operating cash flow coverage ratio
a financial ratio that indicates a company's capacity to repay its liabilities from the net cash generated by its operating activities.
operating cash flow to current debt ratio
a financial ratio that measures the sufficiency of cash flows from operating activities to meet current obligations.
financing activities
business activities, such as the issuance of debt or equity and the payment of dividend, that focus on the external financing of the company.
investing activities
activities associated with buying and selling the investments used to support the operation of the business.
indirect method
the more widely used format of the statement of cash flows. This approach reconciles accrual net income to the cash provided by or used by operating activities.
direct method
the format of a statement of cash flows that provides detail about the individual sources and uses of cash associated with operating activities.
operating activities
activities centered on the day-to-day business transactions of the company.
working capital
the difference between current assets and current liabilities.
average inventory holding period
the average length of time product is held in inventory.
inventory turnover ratio
a liquidity ratio that indicates how long a company holds its inventory.
average cost method
the inventory cost flow method that assigns an average cost to the units of inventory on hand at the time of each sale.
last-in, first-out (LIFO)
the inventory flow concept based on the assumption that the last units of inventory purchased are the first ones sold.
first-in, first-out (FIFO)
the inventory flow concept based on the assumption that the fist units of inventory purchased are the first ones sold.
specific identification method
the method of inventory cost flow that identifies each item sold by a company.
book inventory
the amount of ending inventory (units and dollars) resulting from transactions recorded by a perpetual inventory system.
perpetual inventory system
an inventory system in which both the physical count of inventory units and the cost classification (asset or expense) are updated when a transaction involves inventory.
periodic inventory system
an inventory system in which all inventory and cost of goods sold calculations are done at the end of the income statement period.
cost of goods sold
the cost of the product sold as the primary business activity of a company (cost of sales).
goods available for sale
the total amount of merchandise inventory a company has available to sell in a given income statement period.
purchases
the amount of merchandise inventory bought during the income statement period.
beginning inventory
the amount of merchandise inventory (units or dollars) on hand at the beginning of the income statement period.
inventory
the stockpile of tangible product that a company has on hand to sell.
merchandise inventory
the physical units (goods) a company buys to resell as part of its business operation. Also called inventory.
modified accelerated cost recovery system (MARCS)
Depreciation method taxpayers use to calculate depreciation expense for tax purposes.
units-of-production depreciation method
a straight-line depreciation method that uses production activity as the basis of allocating depreciation expense. Instead of using an amount of depreciation per unit of produced is used.
losses
net outflows resulting from peripheral activities of a company. An example is the sale of an asset for less than its book value.
gains
net inflows resulting from peripheral activities of a company. An example is the sale of an asset for more than its book value.
historical cost principle
The accounting principle that requires balance sheet amounts generally to be shown at acquisition price rather than fair value.
double-declining-balance method
an accelerated depreciation method in which depreciation expense is twice the straight-line percentage multiplied by the book value of the asset.
fully depreciated
when all of the allowable depreciation expense has been recognized for an asset's entire useful life.
book value
the original cost of a long-lived asset less its accumulated depreciation. This item is often shown on the balance sheet.
accumulated depreciation
the total amount of cost that has been systematically converted to expense since a long-lived asset was first purchased.
accelerated depreciation methods
those methods that record more depreciation expense in the early years of an asset's life and less in the later years.
straight-line depreciation
a method of calculating periodic depreciation. The depreciable base of an asset is divided its estimated useful life. The result is the amount of depreciation expense to be recognized in each year of the items useful life: (cost-residual value)/N=annual d
depreciable base
the total amount of depreciation expense that is allowed to be claimed for an asset during its useful life. The depreciable base is the cost of the asset less its residual value.
depreciation
the systematic and rational conversion of a long-lived asset's cost from asset to expense in the income statement periods benefited.
accruals
adjustments made to record items that should be included on the income statement but have not yet been recorded.
accrued revenue
revenues appropriately recognized under accrual accounting in one income statement period although the associated cash will be received in a later income statement period.
accrued expenses
expenses appropriately recognized under accrual accounting in one income statement period although the associated cash will be paid in a later income statement period.
accrual basis accounting
a method of accounting in which revenues are recognized when they are earned, regardless of when the associated cash is collected. The expenses incurred in generating the revenue are recognized when the benefit is derived rather when the associated cash i
deferrals
situations in which cash is either received or paid, but the income statement effect is delayed until some later period. Deferred revenues are recorded as liabilities, and deferred expenses are recorded as assets.
deferred expenses
expenses created when cash is paid before any benefits is received. Because the benefit to be derived is in the future, the item is recorded as an asset. Later, when the benefit is received from the item, it will be recognized as an expense.
deferred revenues
revenues created when cash is received before the revenue is earned. Because the cash received has not yet been earned, an obligation is created and a liability is recorded. Later, when the cash is deemed to have been earned, it will be recognized as a re
cash basis accounting
a basis of accounting in which cash is the major criterion used in measuring revenue and expense for given income statement period. Revenue is recognized when the associated cash is received, and expense is recognized when the associated cash is paid.
accrue
means, which is to come into being as a legally enforceable claim. (if somebody owes you money and they don't pay you, you can legally force them to pay).
adjustments
changes made in recorded amounts of revenues and expenses in order to follow the guidelines of accrual accounting.
matching
accounting principle that relates the expenses to the revenues of a particular income statement period. Once it is determined in which period a revenue should be recognized, the expenses that helped to generate the revenue are matched to that same period.
recognition
in accounting, is the process of: 1. recording in the books and 2. Reporting on the financial statements.