Skip to ContentGo to accessibility page
OpenStax Logo
Principles of Accounting, Volume 2: Managerial Accounting

Key Terms

Principles of Accounting, Volume 2: Managerial AccountingKey Terms

Key Terms

accounting rate of return (ARR)
return on investment considering changes to net income
alternatives
options available for investment
annuities due
equal installments paid at the beginning of each payment period within the series
annuity
series of equal payments made over time
capital investment
company’s contribution of funds toward long-term assets for further growth; also called capital budgeting
cash flow
cash receipts and cash disbursements as a result of business activity
cash inflow
money received or cost savings from a capital investment
cash outflow
money paid or increased cost expenditures from capital investment
compounding
earning interest on previous interest earned, along with the interest earned on the original investment
discounted cash flow model
assigns a value to a business opportunity using time-value measurement tools
discounting
process that determines the present value of a single payment or stream of payments to be received
future value (FV)
value of an investment after a certain period of time
hurdle rate
minimum required rate of return on an investment to consider an alternative for further evaluation
internal rate of return method (IRR)
calculation to determine profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero
lump sum
one-time payment or repayment of funds at a particular point in time
net present value method (NPV)
discounts future cash flows to their present value at the expected rate of return, and compares that to the initial investment
non-time value methods
analysis that does not consider the comparison value of a dollar today to a dollar in the future
operating expenses
daily operational costs not associated with the direct selling of products or services
ordinary annuities
equal installments paid at the end of each payment period within the series
payback method (PM)
calculation of the length of time it takes a company to recoup their initial investment
preference decision
process of comparing potential projects that meet screening decision criteria, and will rank order of importance, feasibility, and desirability to differentiate among alternatives
present value (PV)
future value of an investment expressed in today’s value
screening decision
process of removing alternatives from the decision-making process that would be less desirable to pursue given their inability to meet basic standards
time value of money
assertion that the value of a dollar today is worth more than the value of a dollar in the future
PreviousNext
Order a print copy
Citation/Attribution
Reuse and redistribution of this content in digital or print format:
  • This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's prior written permission.
  • This book uses the Creative Commons Attribution-NonCommercial-ShareAlike License, which means that you can reuse and modify the material only for noncommercial purposes, must attribute OpenStax, and must distribute any derivative works under the same license.
  • Any commercial printing of this textbook, including using a local or custom printer, must be approved by OpenStax, and proper citation provided.
  • OpenStax-copyrighted images, activities, assessments, and similar components of this book are subject to the same licensing – CC-BY-NC-SA. They can be used for noncommercial purposes with attribution. Commercial use requires permission.
  • Permission requests: Anyone who intends to incorporate this content (including text, images, and other components) into large language models, use it in AI offerings, use it commercially (including in print), and/or has questions about another use case is welcome to complete our reuse request form.
Attribution information
  • If you are redistributing all or part of this book in a noncommercial print format, then you must include on every physical page the following attribution:

    Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters

  • If you are redistributing all or part of this book in a noncommercial digital format, then for every page that includes OpenStax content, you must license the derivative work under the same CC-BY-NC-SA license as the original, and include on every digital page view the following attribution:

    Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters

Citation information

The information below includes the information needed to generate citations in most major styles (APA, MLA, etc.); you must reformat and organize the information as needed to fit the requirements of the style. Use the information below to generate a citation. We recommend using a citation tool such as this one.

© Apr 23, 2026 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License. The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo, and Rice University name, and Rice University logo trademarks, or wordmarks are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.