CMA Part 1 key terms

An accounting method that records revenue when earned and expenses when incurred, regardless of when cash changes hands. It gives a more accurate periodic picture of profitability than cash basis does.

The five-step process for recognizing revenue: identify the contract, identify performance obligations, determine the transaction price, allocate it to obligations, and recognize revenue when each obligation is satisfied.

Expenses are recorded in the same period as the revenues they helped generate. This ties costs to benefits and prevents profits from being distorted by timing differences.

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

An intangible asset equal to the excess of the purchase price of an acquired business over the fair value of its identifiable net assets. It is tested for impairment rather than amortized.

A balance-sheet amount representing income taxes that will be payable in future periods because of temporary differences between book and tax accounting.

A potential obligation whose existence depends on a future event, such as a lawsuit outcome. It is accrued when probable and estimable, and disclosed when only reasonably possible.

The change in equity from non-owner transactions during a period. It includes net income plus other comprehensive income items such as foreign currency translation and unrealized gains on certain investments.

The overall company-wide budget that combines operating budgets, such as sales and production, with financial budgets, such as cash and capital, into one coordinated plan for the period.

A budgeting approach in which every cost must be justified from a zero base each period rather than starting from last year's amounts. It forces review of all activities and spending.

A budget adjusted to the actual level of activity achieved. It lets managers compare actual costs with what costs should have been at that volume, isolating price and efficiency variances.

A forecast continually updated by adding a new period as the current one ends, so the planning horizon always extends a fixed number of periods into the future.

The intentional padding of a budget by adding extra revenue or expense cushion. It can protect managers from uncertainty but undermines planning accuracy and resource allocation.

A schedule of expected cash receipts and disbursements, showing beginning cash, inflows, outflows, and ending cash. It helps managers plan borrowing and avoid liquidity shortages.

A technique that changes one assumption at a time to see how much the result moves. It identifies which variables most affect outcomes and where forecast risk is concentrated.

A performance measurement system that views the organization from four perspectives: financial, customer, internal process, and learning and growth. It links measures to strategy rather than relying only on financial results.

A performance measure calculated as operating income divided by invested capital. It shows how efficiently assets generate profit but can encourage managers to reject good investments that lower the ratio.

Operating income minus a charge for invested capital at a required rate. It measures profit above the minimum return expected and encourages managers to accept investments earning more than that rate.

The internal price one responsibility center charges another for goods or services. It affects divisional profit measures and should motivate decisions that benefit the company as a whole.

An organizational unit accountable for specific results, such as a cost center, revenue center, profit center, or investment center. Its manager is evaluated on the measures tied to that responsibility.

A control approach where managers focus attention only on results that deviate significantly from plan or standard. It saves time by ignoring normal performance within an acceptable range.

A costing system that accumulates costs by individual job, batch, or customer order. It suits customized or low-volume production where each unit differs.

A costing method that averages costs over large volumes of identical units produced in continuous processes. Costs flow through departments, and unit cost equals total cost divided by equivalent units.

The number of complete units that the work done during a period could have produced. It converts partially finished units into whole-unit equivalents so process costs can be assigned fairly.

A costing method that assigns overhead to products based on the activities they consume, using cost drivers. It improves accuracy where products differ in complexity and overhead is a large cost.

An overhead rate set before the period, usually estimated total overhead divided by estimated activity base. It lets costs be applied to production as it occurs rather than waiting for actual overhead.

A cost already incurred that cannot be changed by any future decision. It should be ignored when comparing alternatives because only future costs and revenues are relevant.

The total of prevention, appraisal, internal failure, and external failure costs. It measures spending to avoid defects plus costs of defects that occur.

A management approach that identifies the bottleneck limiting throughput, exploits it, subordinates other operations to it, and then raises its capacity. It focuses improvement where it increases overall output.

A widely used model describing internal control as five components: control environment, risk assessment, control activities, information and communication, and monitoring. It provides criteria for designing and evaluating controls.

A control that separates authorization, custody of assets, and recordkeeping among different people. It reduces the chance that one person can both commit and conceal an error or fraud.

A control designed to stop errors or fraud before they occur, such as approvals, passwords, or physical locks. It contrasts with detective controls, which find problems after the fact.

A model explaining fraud as the combination of pressure or incentive, opportunity, and rationalization. Auditors and managers use it to assess where fraud risk is highest.

The process of identifying, analyzing, and prioritizing risks that could prevent the organization from achieving its objectives. It sets the basis for choosing control activities.

Integrated software that shares a common database across finance, operations, sales, and other functions. It standardizes processes and gives management a single source of transaction data.

A central repository that collects and stores structured data from multiple systems for reporting and analysis. It is designed for querying and decision support rather than daily transaction processing.

The use of historical data, statistical models, and machine learning to estimate future outcomes such as demand, default risk, or customer churn.

Software that mimics human actions to perform repetitive, rule-based tasks across applications, such as data entry or invoice matching. It reduces manual effort without changing underlying systems.

Very large and varied data sets characterized by volume, velocity, variety, and often veracity. Traditional tools struggle with them, so specialized analytics and storage are needed.

A distributed ledger that records transactions in linked, tamper-resistant blocks shared across participants. It can provide transparent, verifiable records without a central authority.