Glossary – Accounting
There are 13 names in this directory beginning with the letter M.
An example is the major overhaul of a truck’s engine that will extend the useful life of the truck. This expenditure is recorded on the balance sheet in an asset (or in a contra asset) account and then depreciated over the remaining life of the truck.
Make or buy decision
A decision whether to make some products or equipment in-house versus purchasing the products or equipment from another company. As in any decision, one must compare the relevant costs and other opportunities. It is possible that the cost to make an item will involve an increase in only some costs and will, therefore, be less costly than purchasing the item from another company.
The field of study within accounting that is devoted to information needed by the management of the company (as opposed to financial accounting to external parties). Topics covered in managerial accounting include cost behavior, product costing for manufacturers, budgeting, amounts needed for decision making, transfer pricing, capital budgeting, etc.
Manufacturing costs other than direct materials and direct labor.
Margin of safety
A term used in break-even analysis to indicate the amount of sales that are above the break-even point. In other words, the margin of safety is the amount by which a company’s sales could decrease before the company will become unprofitable.
A reduction in the original selling price.
The accounting guideline that permits the violation of another accounting guideline if the amount is insignificant. For example, a profitable company with several million dollars of sales is likely to expense immediately a $200 printer instead of depreciating the printer over its useful life.
This term is usually associated with assets that are depreciated. In the month that an asset is acquired or disposed, it is assumed to have occurred in the middle of the month.
The practice where an asset purchased within a year is assumed to have been purchased at the mid-point of the year. For example, an asset purchased during the calendar year 2012 is assumed to have been purchased on July 1, 2012.
Costs that have both a fixed and variable component. For example, the cost of operating an automobile includes some fixed costs that do not change with the number of miles driven (e.g., operating license, insurance, parking, some of the depreciation, etc.) Other costs vary with the number of miles driven (e.g., gasoline, oil changes, tire wear, etc).
Monetary unit assumption
An accounting guideline where the U.S. dollar is assumed to be constant (no change in purchasing power) over time.
A lien on real estate to protect a lender. The loan made with such security is referred to as a mortgage loan.
An average that changes with an additional purchase.