JCE Commerce & Accounting 26 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Accounting Equation

Assets equal liabilities plus owners' equity. Every recorded transaction keeps this equality intact because double-entry bookkeeping records equal debits and credits.

Accrual Basis

Revenue is recognized when earned and expenses when incurred, regardless of when cash changes hands. This differs from cash-basis accounting, which records items only on cash movement.

Straight-Line Depreciation

Annual expense equals acquisition cost minus salvage value, divided by estimated useful life. It allocates depreciable cost evenly across periods.

Lower of Cost or NRV

Inventory is reported at the lower of its recorded cost or net realizable value. When NRV falls below cost, a write-down reduces inventory and increases cost of goods sold.

Current Ratio

Current assets divided by current liabilities. It measures short-term liquidity, indicating how many times short-term obligations could be covered by assets convertible to cash within a year.

Contribution Margin

Sales revenue minus all variable costs. It contributes toward covering fixed costs; once fixed costs are covered, remaining contribution margin becomes operating profit.

Break-Even Point

The activity level where total revenue equals total cost and profit is zero. In units it equals fixed costs divided by unit contribution margin.

Predetermined Overhead Rate

Estimated total manufacturing overhead divided by the estimated allocation base, such as direct labor hours. It applies overhead to jobs as production occurs throughout the period.

Sunk Cost

A cost already incurred that cannot be changed by any future decision. It is irrelevant to decision making and should be excluded from incremental analysis.

Underapplied Overhead

The amount by which actual manufacturing overhead exceeds overhead applied to production. It is typically closed to cost of goods sold at period end.

Relevant Cost

A future cost that differs between competing alternatives. Costs that are identical across options, or already incurred, are excluded from the comparison.

Statute of Frauds

A legal rule requiring certain contracts to be in writing to be enforceable, including land sales, suretyship promises, and goods sales over $500.

Perfect Tender Rule

Under UCC Article 2, a buyer may reject goods that fail to conform to the contract in any respect, subject to the seller's right to cure.

Apparent Authority

An agent's power to bind a principal arises from the principal's manifestations to third parties, even without actual authority, when the third party reasonably relies.

Chapter 7 Bankruptcy

A liquidation proceeding in which a trustee collects and sells the debtor's nonexempt assets and distributes proceeds to creditors under priority rules.

Security Agreement

A contract granting a creditor an interest in specified collateral. It supports attachment of a security interest when value is given and the debtor has rights in the collateral.

Price Elasticity of Demand

The percentage change in quantity demanded divided by the percentage change in price. Demand is elastic when the absolute value exceeds one, meaning quantity responds strongly to price.

Gross Domestic Product

The market value of all final goods and services produced within a country's borders in a period. It equals consumption plus investment plus government spending plus net exports.

Open Market Operations

Central bank purchases or sales of government securities. Purchases expand bank reserves and the money supply; sales contract them, influencing short-term interest rates.

Comparative Advantage

The principle that nations gain from trade by specializing in goods they produce at the lowest opportunity cost, even when one nation is absolutely more efficient at everything.

Structural Unemployment

Joblessness caused by a mismatch between workers' skills or locations and available jobs, often from technological change or industry shifts, persisting through economic expansions.

Span of Control

The number of subordinates reporting directly to one manager. Narrow spans produce tall hierarchies; wide spans produce flatter organizations with fewer management levels.

Expectancy Theory

Motivation equals expectancy times instrumentality times valence. Effort leads to performance, performance to outcomes, and outcomes are valued; a zero factor eliminates motivation.

Unity of Command

The principle that each employee should report to exactly one supervisor. Violating it creates conflicting instructions and unclear accountability within the organization.

Controlling Function

The management process of measuring actual performance against established standards, identifying deviations, and taking corrective action to keep activities on target.

SWOT Analysis

A planning tool pairing internal strengths and weaknesses with external opportunities and threats. It informs strategy by matching organizational capabilities to environmental conditions.

Net Present Value

The sum of discounted future cash flows minus initial investment, using the required rate of return. A positive NPV indicates the project adds value.

Internal Rate of Return

The discount rate at which a project's net present value equals zero. A project is acceptable when its IRR exceeds the required hurdle rate.

Expected Value

The probability-weighted average of all possible outcomes, computed by multiplying each outcome by its probability and summing the products. It estimates long-run average results.

Segregation of Duties

An internal control separating authorization, custody of assets, and recordkeeping among different employees so no single person can both commit and conceal an error or fraud.

Batch Processing

A data processing method that accumulates transactions and processes them together in periodic runs, in contrast to online real-time systems that update records immediately.

Sampling Risk

The possibility that conclusions drawn from a sample differ from conclusions that would result from examining the entire population, arising from chance selection variation.