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Definition of Process

Process Image 1


A series of linked activities that result in a specific objective. For example, the
payroll process requires the calculation of hours worked, multiplication by hourly
rates, and the subtraction of taxes before the final objective is reached, which is the
printing of the paycheck.

Related Terms:

business process reengineering (BPR)

the process of combining information technology to create new and more effective
business processes to lower costs, eliminate unnecessary
work, upgrade customer service, and increase
speed to market

Corporate processing float

The time that elapses between receipt of payment from a customer and the
depositing of the customer's check in the firm's bank account; the time required to process customer

cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a

Diffusion process

A conception of the way a stock's price changes that assumes that the price takes on all
intermediate values. dirty price. Related: full price

FIFO method (of process costing)

the method of cost assignment that computes an average cost per equivalent
unit of production for the current period; keeps beginning
inventory units and costs separate from current period production
and costs

In-house processing float

Refers to the time it takes the receiver of a check to process the payment and
deposit it in a bank for collection.

Ito process

Statistical assumptions about the behavior of security prices. For
details, see the book by Hull listed in the “Bibliography”.

Process Image 2

joint process

a manufacturing process that simultaneously
produces more than one product line
joint product one of the primary outputs of a joint process;
each joint product individually has substantial revenuegenerating

modified FIFO method (of process costing)

the method of cost assignment that uses FIFO to compute a cost per
equivalent unit but, in transferring units from a department,
the costs of the beginning inventory units and the
units started and completed are combined and averaged

multiprocess handling

the ability of a worker to monitor
and operate several (or all) machines in a manufacturing
cell or perform all steps of a specific task

Price discovery process

The process of determining the prices of the assets in the marketplace through the
interactions of buyers and sellers.

process benchmarking

benchmarking that focuses on practices and how the best-in-class companies achieved their results

process complexity

an assessment about the number of processes through which a product flows

Process costing

A method of costing for continuous manufacture in which costs for an accounting compared are compared with production for the same period to determine a cost per unit produced.

Process costing

A costing methodology that arrives at an individual product cost through the calculation of average costs for large quantities of identical products.

process costing system

a method of accumulating and assigning costs to units of production in companies producing large quantities of homogeneous products;
it accumulates costs by cost component in each production department and assigns costs to units using equivalent units of production

Process flow production

A production configuration in which products are continually
manufactured with minimal pauses or queuing.

process map

a flowchart or diagram indicating every step
that goes into making a product or providing a service

process productivity

the total units produced during a period
using value-added processing time

process quality yield

the proportion of good units that resulted from the activities expended

processing time

the actual time consumed performing the
functions necessary to manufacture a product

product- (or process-) level cost

a cost that is caused by the development, production, or acquisition of specific products or services

Purchased In-Process Research and Development

Unfinished research and development that is acquired from another firm.

Reprocessed material

Material that has been reworked and returned to stock.

statistical process control (SPC)

the use of control techniques that are based on the theory that a process has natural variations in it over time, but uncommon variations
are typically the points at which the process produces "errors", which can be defective goods or poor service

strict FIFO method (of process costing)

the method of cost assignment that uses FIFO to compute a cost per equivalent unit and, in transferring units from a department, keeps the
cost of the beginning units separate from the cost of the
units started and completed during the current period

weighted average method (of process costing)

the method of cost assignment that computes an average cost per
equivalent unit of production for all units completed during
the current period; it combines beginning inventory units
and costs with current production and costs, respectively,
to compute the average


Any items being converted into finished goods or released from
the warehouse in anticipation of beginning the conversion process.

Work-in-process inventory

Inventory that has been partially converted through the
production process, but for which additional work must be completed before it can
be recorded as finished goods inventory.


see activity-based management
abnormal loss a decline in units in excess of normal expectations
during a production process

accepted quality level (AQL)

the maximum limit for the number of defects or errors in a process


The process of satisfying stakeholders in the organization that managers have acted in the best interests of the stakeholders, a result of the stewardship function of managers, which takes place through accounting.


A collection of systems and processes used to record, report and interpret business transactions.


an increase in units or volume caused by the addition
of material or by factors inherent in the production process

activity analysis

the process of detailing the various repetitive actions that are performed in making a product or
providing a service, classifying them as value-added and
non-value-added, and devising ways of minimizing or eliminating
non-value-added activities

activity-based costing (ABC)

a process using multiple cost drivers to predict and allocate costs to products and services;
an accounting system collecting financial and operational
data on the basis of the underlying nature and extent
of business activities; an accounting information and
costing system that identifies the various activities performed
in an organization, collects costs on the basis of
the underlying nature and extent of those activities, and
assigns costs to products and services based on consumption
of those activities by the products and services

activity-based management (ABM)

a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received
by a customer and the resulting profit achieved by providing
this value

activity center

a segment of the production or service
process for which management wants to separately report
the costs of the activities performed

actual cost system

a valuation method that uses actual direct
material, direct labor, and overhead charges in determining
the cost of Work in process Inventory

Aggregate planning

A budgeting process using summary-level information to
derive various budget models, usually at the product family level.


process in corporate financial planning whereby the smaller investment proposals of each of the
firm's operational units are added up and in effect treated as a big picture.

algebraic method

a process of service department cost allocation
that considers all interrelationships of the departments
and reflects these relationships in simultaneous


The process of storing costs in one account and shifting them to other
accounts, based on some relevant measure of activity.

Analytical Review

The process of attempting to infer the presence of potential problems
through the analysis of ratios and other relationships, often over time.

applied overhead

the amount of overhead that has been assigned to Work in process Inventory as a result of productive activity; credits for this amount are to an overhead account

Automated Clearing House (ACH)

A collection of 32 regional electronic interbank networks used to
process transactions electronically with a guaranteed one-day bank collection float.

Automated Clearing House (ACH)

A banking clearinghouse that processes direct
deposit transfers.

Balanced Scorecard

A system of non-financial performance measurement that links innovation, customer and process measures to financial performance.

Bank reconciliation

The process of taking the balances from the bank statement and the general ledger and making adjustments so that they agree.

batch-level cost

a cost that is caused by a group of things
being made, handled, or processed at a single time


the process of investigating how others do something better so that the investigating company can imitate,
and possibly improve upon, their techniques

Bill of materials

An itemization of the parts and subassemblies required to create a
product, frequently including assumed scrap rates that will arise as part of the production

Blend off

The reintroduction of a faulty product into a process production flow by
adding it back in small increments.
1Copied with permission from Appendix B of Bragg, Inventory Best Practices, John Wiley
& Sons, 2004.


A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the
manager's control--such as the interest rate environment and client-imposed duration policy constraints--and
those that the management process contributes to, such as interest rate management, sector/quality allocations,
and individual bond selection.


A process of creating a theoretical spot rate curve , using one yield projection as the basis for
the yield of the next maturity.


any object or facility whose processing speed is
sufficiently slow to cause the other processing mechanisms
in its network to experience idle time


An operation in the midst of a manufacturing or service process in which the
required production level matches or exceeds the actual capacity.

budget manual

a detailed set of documents that provides information
and guidelines about the budgetary process

budget slack

an intentional underestimation of revenues
and/or overestimation of expenses in a budgeting process
for the purpose of including deviations that are likely to
occur so that results will occur within budget limits

Budgetary control

The process of ensuring that actual financial results are in line with targets – see variance


the process of formalizing plans and committing
them to written, financial terms

business intelligence (BI) system

a formal process for gathering and analyzing information and producing intelligence to meet decision making needs; requires information about
internal processes as well as knowledge, technologies, and competitors


an incidental output of a joint process; it is salable,
but the sales value of by-products is not substantial enough
for management to justify undertaking the joint process; it
is viewed as having a higher sales value than scrap


A product that is an ancillary part of the primary production process, having
a minor resale value in comparison to the value of the primary product being
manufactured. Any proceeds from the sale of a by-product are typically offset
against the cost of the primary product, or recorded as miscellaneous revenue.


A material created incidental to a production process, which can be
sold for value.

Capital budgeting

The process of choosing the firm's long-term capital assets.

Capital Budgeting

The process of ranking and selecting investment alternatives and
capital expenditures

capital budgeting

a process of evaluating an entity’s proposed
long-range projects or courses of future activity for
the purpose of allocating limited resources to desirable

Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.

Clearing house / Clearinghouse

An adjunct to a futures exchange through which transactions executed its floor are settled by a
process of matching purchases and sales. A clearing organization is also charged with the proper conduct of
delivery procedures and the adequate financing of the entire operation.

Competitive bidding

A securities offering process in which securities firms submit competing bids to the
issuer for the securities the issuer wishes to sell.


The process of accumulating the time value of money forward in time. For example, interest
earned in one period earns additional interest during each subsequent time period.

computer-aided manufacturing (CAM)

the use of computers to control production processes through numerically
controlled (NC) machines, robots, and automated assembly systems

continuous budgeting

a process in which there is a rolling
twelve-month budget; a new budget month (twelve months
into the future) is added as each current month expires

Continuous compounding

The process of accumulating the time value of money forward in time on a
continuous, or instantaneous, basis. Interest is earned continuously, and at each instant, the interest that
accrues immediately begins earning interest on itself.

Continuous Compounding

The process of continuously adding interest to a principal plus
interest amount and calculating the resulting compound amount

Continuous Discounting

The process of calculating the present value of a stream of future
cash flows by discounting over a continuous period of time

continuous improvement

an ongoing process of enhancing employee task performance, level of product quality, and level of company service through eliminating nonvalue-added activities to reduce lead time, making products
(performing services) with zero defects, reducing
product costs on an ongoing basis, and simplifying products
and processes

continuous loss

any reduction in units that occurs uniformly
throughout a production process


the process of exerting managerial influence on
operations so that they conform to previously prepared plans


the process of transformation or change

conversion cost

Refers to the sum of manufacturing direct labor and overhead
costs of products. The cost of raw materials used to make products
is not included in this concept. Generally speaking, this is a rough measure
of the value added by the manufacturing process.

cost accounting

a discipline that focuses on techniques or
methods for determining the cost of a project, process, or
thing through direct measurement, arbitrary assignment, or
systematic and rational allocation

Cost control

The process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity.

cost driver analysis

the process of investigating, quantifying,
and explaining the relationships of cost drivers and
their related costs

Cost object

Anything for which a measurement of cost is required – inputs, processes, outputs or responsibility centres.

Cost of Capital

The discount rate that should be used in the capital budgeting process.

cost of production report

a process costing document that
details all operating and cost information, shows the computation
of cost per equivalent unit, and indicates cost assignment
to goods produced during the period

Cost pool

The costs of (cross-functional) business processes, irrespective of the organizational structure of the business.

cost table

a database providing information about the impact
on product costs of using different input resources,
manufacturing processes, and design specifications

Creative Acquisition Accounting

The allocation to expense of a greater portion of the price
paid for another company in an acquisition in an effort to reduce acquisition-year earnings and
boost future-year earnings. Acquisition-year expense charges include purchased in-process research
and development and an overly aggressive accrual of costs required to effect the acquisition.

Creative Destruction

The process whereby new technology creates new jobs and destroys old, less productive jobs.

Credit analysis

The process of analyzing information on companies and bond issues in order to estimate the
ability of the issuer to live up to its future contractual obligations. Related: default risk

Cutoff control

A procedure for ensuring that transaction processing is completed
before the commencement of cycle counting.

Debtor in possession

A firm that is continuing to operate under Chapter 11 bankruptcy process.

Debtor-in-possession financing

New debt obtained by a firm during the Chapter 11 bankruptcy process.

decision making

the process of choosing among the alternative
solutions available to a course of action or a problem

Deposit Creation

The process whereby the banking system transforms a dollar of reserves into several dollars of money supply.

design for manufacturability (DFM)

a process that is part of the project management of a new product; concerned with finding optimal solutions to minimizing product failures
and other adversities in the delivery of a new product
to customers







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