The ability to generate cash.
The ability to generate cash.
What is the free cash flow ratio? Definition of Free Cash Flow Free cash flow for a year is an amount (as opposed to a ratio or percentage) usually defined as: net cash provided by operating activities for the year minus...
This activity, which involves playing the float, is sometimes used when a company is facing an overdrawn checking account. Assume that a company has a checking account at NY Bank that is about to overdraw. To prevent the...
A temporary account used in the periodic inventory system to record the purchases of merchandise for resale. (Purchases of equipment or supplies are not recorded in the purchases account.) This account reports the gross...
A dividend paid in assets other than cash.
of Bank Balance When a company receives its checking account statement from its bank showing June’s activity, the ending balance on June 30 is the bank balance. (Generally, this bank balance will not agree with the...
Journals other than the general journal. Special or specialized journals include the cash receipts journal, the cash disbursements journal, the purchases journal, and the sales journal.
See absorption costing.
A dividend in the form of more shares of stock. A 5% stock dividend means that a stockholder holding 100 shares would receive 5 additional shares of stock. Since all shareholders receive additional shares, each...
A bearer bond is a bond that is not registered in its owner’s name. The person holding the bond is presumed to be the owner of the bond. The interest on a bearer bond is received by clipping one of the dated...
A rental agreement where ownership is not intended. An operating lease is not recorded in the general ledger accounts and therefore the asset and liability will not appear on the balance sheet. A lease that in substance...
The repeated elimination of products without a corresponding decrease in overhead costs. As a result the amount of overhead allocated to each unit of product increases. If selling prices are increased to cover the higher...
The relationship between two variables. There can be correlation without a cause-and-effect relationship. Also see coefficient of correlation.
The abbreviation for the accounting and bookkeeping term debit.
See perpetual system of inventory.
The internal growth of a company’s existing businesses. Organic growth excludes the additional sales resulting from acquiring another company.
See chief executive officer.
The person that owes money. If a bank lent you money, the bank is the creditor and you are the debtor.
The generally accepted accounting principles practiced in the United States.
The terms which indicate when payment is due for sales made on account (or credit). For example, the credit terms might be 2/10, net 30. This means the amount is due in 30 days; however, if the amount is paid in 10 days...
A detailed plan with dollar amounts. Examples of budgets used in business include the cash budget, sales budget, production budget, department budgets, the master budget, and the capital expenditures budget. Some budgets...
Usually the difference between the cost of inventory at LIFO versus the cost of inventory at FIFO.
What is a memorandum entry? Definition of Memorandum Entry A memorandum entry is a short message entered into the general journal and also entered into a general ledger account. It is not a complete journal entry because...
The acronym for earnings before interest, taxes, depreciation, and amortization. This measure is used by some companies as a supplementary disclosure, since EBITDA does not comply with U.S. GAAP (generally accepted...
A liability account on the books of a company receiving cash in advance of delivering goods or services to the customer. The entry on the books of the company at the time the money is received in advance is a debit to...
See generally accepted accounting principles (GAAP).
What is the cash flow statement? Definition of Cash Flow Statement The cash flow statement (officially known as the statement of cash flows) is one of the required financial statements issued by U.S. businesses (and by...
A potential gain that is not recognized by accountants in the financial statements until it actually occurs. For example, Company P is suing Company D over a patent infringement. Company P has a contingent gain. Because...
The acronym for cost of sales or for the cost of services.
A mathematical tool to optimize profits (contribution margin) given a limited amount of inputs and other constraints.
A word that means to add a column of numbers as in “Foot the amounts listed in column A.” Also see crossfoot.
The sum of future amounts multiplied by their respective probabilities of occurrence.
See cleared.
What is the difference between book depreciation and tax depreciation? Definition of Book Depreciation Book depreciation is the amount recorded in the company’s general ledger accounts and reported on the company’s...
The person paying rent for using but not owning the asset.
A classification on a single-step income statement for both operating and nonoperating expenses and losses that pertain to the time interval shown in the heading of the income statement.
See International Accounting Standards Board (IASB).
An asset representing the right to receive the principal amount contained in a written promissory note. Principal that is to be received within one year of the balance sheet date is reported as a current asset. Any...
See rolling budget.
A budget that does not flex for changes in volume or activity.
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