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Principles of Accounting, Volume 2: Managerial Accounting

Key Terms

Principles of Accounting, Volume 2: Managerial AccountingKey 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
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