| A | B |
|---|
| opportunity cost | the benefit or benefits forgone by not selecting a particular alternative. Once an alternative is selected in a decision situation, the benefits of all rejected alternatives become part of the opportunity cost of the alternative selected |
| cost/ benefit analysis | deals w/ the trade off between the rewards of selecting a given alternative and the sacrifices required to obtain those rewards |
| risk/reward trade-off | the relationship between uncertainty and reward. It indicates that the higher the risk, the higher the reward required to induce the risk taking |
| critical thinking | an examination of the way we think to help improse the quality of our decision-making process |
| ethics | a system of standards of conduct and moral judgment |
| internal decision makers | economic decision makers w/in a company who make decisions for the company. They have access to much or all of the accounting info generated w/in the company |
| external decision makers | economic decision makers outside a company who make decisions about the company. The accounting info they use to make those decisions is limited to what the company provides them. |
| management accounting | the branch of accounting developed to meet the informational needs of internal decision makers |
| financial accounting | the branch of accounting developed to meet the informational needs of external decision makers |
| cash flow | the movement of cash in and out of a company |
| net cash flow | the difference between cash inflows and cash outflows; it can be either positive or negative |
| return on investment | the earnings and profits an investment returns to the investor |
| return of investment | the return of the principal invested |
| economic decisions - need answers to these questions | 1. Will you be paid? 2. When will you be paid? 3. How much will you be paid? |
| accounting information | raw data concerning transactions that have been transformed into financial numbers that can be used by economic decison makers |
| information | data that have been transformed so that they are useful in the decision making process |
| materiality | something that will influence the judgment of a reasonable person |
| relevance | one of the two primary qualitative characteristics of useful accounting info. It means the info must have a bearing on a particular decision situation |
| reliability | one of the two primary qualitative characteristics of useful accounting info. It means the info must be reasonably accurate |
| timeliness | a primary characteristic of relevance. To be useful, accounting info must be provided in time to influence a particular decision |
| predictive value | a primary characteristic of relevance. To be useful, accounting must provide info to decision makers that can be used to predict the future and timing of cash flows |
| feedback value | a primary characteristic of relevance. To be useful, accounting must provide decision makers w/ info that allows them to assess the progress of an investment |
| verifiability | a primary characteristic of reliability. Info is considered verifiable if several individuals, working independently, would arrive at similar conclusions using the same data |
| represenational faithfulness | a primary characteristic of reliability. To be useful, accounting info must reasonably report what actually happened |
| neutrality | a primary characteristic of reliability. To be useful, accounting info must be free of bias |
| comparability | a quality of info from different entities or alternatives; economic decision makers evaluate alternatives-accounting info from one should be comparable to accounting info for the other |
| consistency | info from the same source over time. using the same methods over time increases the usefulness of that info |
| cognitive dissonance | the hesitatio that sets in after an alternative has been chosen, but before it has been implemented. In common language, having "second thoughts". |
| expropriation | takeover of the assets by a hostile foreign government |
