Introduction to Management Accounting

Flashcards covering key concepts related to management accounting, focusing on working capital, liquidity, and inventory management.

Working Capital

The difference between current assets and current liabilities; it measures a company's operational liquidity and short-term financial health.

Liquidity

The ability of a company to meet its short-term financial obligations, often measured by the quickness of converting assets into cash.

Trade Receivables

Amounts owed to a business by its customers for goods or services that have been delivered but not yet paid for.

Trade Payables

Amounts a business owes to its suppliers for items or services purchased on credit.

Current Liabilities

Obligations a company is expected to settle within one year, including accounts payable, short-term debts, and other similar debts.

Cash Flow

The net amount of cash being transferred into and out of a business, crucial for determining liquidity and financial health.

Inventory Turnover Ratio

A measure of how many times inventory is sold and replaced over a period; it's calculated as Cost of Goods Sold divided by Average Inventory.

Just-In-Time (JIT) Inventory Management

An inventory management strategy that seeks to reduce holding costs by receiving goods only as they are needed in the production process.

Allowance for Doubtful Debts

An accounting method used to estimate the portion of a company's receivables that may not be collected due to credit risk.

Economic Order Quantity (EOQ)

A formula used to determine the ideal order quantity a company should purchase for its inventory to minimize costs.

Cash Discounts

Discounts offered by a seller to a buyer as an incentive for early payment of invoices.

Accounts Receivable Aging Schedule

A report that categorizes a company's accounts receivable based on the length of time an invoice has been outstanding.

Obsolescence

A risk associated with holding inventory, where items lose value due to changes in technology or consumer preferences.

Opportunity Cost

The potential benefits an individual or business misses out on when choosing one alternative over another.

Customer Credit Policy

Guidelines set by a business regarding the extendable credit to customers, including credit limits and payment terms.

Negative Working Capital

A situation where a company's current liabilities exceed its current assets, highlighting potential liquidity issues.