Accounting Terms (M)

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.

major repairs

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. (Ordinary repairs are recorded immediately as an expense.)

management accounting

See managerial accounting.

management's discussion and analysis

A section of the annual report to stockholders of a publicly traded corporation. This section contains extensive information from management about the corporation's financial condition and its operations.

managerial accounting

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 cell

Often a U-shaped arrangement of the various machines involved in manufacturing a product. This layout eliminates the need to move the item being manufactured from one area or department of the factory to another. In addition to saving the handling cost, it may save space and reduce inventory levels.

manufacturing overhead

Manufacturing costs other than direct materials and direct labor. See Explanation of Manufacturing Overhead.

manufacturing support costs

Also referred to as factory burden, factory overhead, indirect manufacturing costs, and manufacturing support costs. To learn more, see Explanation of Manufacturing Overhead.

marginal cost

The cost of the next unit.

marginal revenue

The revenue from the next unit.

markdown

A reduction in the original selling price.

markdown cancellation

The elimination of part or all of a markdown.

market interest rate

Also referred to as the current interest rate, the yield-to-maturity, and the effective interest rate. The market interest rate is always changing whereas the stated interest rate does not change.

market share

Company sales in a market as compared to the total sales in that market. For example, General Motors share of the U.S. market has decreased from 50% in the 1960's to its present market share of 25% - 30%.

marketable securities

Investments in common stock, preferred stock, corporate bonds, or government bonds that can be readily sold on a stock or bond exchange. These investments are reported as a current asset if the investor's intention is to sell the securities within one year.

markup

This could be the difference between cost and the selling price. For example, a retailer may markup its cost by 50% to arrive at a selling price. In the retail method of costing inventory, markup is used to mean the "additional" markup from the original selling price. For example, an item with a cost of $10 might normally be priced at $15. However, because of the shortage of this item and because of high demand, the retailer sets a selling price of $17. Sometimes markup means the $7, but sometimes it means the additional markup of $2.

markup cancellation

A reduction of a markup. In the retail method of estimating inventory, it could mean the elimination of part or the entire additional markup. For example, if an item with a cost of $10 would normally be priced at $15, but instead is priced at $17 due to supply and demand considerations, the "additional" markup was $2. If the retailer reduces the price to $15.50 there would be a markup cancellation of $1.50.

Mary Smith, Capital

The owner's equity account that contains the amount invested in the sole proprietorship by Mary Smith plus the net income since the company began minus the draws made by Mary Smith since the company began. The current year net income might be in the temporary revenue and expense accounts and the current year draws might be in the drawing account. However, after the financial statements for the year are prepared the current year net income and draws will be transferred to this account.

Mary Smith, Drawing

This contra owner's equity account has a debit balance that represents the current year draws made by the owner, Mary Smith. After the year's financial statements have been prepared, the balance in this temporary account will be transferred to Mary Smith, Capital.

matching principle

The principle that requires a company to match expenses with related revenues in order to report a company's profitability during a specified time interval. Ideally, the matching is based on a cause and effect relationship: sales cause the cost of goods sold expense and the sales commissions expense. If no cause and effect relationship exists, accountants will show an expense in the accounting period when a cost is used up or has expired. Lastly, if a cost cannot be linked to revenues or to an accounting period, the expense will be recorded immediately. An example of this is Advertising Expense and Research and Development Expense.

materiality

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. The justification is that no lender or investor will be misled by a one-time expense of $200 instead of say $40 per year for five years. Another example is a large company's reporting of financial statement amounts in thousands of dollars instead of amounts to the penny.

materials inventory

One component of a manufacturer's inventory. Sometimes referred to as Stores or Raw Materials. (Other components of a manufacturer's inventory are work in process and finished goods.)

materials price variance

direct materials price variance.

materials quantity variance

See direct materials usage variance.

materials usage variance

See direct materials usage variance.

Matt Jones, Capital

The owner's equity account that contains the amount invested in the sole proprietorship by Matt Jones plus the net income since the company began minus the draws made by Matt Jones since the company began. The current year net income might be in the temporary revenue and expense accounts and the current year draws might be in the temporary drawing account. However, after the financial statements for the year are prepared the current year net income and draws will be transferred to this account.

Matt Jones, Current year net income

The net amount of revenues and gains minus expenses and losses for the sole proprietorship owned by Matt Jones. After the financial statements are prepared for the year, this amount will be transferred to Matt Jones, Capital.

Medicare tax

One component of the FICA tax (the other component in Social Security). This payroll tax is withheld from employees' payroll checks and is also matched by the employer. It is assessed on all wages and salaries at the rate of 1.45%. With the employer including its 1.45% matching amount, the amount remitted to the federal government will be 2.9% of employees' wages and salaries.

memo entry

An entry without debit or credit amounts. For example, assume that a corporation has 100,000 shares of $0.50 par value common stock before a 2-for-1 stock split. At the time of the split a memo entry would be entered in the records stating that after the 2-for-1 stock split, the corporation has 200,000 shares of $0.25 par value common stock outstanding. No dollar amounts would be posted to the accounts in the general ledger.

merchandise inventory

The current asset which reports the cost of a retailer's, wholesaler's, or distributor's goods purchased to be resold, which have not yet been sold as of the balance sheet date. To learn more, see Explanation of Inventory & Cost of Goods Sold for an in-depth discussion.

MICR

Magnetic ink character recognition.

MIS

Management information system.

miscellaneous expense

An income statement account for expense items that are too insignificant to have their own separate general ledger accounts.

mixed cost

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, tires wear, etc.).

mixed expenses

Used in conjunction with cost or expense behavior. Mixed expenses consist of a constant or fixed portion and a variable portion. For example, sales salaries would be a mixed expense if each sales person's compensation is $2,000 per month plus 3% of the sales generated by the employee. Automobile expense is a mixed expense in relationship to miles driven. The automobile insurance, licensing, and parking are fixed expenses in that they do not vary with the miles driven. Gasoline and maintenance are considered variable because they will vary with miles driven.

monetary asset

An asset such as cash, accounts receivable, or a note receivable where the amount is a fixed, stated amount. Holding these assets during periods of inflation will result in a loss of purchasing power.

monetary unit assumption

An accounting guideline where the U.S. dollar is assumed to be constant (no change in purchasing power) over time. This allows an accountant to add one dollar from a transaction in 1946 to one dollar in 2004 and to show the result as two dollars. It also means that items that cannot be expressed in dollars do not appear in the financial statements. For example, how would you express on a company's balance sheet the value of loyal customers or a brilliant, aggressive management team?

money market account

A bank or investment account with a fluctuating interest rate. Usually the funds can be withdrawn on demand, even though the account is not a checking account.

mortgage

A lien on real estate to protect a lender. The loan made with such security is referred to as a mortgage loan.

mortgage bond

A bond (long-term debt) that is secured by a lien on real estate.

mortgage loan

A loan having the security of a lien on the borrower's real estate.

mortgage loan payable

A liability accounts whose balance is the unpaid principal balance as of the balance sheet date. The amount of principal repayment required in the 12 months after the balance sheet date is reported as a current liability. The unpaid principal balance not due within one year after the balance sheet date is reported as a long term liability.

moving average

An average that changes with an additional purchase. See perpetual moving average in Explanation of Inventory & Cost of Goods Sold.

multiple regression analysis

A statistical tool used to determine the coefficients of the two or more independent variables involved in estimating the amount of the dependent variable. It utilizes the least-squares method for determining the coefficients of the independent variables.

multicollinearity

A situation where there is correlation between the independent variables used in explaining the change in a dependent variable. When this condition exists, you cannot have confidence in the individual coefficients of the independent variables.

multiple step income statement

An income statement that has more than one subtraction in arriving at net income. An income statement showing gross profit is an indication it is a multiple step income statement. To learn more, see Explanation of Income Statement.