MGMT 212 Midterm 2 - Definitions

Accounts Receivable

The amount of money owed to a company by its customers for goods or services provided on credit.

Aging Method

A technique used to estimate uncollectible accounts receivable by categorizing them based on their age.

Allowance for Doubtful Accounts

A contra-asset account that represents the estimated amount of accounts receivable that are expected to be uncollectible.

Amortization

The process of systematically allocating the cost of an intangible asset over its useful life.

Basket Purchase

The acquisition of multiple assets as a group in a single transaction.

Capitalize

To record an expenditure as an asset on the balance sheet, rather than expensing it immediately.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to cash and have original maturities of three months or less.

Contra Asset Account

An account that reduces the balance of another asset account.

Cost of Goods Sold

The direct costs associated with producing the goods sold by a company.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life.

Direct Write-Off Method

A method of accounting for bad debts in which uncollectible accounts are written off directly as they are identified.

Double-Declining Balance Method

An accelerated depreciation method that depreciates an asset at twice the rate of the straight-line method.

FIFO

An inventory costing method that assumes the oldest inventory items are sold first.

FOB Destination

A shipping term indicating that the seller bears the shipping costs and retains ownership of the goods until they reach the buyer's destination.

FOB Shipping Point

A shipping term indicating that the buyer bears the shipping costs and takes ownership of the goods once they leave the seller's shipping point.

Goodwill

An intangible asset that represents the excess of the purchase price of a company over the fair value of its identifiable net assets.

Gross Profit

Revenue minus cost of goods sold.

Historical Cost

The original purchase price of an asset, plus any costs necessary to prepare it for use.

Impairment

A significant decline in the value of an asset below its carrying amount.

Intangible Assets

Assets that lack physical substance, such as patents, copyrights, and goodwill.

Inventory

Goods held for sale in the ordinary course of business or used in the production of goods to be sold.

Inventory Turnover

A ratio that measures how quickly a company sells its inventory.

LIFO

An inventory costing method that assumes the most recent inventory items are sold first.

Lower of Cost or Market (LCM)

An inventory valuation method that requires inventory to be reported at the lower of its cost or its market value.

Net Realizable Value (NRV)

The estimated selling price of an asset, less any estimated costs of completion, disposal, and transportation.

Notes Receivable

A formal written promise from a borrower to pay a specific sum of money to the lender at a specific date in the future.

Operating Income

Gross profit less operating expenses.

Patents

Exclusive rights granted for an invention.

Percentage of Credit Sales Method

A method for estimating uncollectible accounts based on a percentage of credit sales.

Periodic Inventory System

An inventory system that updates inventory balances at the end of an accounting period.

Perpetual Inventory System

An inventory system that continuously updates inventory balances for each purchase and sale.

Profit Margin

A profitability ratio that measures the percentage of sales that result in net income.

Property, Plant, and Equipment (PPE)

Tangible assets that are used in a company's operations.

Return on Assets (ROA)

A profitability ratio that measures how efficiently a company uses its assets to generate profit.

Salvage Value

The estimated residual value of an asset at the end of its useful life.

Sales Allowances

A reduction in the selling price granted to a customer due to a defect in the goods or services.

Sales Discounts

A reduction in the selling price offered to customers for timely payment.

Sales Returns

Merchandise returned by a customer for a refund or credit.

Specific Identification Method

An inventory costing method that matches each unit of inventory with its actual cost.

Straight-Line Method

A depreciation method that allocates an equal amount of depreciation expense over each year.

Tangible Assets

Assets that have a physical form.

Trade Discounts

A reduction in the list price offered to certain types of customers.

Trademarks

Distinctive signs or indicators that identify a company or its products.

Units of Production Method

A depreciation method that allocates depreciation expense based on the asset's usage.

Weighted-Average Method

An inventory costing method that averages the cost of all inventory items available for sale.