Finance and Business Essentials

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  1. Accounting
    A monetary reporting system used to inform interested parties about a firm’s business transactions.
  2. Accrual basis accounting
    Revenues recorded when earned and expenses recorded when incurred.
  3. Activity based costing (ABC)
    A cost measurement system that is often used to track and control overhead costs; accumulates costs of activities that consume resources
  4. Amortization
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    • The systematic reduction of a lump-sum amount; the expense applies to intangible assets (such as patents, franchises, leaseholds, and goodwill) in the same way depreciation applies to physical assets.
  5. Annual work plan (AWP)
    A plan that covers short-term needs, is very specific and based on solid projections.
  6. Asset
    Something that retains value for a period of time after purchase such as a building or a piece of equipment.
  7. Balance sheet
    A "snap shot" of a firm’s financial position at a specific point in time.
  8. Budget
    A formal, numerical expression of how an organization, or a part of the organization, expects to operate for a defined period of time.
  9. Business
    The use, interpretation, and management of documents related to the administration and management of contracts, service providers, and leases including lease agreements, business cases, charge backs, and procurement policies and procedures.
  10. Capital asset
    A depreciable item whose cost is significant to the company and whose expected life is longer than one accounting period and often much longer.
  11. Capital budget
    Shows financial impacts resulting from major, long-term, non-routine expenditures for items like property, plant and equipment.
  12. Capital rationing
    The allocation of investment funds among multiple projects when senior management places an upper limit on the size of the capital investments or the organization lacks sufficient money.
  13. Capitalization cutoff point
    A designated limit (or, "floor") for capital requests: Under which an item is expensed in the period purchased. Over which it will be capitalized and depreciated for the length of its useful life.
  14. Cash flow
    Net cash before financing, including acquisitions.
  15. Chargeback/Cross charging/Recharging
    The ability of facility management "to charge its services to another group that is requesting those services."
  16. Chart of accounts
    Numerical list of all standard items that an accounting system tracks: assets, liabilities, net assets, revenues, and expenses.
  17. Closing fiscal period
    Process of transferring account balances from sub-ledgers to trial balance account at the end of an accounting period; typically associated with income statement accounts.
  18. Contract closeout
    The point at which the termination conditions of the contract have been met (and notice of termination served).
  19. Cost
    The price paid for acquisition, maintenance, production, or use of materials or services.
  20. Cost allocation
    The process of determining the proportional share of a total cost that belongs to a particular cost object based on data about the proportions of the total resource cost consumed by the cost object.
  21. Cost center
    An organizational unit in which budgetary funding is used to sustain operations.
  22. Cost drivers
    Those activities that have a direct and causal relationship to the incurring of overhead costs.
  23. Cost of operation
    The total costs associated with the daily operation of a facility.
  24. Cost of ownership
    The cost to the owner of owning the building, servicing the existing debt, and receiving a return on equity. This also includes the cost of capital improvements, maintenance and repair, operations, and disposal.
  25. Cost tracing
    Assigning direct costs to a particular cost object.
  26. Cost-benefit ratio
    Comparison of the net present value of an investment decision or project with its initial cost. Net present value is divided by the investment or project's initial cost; a ratio of greater than one indicates that the project is a viable
  27. Credit
    The positive cash entries in a bank account.
  28. Creditor
    A lender of money or one to whom funds are owed.
  29. Currency conversion factor
    The net rate at which the organization converts revenues and expenses from one currency into another. This is often an internally agreed rate set at the start of the budget year so as to remove the effect of currency fluctuations from operational budgets, and is almost never the same as the nominal exchange rate.
  30. Debit
    An amount due to be paid from, or already paid from, an account.
  31. Debtor
    An individual, company, or other organization that owes debt to another individual, company, or organization (the creditor).
  32. Depreciation
    A noncash charge against assets, such as cost of property, plant, and equipment over the asset’s useful life. It is an expense associated with spreading (allocating) the cost of a physical asset over its useful life.
  33. Differential cost
    A cost concept that implies that costs and revenues differ depending on the conditions.
  34. Direct costs
    Costs that can be specifically traced to an item or activity (for example, repairing a hole in the roof).
  35. Discount rate
    The rate at which future cash flows are discounted because of the time value of money.
  36. Double-entry accounting/Dual-entry accounting
    An accounting system in which each transaction is recorded in at least two places: a debit to one account and a credit to another account.
  37. Earned revenue
    Revenue included in the budget because the organization has done a substantial amount of what it promised to do (provided goods or services).
  38. Earnings before interest and taxes (EBIT)
    A measure of an organization’s earning power from ongoing operations, equal to earnings before deduction of interest payments and income taxes.
  39. Earnings before interest, tax, depreciation and amortization (EBITDA)
    An approximate measure of an organization’s operating cash flow based on data from the organization’s income statement. Calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization.
  40. Equity
    The residual ownership interest in an organization’s assets after deducting all of its liabilities. Can also be the issued shared capital of the organization.
  41. Equivalent annual cost (EAC)
    The cost per year of owning and operating an asset over its entire lifespan. This measure facilitates comparisons of the cost effectiveness of various assets.
  42. Expenses
    Money outflow that represents goods and services consumed in the course of business operations.
  43. Feasibility study
    Study of a planned scheme or development, the practicality of its achievement, and its projected financial outcome.
  44. Finance
    The use, interpretation, and management of information related to the financial operation of the facility.
  45. Financial accounting
    Relates to the preparation of financial statements on the organization as a whole. May be used by owners and other internal parties but primarily intended for external parties such as creditors, investors, government agencies, unions, and suppliers. Information is developed according to specific accounting standards.
  46. Financial Accounting Standards Board (FASB)
    The primary financial reporting standards-setting body in the United States.
  47. Financial leverage
    The use of borrowed money in acquiring an asset.
  48. Financial ratios
    Analytical tools used to exam the relationship of one quantity to another.
  49. Financial reporting
    Process of presenting information about an entity’s financial position, operating performance, and cash flow for a specified period.
  50. Financial statements
    Documents (e.g., balance sheet, income statement, statement of cash flows, and statement of retained earnings) that report financial information about an organization.
  51. Fixed asset
    As asset, such as property, plant, or equipment, that has a long life and cannot be expensed in a single year or cannot easily be converted into cash.
  52. Fixed costs
    Costs that remain unchanged in total for a given time period, despite wide changes in the related level of total activity.
  53. Fixed expenses
    Expenses over which a company has little control.
  54. Forecasting
    A technique for projecting operating results, over various periods of time.
  55. Generally Accepted Accounting Principles (GAAP)
    In the United States, rules, procedures, and conventions used to help govern an organization’s accounting operations and the preparation of financial statements.
  56. Income statement
    Accounting document that represents the company’s revenue and expense transactions for the reporting period.
  57. Incremental budgeting
    A budget method that extrapolates from historical data.
  58. Indirect costs
    Costs that are spread over a period of time, regardless of specific activities.
  59. Insurance
    A system to protect persons, groups, or businesses against large financial loss by transferring the risks to an insurance company or other large group who agree to share the financial losses in exchange for premium payments.
  60. Intangible assets
    Assets that have no physical substance. Intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets.
  61. Internal rate of return (IRR)
    The return on investment a company typically realizes (or targets to realize) based on its past track record regarding asset investments. It is the interest rate at which lifetime dollar savings equal lifetime dollar costs, after the time value of money is taken into account.
  62. International Financial Reporting Standards (IFRS)
    A set of international accounting and reporting guidelines and rules that organizations can follow when compiling financial statements.
  63. Job order costing
    A traditional cost measurement system in which direct labor, direct material and overhead costs associated with a job are grouped.
  64. Journal
    A daily, chronological record of business transactions.
  65. Journal entry
    An entry to the journal, recording a financial transaction (as a debit and then as a credit) by date.
  66. Lease
    A contract between the owner of real property (lessor) and another party (lessee) for the possession and use of the property for a specified term in return for rent or other valuable consideration.
  67. Ledger
    Accounting book of final entry, recording journal transactions under separate accounts.
  68. Liabilities
    Debts a business incurs that are expected to result in future negative cash flows to the firm.
  69. License
    The degree of real property interest the signer has in the property.
  70. Life cycle
    The useable life span of a product, process, facility, tool, system, technology, natural resource and the like. It is based on the presumption that all things go through a continuous cycle beginning with creation, use and disposal, and then ideally start all over again.
  71. Life cycle costing
    Process of determining (in present-value terms) all costs incident to the planning, design, construction, operation and maintenance, and disposition of a structure over time.
  72. Liquid assets
    Cash or assets that can be immediately converted to cash (or easily convertible into cash).
  73. Management accounting/Managerial accounting
    Relates to the provision of accounting information for an organization’s internal users. It is the organizations internal accounting system, designed to support the information needs of managers.
  74. Mixed costs/Semi-variable costs
    Costs that vary with changes in volume or activity, but not by a direct proportion.
  75. Net present value (NPV)
    The monetary value today that an investment project earns after yielding the desired rate of return for each period during the life of the investment.
  76. Operating budget
    A short term budget projecting all estimated income and expenses during a given period (usually one year). Excludes capital expenditures because they are long-term costs.
  77. Opportunity costs
    Represent "lost" opportunities (measured in monetary units) that could have accrued to the entity by pursuing an alternate course of action.
  78. Payback period
    The length of time it will take to recoup an initial investment cost.
  79. Period
    Time interval covered by a financial statement; usually one year for external statements but often less (month or quarter) for internal statements.
  80. Present value (PV)
    The method is used to compare costs; all cash flows are converted to their present value or the value of past and future dollars corresponding to today's value.
  81. Process costing
    A traditional cost measurement system in which product or service costs by are grouped by process or department and then assigned to a large number of nearly identical products by dividing the total costs by the total number of units produced.
  82. Procurement
    The systematic process by which an organization reaches formal agreements for the purchase of the supply of goods and/or services.
  83. Profitability index (PI)
    The ratio of the present value of the cash inflows to the initial investment cost. Also called the cost-benefit ratio.
  84. Pro-forma statement
    A financial statement prepared as a projection of the future.
  85. Property loss
    The loss in the book (balance sheet) capital value of an asset due to changes in market condition, requiring a write down in the asset values and thus a reduction in the value of the balancing equity value.
  86. Property tax
    A tax levied against owner, leasor or occupier of any property based on an assessment of the value of the property, its public infrastructure requirements, or some other determining factor.
  87. Purchase order (PO)
    A written contract between an organization and a vendor using a pre-printed standard form.
  88. Realized revenue
    Revenue related to assets that can be readily converted to cash without significant extra expense through sale in an active market at prices that can be easily determined.
  89. Recognized revenue
    Revenue that has been recorded as a journal entry.
  90. Revenues
    Cash or properties received in exchange for goods or services.
  91. Scenario analysis
    A measurement of the impact of simultaneous changes in variables and reflects a range of outcomes as reflected by a probability distribution.
  92. Sensitivity analysis
    A measurement of the change in one variable as a result of a change in another variable. It helps determine which variables have the greatest impact on a capital project’s outcome.
  93. Service contract
    An agreement for the performance of various labor-oriented services, funded on a periodic basis.
  94. Statement of cash flows
    A financial statement used to show cash levels across the operating period, so as to ensure that predicted liabilities due to be paid at any given time do not exceed the ability to pay.
  95. Statement of shareholders’ equity
    A financial statement that starts with the balances from the end of the prior period and shows changes due to net income (loss) and dividends for the period or any new issuances or repurchases of stock.
  96. Strategic plan
    An outline of the direction of an organization; it outlines broad, long-term, significant plans and the methods and actions by which the organization will operate.
  97. Sunk cost
    Money that has already been spent on decisions that cannot be changed.
  98. Time value of money principle
    A principle which states that a dollar in hand is worth more than a dollar to be received in the future because it can either be consumed immediately or put to work to earn a return.
  99. Trial balance
    Total of all debits and credits. If debits do not equal credits, an error has occurred (e.g., mistake in entry, omission, double posting).
  100. Unit costs
    Costs related to resources consumed to outputs or outcomes provided by those resources in the form of a ratio.
  101. Variable costs/expenses
    Costs and expenses that fluctuate and may be influenced by factors such as occupancy levels.
  102. Working capital
    The funds required to service the worst cash flow position plus any contingency provision deemed necessary.
  103. Zero-based budgeting
    A budget method in which the continued existence of items must be justified both financially and operationally before they are included in the new budget.
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Finance and Business Essentials
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Flashcards for the Finance and Business Essentials 3.0 Course of the FMP
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