MGT 8803 Business Fundamentals for Analytics

Flashcards for vocabulary review

Revenue Recognition

Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services.

Contract

Legal rights and obligations of the seller and the customer

Transaction Price

The amount the seller is entitled to receive from the customer.

Cash

Includes money or currency the firm has on hand or in checking accounts, and items acceptable for deposit in these accounts, such as checks and money orders.

Cash Equivalents

Include items such as money market funds, short-term certificates of deposit, and treasury bills. Companies typically classify investments with maturity dates of three months or less when purchased as cash equivalents.

Restricted Cash

Cash that is restricted and not available for current use usually is reported as investments or other assets.

Accounts Receivable (A/R)

Funds owed to our firm from the sale of goods or services

Net Realizable Value of A/R

The amount expected to be received. Two things must be estimated to determine the net realizable value: (1) The amount that will not be collected because some customers are unable to pay – called uncollectibles (2) The amount that will not be collected because of sales returns

Bad Debts

Customers who don’t pay the amount they owe

Allowance for Uncollectible Accounts

Estimate future bad debts and match that expense against the related revenues in the same period as the revenues are recognized. Write-off accounts receivable when it becomes uncollectible.

Inventories

Assets consisting of goods owned by the business and held for resale or for future use in the manufacturing of goods for sale.

Merchandising Inventories

Physical form of the goods is not altered prior to the sale. Cost = purchase price + [taxes, duties, freight, storage, insurance during transit, etc] – [discounts & allowances, purchase returns, purchase discounts]

Manufacturing Inventories

Physical form of the goods is altered prior to the sale. Typically includes three categories: (1) Raw Material Inventory (2) Work-in-Process Inventory (3) Finished Good Inventory Cost = raw materials + direct labor cost + indirect factory costs (e.g., electricity, depreciation of equipment & building, supervisory salaries, supplies, etc.)

First-In, First-Out (FIFO)

This method assumes that the first units purchased are the first units sold.

Last-In, First-Out (LIFO)

The LIFO inventory costing method assumes that the last units purchased are the first to be sold.

Average Cost

The average cost method assumes that the units are sold without regard to the order in which they are purchased. Instead, it computes COGS and ending inventories as a simple weighted average.

Consolidation

Equity with “control”

Equity Method

Equity with “significant influence”

Fair-Value Method

Equity without “significant influence”

Held-to-Maturity

Debt with intention of holding to maturity

Trading

Debt with intention of holding for a short period to get a gain

Available-for-Sale

Debt without the previous intentions

Property Plant and Equipment (PPE)

Actively used in operations, long-term periods of service utility, have physical substance

Historical Cost

All costs necessary to (1) acquire the asset and (2) make it ready for use.

Capitalized Costs

Costs included in the asset account

Useful Life

Period of time over which the asset is expected to generate cash inflows

Salvage Value

Expected disposal amount for the asset at the end of its useful life

Depreciation Rate

An estimate of how the asset will be used up over its useful life.

Straight-Line Method

Under the straight-line method, depreciation expense is recognized evenly over the estimated useful life of the asset.

Triggering Event

Certain events or changes in circumstances that raise the possibility that certain long-lived assets may be impaired

Current Liabilities

Probable future sacrifices of economic benefits arising from present obligations to other entities resulting from past transactions or events.

Current Liabilities

Obligations payable within one year or one operating cycle, whichever is longer. Expected to be satisfied with current assets or by the creation of other current liabilities.

Long-Term Debt

Obligations that extend beyond one year or the operating cycle, whichever is longer

Stated Rate (coupon rate, nominal rate)

The interest rate used to determine cash interest payments

Market Rate (effective rate)

The going interest rate of similarly risky debt

Effective Interest Method

Interest accrues on an outstanding debt at a constant percentage of the debt each period. Interest each period is recorded as the effective market rate of interest multiplied by the outstanding balance of the debt (during the interest period).

Common Stock

Share proportionately in profits or losses, Owners of the company (voting rights), Residual interest, Preemptive rights

Authorized Stock

Maximum number of shares that can be issued

Issued Stock

Number of shares distributed to stockholders (not retired)

Outstanding Stock

Number of shares currently held by stockholders outside the corporation.

Preferred Stock

Some rights of ownership, Preference over common stock (but not debt) in dividends and/or liquidation

Treasury Stock

Represents the reacquisition of the firm’s shares from shareholders

Retained Earnings

Accumulation of Earnings Minus Dividends