WGU C213 ACCOUNTING FOR DECISION MAKERS VAC2 TERMS & CONCEPTS 2025 | 350+ CORE ACCOUNTING PRINCIPLES WITH DETAILED EXPLANATIONS | ESSENTIAL VOCABULARY FOR FINANCIAL ANALYSIS AND MANAGERIAL DECISION-MAKING

"Other Assets"

Long-term assets that are not suitable for reporting under any of the previous classifications

Accounting

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

Accounting Equation

Assets = Liabilities + Owners' Equity

Accounts Payable

The flip side of accounts receivable—when one company sells on credit, creating for itself an account receivable, the company on the other side of the transaction is buying on credit, creating an account payable.

Accounts Receivable

Amounts owed to a business by its credit customers and are usually collected in cash within 10 to 60 days.

Accrual Accounting

The process that accountants use in adjusting raw transaction data into refined measures of a firm's economic performance.

Accumulated Depreciation

Reflects the wear and tear, or depreciation, of these items since they were originally purchased.

Accumulated Other Comprehensive Income

The grouped together and reported changes which companies experience increases and decreases in equity each year because of the movement of market prices or exchange rates

Activity-based Costing (ABC)

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

Additional Paid-in Capital

Invested by stockholders that exceeds the par value of the issued shares.

American Institute of Certified Public Accountants (AICPA)

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

Asset

Probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events.

Asset Mix

The proportion of total assets in each asset category, is determined to a large degree by the industry in which the company operates.

Asset Turnover

Sales divided by assets and is interpreted as the number of dollars in sales generated by each dollar of assets.

Assets

Assets are the firm's economic resources, formally defined as "probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Assets-to-equity Ratio

Assets divided by equity and is interpreted as the number of dollars of assets acquired for each dollar invested by stockholders.

Audit Committee

Members of a company's board of directors who are responsible for dealing with the external and internal auditors.

Average Collection Period

Shows the average number of days that elapse between sale and cash collection.

Balance Sheet

A listing of an organization's assets and of its liabilities at a certain time.

Batch-level Activities

Activities that take place in order to support a batch or production run, regardless of the size of the batch.

Book Value

The book value of an asset is the asset's cost minus the asset's accumulated depreciation.

Bookkeeping

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

Break-even Point

The amount of sales at which total costs of the number of units sold equal total revenues; the point at which there is no profit or loss.

Capital Budgeting

Systematic planning for long-term investments in operating assets.

Capital Lease Obligations

A long-term liability in the balance sheet.

Cash

Coins and currency as well as the balances in company checking and savings accounts.

Cash Budget

An important tool in helping management plan its cash needs. This discussion briefly introduces you to budgeting cash receipts.

Cash Equivalents

Short-term, highly liquid investments such as Treasury bills, commercial paper, and money market funds.

Cash Flow Adequacy Ratio

Cash from operations divided by expenditures for fixed asset additions and acquisitions of new businesses

Cash Times Interest Earned Ratio

A financial analysis tool that indicates the interest payment ability of an entity

Certified Public Accountant

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

Common Stock

Stockholders' equity investment

Common-size Financial Statements

All amounts for a given year being shown as a percentage of that denominator for the year.

Comparability

Information that becomes much more useful when it can be related to a benchmark or standard

Comprehensive Income

The number used to reflect an overall measure of the change in a company's wealth during the period

Conservatism

A pervasive factor in accounting, can be summarized as follows: When in doubt, recognize all losses but don't recognize any gains.

Consistency

The consistency principle states that, once you adopt an accounting principle or method, continue to follow it consistently in future accounting periods.

Contribution Margin

The difference between total sales and variable costs; the portion of sales revenue available to cover fixed costs and provide a profit.

Contribution Margin Ratio

The percentage of net sales revenue left after variable costs are deducted; the contribution margin divided by net sales revenue.

Control Activities

Policies and procedures used by management to meet their objectives.

Control Environment

The actions, policies, and procedures that reflect the overall attitudes of top management about control and its importance to the entity.

Control Procedures

Policies and procedures used by management to meet their objectives.

Controlling

Implementing management plans and identifying how plans compare with actual performance.

Cost Behavior

The way a cost is affected by changes in activity levels.

Cost Drivers

Numerical measure used to reflect the amount of a specific cost that is associated with a particular activity.

Cost Pool

Total cost being generated by a specific overhead cost activity.

Cost of Goods Sold

When a business sells goods to customers, the cost of the goods sold is recorded as an expense

Cost-volume-profit (C-V-P) Analysis

Techniques for determining how changes in revenues, costs, and level of activity affect the profitability of an organization.

Current Assets

Cash, accounts receivable, and inventory.

Current Liabilities

Those obligations expected to be paid within one year, the most common being accounts payable.

Current Portion of Long-term Debt

Some liabilities, such as mortgages, are payable in equal monthly installments over a specified number of years. The portion of these liabilities that is payable within 12 months from the balance sheet date.

Current Ratio

A comparison of current assets (cash, receivables, and inventory) with current liabilities. It is computed by dividing total current assets by total current liabilities.

Debt Ratio

A frequently used measure of leverage, computed as total liabilities divided by total assets.

Debt-to-equity Ratio

Total liabilities divided by total equity and is interpreted as the number of dollars of borrowing for each dollar of equity investment

Deferred Income Tax Liability

The income tax expected to be paid in future years on income that has already been reported in the income statement but which, because of the tax law, has not yet been taxed.

Derivative

A financial instrument, such as an option or a future, that derives its value from the movement of a price, an exchange rate, or an interest rate associated with some other item.

Detective Controls

Internal control activities that are designed to detect the occurrence of errors and fraud.

Differential Costs

Future costs that change as a result of a decision; also called incremental or relevant costs.

Direct Costs

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

Direct Labor

Wages paid to those who physically work on direct materials to transform them into a finished product and are traceable to specific products.

Direct Materials

Materials that become part of the product and are traceable to it.

Direct Method

Reporting the information contained in the last column of the adjustment worksheet

Disclosure

Convey the details in a narrative note without ever including anything in the financial statements themselves.

Discontinued Operations

Report the Hughes results in a separate category called income from discontinued operations.

DuPont Framework

A systematic approach to identifying general factors causing ROE to deviate from normal.

Earnings Per Share (EPS)

EPS tells the owner of one share of stock what he or she really wants to know

Earnings Per Share (EPS)

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

Economic Value Added

A system of earnings-based compensation

Entity Concept

The idea that personal financial activity is kept separate from business financial activity

Equity

Residual interest in the assets of an entity that remains after deducting its liabilities.

Evaluating

Analyzing results, rewarding performance, and identifying problems.

Executory Contract

It is an exchange of promises about the future.

Expanded Accounting Equation

Assets = Liabilities + Paid-in Capital + (Revenues - Expenses - Dividends)

Expenses

The value of resources used in generating the reported revenue.

External Auditors

Independent CPAs who are retained by organizations to perform audits of financial statements.

Extraordinary Items

Gains and losses that result from transactions that are both unusual in nature and infrequent in occurrence.

Facility Support Activities

Activities necessary to have a facility in order to participate in the development and production of products or services; activities are not related to any particular line of products or services.

Financial Accounting

The name given to accounting information provided for and used by external users.

Financial Capital Maintenance

The approach that accountants typically use in computing a company's income is the first option described above in which inflation is ignored and a company is said to have income when its financial resources increase.

Financial Ratios

Relationships between financial statement amounts

Financial Statement Analysis

Areas in which additional data must be gathered, including details of significant transactions, market share information, competitors' plans, and customer demand forecasts.

Financial Statements

The three primary financial information documents: the balance sheet, income statement, and statement of cash flows.

Financing Activities

Obtaining resources from owners and providing them a return on their investment, and obtaining resources from creditors and repaying those borrowings

Financing Mix

The percentage of total financing (liabilities plus equity) in each individual category.

Fixed Asset Turnover

Sales divided by average fixed assets and is interpreted as the number of dollars in sales generated by each dollar of fixed assets.

Fixed Costs

Costs that remain constant in total, regardless of activity level, at least over a certain range of activity.

GAAP Oval

A diagram that represents the flexibility a manager has, within GAAP, to report one earnings number from among many possibilities based on different methods and assumptions.

Generally Accepted Accounting Principles (GAAP)

GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. GAAP aims to improve the clarity, consistency, and comparability of the communication of financial information.

Gain

The amount of a company makes money on activities that are peripheral to its primary operations

Gains

Refers to money made on activities outside the normal business of a company

Generally Accepted Auditing Standards (GAAS)

Auditing standards developed by the PCAOB for public companies and AICPA for private companies.

Going Concern Assumption

Allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments.

Gross Profit

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

High-low Method

A method of segregating the fixed and variable components of a mixed cost by analyzing the costs at the highest and the lowest activity levels within a relevant range.

Historical Cost Convention

An accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition

Income From Continuing Operations

The segments of a company's business that it considers to be normal, and expects to operate in for the foreseeable future

Income Smoothing

The practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next.

Income Statement

A company's financial performance for a specified period of time.

Independent Checks

Procedures for continual internal verification of other controls.

Indirect Costs

Costs normally incurred for the benefit of several segments within the organization; sometimes called common costs or joint costs.