current worth of cash to be received in the future

relevant cost

Items where future costs and revenues are expected to differ for the alternative decisions under consideration

sunk cost

Historical amount expended on a project or object; not relevant to current decisions or future actions

time value of money

- Conceptual notion holding that money to be received sooner is worth more than money to be received later

balanced scorecard

set of performance measures that are congruent with assessing improvement in financial, customer, and business process outcomes

big data

- Electronically warehoused information, capable of being mined and analyzed, containing the “who, what, when, where, and why” of all business activity

common fixed cost

- Fixed costs that  are incurred to support more than one business unit

dashboard

Customized business software that delivers key real time business data in an easily monitored layout

Direct Method / Allocating Service

- An allocation process whereby service department costs are assigned directly to productive departments

residual income

An internal assessment technique that adjusts income for a presumed cost of capital (or other threshold rate of return); operating income - (operating assets X cost of capital)

Return on Investment -

- A model consisting of a margin component (Operating Income/Sales) and turnover component (Sales/Average Assets); reduces to Operating Income/Average Assets

segment

A business unit for which separate financial information is evaluated by an operating decision maker who allocates resources and judges performance of the unit

Step Method / Allocating Service Cost -

- An allocation process whereby some service department costs may be assigned to other service departments as part of a sequential methodology

traceable fixed costs

Fixed costs that would not exist if the unit under evaluation ceased to exist