Glossary G-5inventory valued under fifo and inven-
tory valued under lifo. (p. 278)
Limited liability company (LLC) A busi-
ness form consisting of one or more
persons or entities filing an operating
agreement with a state to conduct busi-
ness with limited liability to the owners,
yet treated as a partnership for tax
purposes. (p. 5)
Liquidity Measures the ability of a
business to pay or otherwise satisfy its
current liabilities. (p. 464)
Long-term liabilities Liabilities that will
not be due for a long time (usually more
than one year). (p. 114)
Lower-of-cost-or-market (LCM) method
A method of valuing inventory that
reports the inventory at the lower of its
cost or current market value (replace-
ment cost). (p. 280)
Management Discussion and Analysis
(MDA) An annual report disclosure
that provides an analysis of the results
of operations and financial condition.
(p. 653)
Management reporting system A sub-
system of accounting that provides
internal information to assist managers
in making decisions. (p. 153)
Manufacturing A type of business that
changes basic inputs into products that
are sold to individual customers. (p. 4)
Market rate The rate of return that in-
vestors demand for bonds of a specific
quality and duration. (p. 451)
Matching concept A concept of
accounting in which expenses are
matched with the revenue generated
during a period by those expenses.
(p. 22)
Materials inventory The cost of materials
that have not yet entered into the manu-
facturing process. (p. 266)
Maturity value The amount that is due
at the maturity or due date of a note.
(p. 366)
Merchandise available for sale The cost
of merchandise available for sale to
customers. (p. 216)
Merchandise inventory Merchandise on
hand and available for sale to customers.
(pp. 213, 266)
Merchandising A type of business that
purchases products from other busi-
nesses and sells them to customers.
(p. 4)
Multiple-step income statement A form
of income statement that contains sev-
eral sections, subsections, and subtotals.
(p. 214)
Natural business year The fiscal year
that ends when a business’s activities
reach their lowest point in the operating
cycle. (p. 169)
Net income The excess of revenues
over expenses. (p. 13)
Net loss The excess of expenses over
revenues. (p. 13)
Net pay Gross pay less payroll deduc-
tions; the amount the employer is oblig-
ated to pay the employee. (p. 444)
Net realizable value The amount of
cash expected to be realized in the
future from a receivable; the estimated
selling price of an item of inventory less
any direct costs of disposal, such as
sales commissions. (pp. 280, 359)
Net sales Revenue received for mer-
chandise sold to customers less any
sales returns and allowances and sales
discounts. (p. 212)
Normal balance of an account The
debit or credit side of an account used
to record increases. (p. 156)
Note payable A type of short or long-
term financing that requires payment of
the amount borrowed plus interest. (p. 11)
Notes receivable Written claims against
debtors who promise to pay the amount
of the note plus interest at an agreed-
upon rate. (pp. 114, 356)
Number of days’ sales in inventory
The relationship between the volume
of sales and inventory, computed by
dividing the inventory at the end of the
year by the average daily cost of goods
sold. (pp. 282, 644)
Number of days’ sales in receivables
The relationship between sales and
accounts receivable, computed by divid-
ing the net accounts receivable at the
end of the year by the average daily
sales. (pp. 371, 642)
Number of times interest charges are
earned A ratio that measures creditor
margin of safety for interest payments,
calculated as income before interest
and taxes divided by interest expense.
(pp. 465, 649)
Objectivity concept A concept of
accounting that requires accounting
records and the data reported infinancial statements be based on
objective evidence. (p. 22)
Operating activities Business activities
that involve using the business’s resources
to implement its business strategy. (p. 12)
Other comprehensive income Required
disclosures that change the stockholders’
equity, but are not disclosed as net
income or retained earnings. These
items include foreign currency items,
pension liability adjustments, and
unrealized gains and losses on invest-
ments. (p. 508)
Other expense Expenses that cannot be
traced directly to operations. (p. 217)
Other income Revenue from sources
other than the primary operating activity
of a business. (p. 217)
Outstanding stock The stock in the
hands of stockholders. (p. 496)
Owners’ equity The rights of the owners
of a company. (p. 17)
Par The monetary amount printed on a
stock certificate. (p. 497)
Parent company The corporation own-
ing all or a majority of the voting stock
of the other corporation. (p. 549)
Partnership A business owned by two
or more individuals. (p. 5)
Patents Exclusive rights to produce and
sell goods with one or more unique
features. (p. 413)
Payroll The total amount paid to em-
ployees for a certain period. (p. 444)
Periodic inventory method The inven-
tory method in which the inventory
records do not show the amount avail-
able for sale or sold during the period.
(p. 216)
Permanent accounts Accounts that
are reported on the balance sheet and
whose balances carry forward from
period to period. (p. 169)
Perpetual inventory method The inven-
tory method in which each purchase
and sale of merchandise is recorded in
an inventory account. (p. 216)
Petty cash fund A special-purpose cash
fund to pay relatively small amounts.
(p. 325)
Physical inventory The detailed listing
of merchandise on hand. (pp. 230, 268)
Post-closing trial balance The trial bal-
ance prepared after the closing entries
have been posted to the ledger. (p. 171)