2. Understanding Financial Statements Flashcards
What is net income?
The profit earned by a company after all expenses and taxes have been deducted.
What is OCI?
Other Comprehensive Income (OCI) includes revenues, expenses, gains, and losses that are excluded from net income.
What is the purpose of a balance sheet?
It shows a company’s financial position at a specific point in time, detailing assets, liabilities, and equity.
What are current assets?
Assets that are expected to be converted into cash or used up within one year.
What are non-current assets?
Assets that are not expected to be converted into cash within one year, like property, equipment, or long-term investments.
What are liabilities?
Financial obligations a company owes to others.
What is equity?
The residual interest in the assets of the company after deducting liabilities.
What are operating activities?
Business activities related to the primary operations of the company, such as selling goods or services.
What are investing activities?
Activities related to the purchase or sale of long-term assets or investments.
What are financing activities?
Activities that result in changes to the size and composition of the equity and borrowings of the company.
What is a cash flow statement?
A financial statement that shows the cash inflows and outflows from operating, investing, and financing activities.
What is revenue?
Income generated from normal business operations, such as sales of goods or services.
What are expenses?
The costs incurred in the process of earning revenue, including rent, salaries, and utilities.
What is gross profit?
The difference between revenue and the cost of goods sold (COGS).
What is depreciation?
The allocation of the cost of a tangible asset over its useful life.
What is amortization?
The process of expensing the cost of an intangible asset over its useful life.
What is the income statement?
A financial statement that shows a company’s profitability over a specific period, detailing revenues, expenses, and net income.
What is working capital?
The difference between a company’s current assets and current liabilities, used to measure liquidity.
What are long-term liabilities?
Obligations that are due for payment beyond one year, such as bonds or long-term loans.
What is retained earnings?
The portion of a company’s profit that is kept in the business rather than distributed to shareholders as dividends.
What is the purpose of financial statements?
To provide information about a company’s financial performance, position, and cash flows to stakeholders.
What are intangible assets?
Non-physical assets such as patents, trademarks, and goodwill.
What is liquidity?
The ability of a company to meet its short-term financial obligations.
What is solvency?
The ability of a company to meet its long-term financial obligations.
What is a contingent liability?
A potential liability that may occur depending on the outcome of a future event.
What is goodwill?
An intangible asset that arises when a company acquires another for more than its identifiable net assets.
What is the matching principle?
An accounting principle where expenses are matched with the revenues they generate in the same period.
What is accrual accounting?
Accounting method where revenues and expenses are recorded when they are earned or incurred, not when cash is exchanged.
What is historical cost?
The original purchase price of an asset, recorded on the balance sheet.
What is market value?
The current value at which an asset can be sold or exchanged in the marketplace.
What is the accounting equation?
Assets = Liabilities + Equity.
What are accounts receivable?
Money owed to a company by its customers for goods or services delivered but not yet paid for.
What are accounts payable?
Money a company owes to its suppliers for goods or services received but not yet paid for.
What is the cost of goods sold (COGS)?
The direct costs associated with producing or purchasing the goods sold by a company.
What is a fiscal year?
A one-year period that companies use for financial reporting and budgeting, which may not align with the calendar year.
What is a trial balance?
A summary of all ledger accounts with their balances to ensure that debits equal credits.
What is inventory?
The goods and materials a company holds for the purpose of resale.
What is shareholder equity?
The owners’ claim on the assets of the company after all liabilities have been paid off.
What is a dividend?
A distribution of a portion of a company’s earnings to its shareholders, usually in the form of cash or additional shares.
What are prepaid expenses?
Payments made in advance for goods or services to be received in the future, recorded as assets until used.
What is a classified balance sheet?
A balance sheet that organizes assets and liabilities into current and non-current categories.
What is a current liability?
A liability that is expected to be settled within one year.
What is accumulated depreciation?
The total amount of depreciation that has been recorded against an asset over its useful life.
What is book value?
The value of an asset or company as recorded on the balance sheet, calculated as cost minus accumulated depreciation.
What is par value of a stock?
The nominal or face value of a share of stock as stated in the corporate charter.
What is treasury stock?
Shares that were issued by the company and later reacquired, reducing shareholders’ equity.
What is a credit in accounting?
An entry on the right side of a ledger that decreases assets or increases liabilities and equity.
What is a debit in accounting?
An entry on the left side of a ledger that increases assets or decreases liabilities and equity.
What is an audit?
An independent examination of financial statements to ensure accuracy and compliance with accounting standards.
What is a cash equivalent?
Short-term, highly liquid investments that are easily convertible to known amounts of cash, such as treasury bills.
