HCAFA flashcards
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34 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Accounting Equation
- Assets equal liabilities plus equity. Every transaction maintains this balance, so recording a debit in one account requires an equal credit elsewhere.
- Revenue Recognition Principle
- Revenue is recorded when a performance obligation is satisfied and control of goods or services transfers to the customer, measured at the transaction price.
- Allowance Method
- Estimates uncollectible accounts at period end and records bad debt expense. Write-offs later reduce the allowance and receivables without affecting income.
- Double-Declining Depreciation
- An accelerated method applying twice the straight-line rate to beginning book value each year. Salvage value is ignored until the final year.
- Finance Lease Criteria
- A lease is a finance lease if it transfers ownership, contains a bargain purchase option, covers 75 percent of asset life, or has payments at 90 percent of fair value.
- Current Ratio
- Current assets divided by current liabilities. It measures short-term liquidity and the ability to cover obligations due within one year.
- DuPont Equation
- Return on equity equals net profit margin times total asset turnover times the equity multiplier, decomposing profitability, efficiency, and leverage.
- Weighted Average Cost of Capital
- The blended after-tax cost of debt and equity weighted by market values. It is the discount rate for projects of average firm risk.
- Net Present Value
- Present value of expected cash inflows minus the initial investment. A positive NPV means the project adds value at the required return.
- Cash Conversion Cycle
- Days inventory outstanding plus days sales outstanding minus days payable outstanding. It measures how long cash is tied up in operations.
- Relevant Cost
- A future cost that differs between alternatives. Sunk costs and unavoidable allocated fixed costs are irrelevant to the decision.
- Breakeven Point
- The sales volume where total contribution margin equals fixed costs, producing zero profit. Units equal fixed costs divided by unit contribution margin.
- Contribution Margin
- Sales minus variable costs. It measures the amount available to cover fixed costs and generate operating income.
- Make-or-Buy Decision
- Compare the variable and avoidable fixed costs of producing internally against the purchase price plus any opportunity cost of freed capacity.
- Margin of Safety
- Actual sales minus breakeven sales, divided by actual sales. It expresses the percentage decline in sales before a loss occurs.
- Statute of Frauds
- Requires a signed writing for sale of goods of 500 dollars or more, land transfers, suretyship promises, and contracts not performable within one year.
- Fiduciary Duty
- A duty of loyalty and care owed by agents and directors. Loyalty bars conflicts of interest; care requires informed, prudent decision making.
- Negligence Elements
- A plaintiff must prove duty, breach of that duty, actual and proximate causation, and resulting damages to recover for negligence.
- Business Judgment Rule
- Protects directors from liability for decisions made in good faith, with reasonable care, and without conflicts of interest or waste.
- Segregation of Duties
- Separating authorization, custody of assets, and recordkeeping so no single person controls a transaction from start to finish.
- Primary Key
- A field or combination of fields that uniquely identifies each row in a database table and cannot contain duplicate or null values.
- SQL HAVING Clause
- Filters aggregated groups after GROUP BY is applied, whereas the WHERE clause filters individual rows before aggregation occurs.
- Preventive Control
- A control designed to stop errors or fraud before they occur, such as access restrictions, approvals, and segregation of duties.
- Equity Method
- Used for investments of 20 to 50 percent with significant influence. The investment increases by the share of investee income and decreases by dividends.
- Goodwill
- The excess of purchase price over the fair value of identifiable net assets acquired. It is not amortized but tested annually for impairment.
- Treasury Stock
- Shares repurchased by the issuer, recorded as a contra-equity account at cost. It reduces total equity and is never an asset.
- Incremental Cash Flow
- The additional cash flow a project generates for the firm, including opportunity costs and working capital changes but excluding sunk and financing costs.
- Depreciation Tax Shield
- Depreciation multiplied by the tax rate. It represents tax savings from deducting depreciation and increases project cash flows.
- Absorption Costing
- Assigns direct materials, direct labor, and both variable and fixed overhead to products. Fixed overhead stays in inventory until goods are sold.
- Flexible Budget
- A budget restated at actual activity volume. It isolates spending variances from volume variances when compared to actual results.
- Limited Liability Company
- A business form providing limited liability for owners with pass-through taxation and flexible management, governed by an operating agreement.
- FCPA
- The Foreign Corrupt Practices Act prohibits bribery of foreign officials and requires accurate books and records and adequate internal accounting controls.
- COSO Components
- Five components of internal control: control environment, risk assessment, control activities, information and communication, and monitoring activities.
- Benford's Law
- A pattern where leading digits occur with predictable frequency, with 1 appearing about 30 percent of the time. Deviations may indicate anomalies.