Balance Sheets and Income Statements Flashcards
Income Statement
The statement that measures the extent to which a firm turned a profit over the reporting period.
Provides cumulative totals for the entire fiscal year
Accrual-Basis Accounting
Recognizes the timing of payments when registering a transaction:
**(Robin point) matching expenses (realized or expected) with revenue
- recognizes receivables from making sales on credit
- recognizes unpaid expenses
Gross Margin
Sometimes called “gross profit”
Provides gross profit after accounting Cost of Goods Sold Expense (your per-unit, marginal cost)
Net Income
Profit
This is the difference between revenues and expenses
Sales Revenue
Amount received or to be received from sales of products or services
Sales Revenue are net which means that any discount or returns are accounted for before being reported in the income statement
Cost of Goods Sold Expense
(cost of sales)
This is the accumulation of the cost for producing the goods/services
This would include cost of materials, labor, and overhead related to production
Balance Sheet
Also known as the statement of financial position
Displays end-of-year balance of assets and liabilities
Current Assets
Cash and other assets that can be converted to cash within one fiscal year
ex. insurance policy (if paid up-front), rent (paid in advance)
Long Term Assets
These are assets which we expect to last longer than one year.
They are reported either as:
i. Property, Plant and Equipment (PPE): tangible, long-
term assets (*leased equipment is not registered as an asset since not owned. Registered as operating)
ii. Intangible Assets - these are things like rights to patents
iii. Other assets - this is a catch all for anything that didn’t fall into the other two groups.
Depreciation expense
This is to indicate the “book value” of the asset, as assets depreciate over time.
depreciation = (historical cost - salvage value) / useful life
* land is the exception. It does not depreciate
Current liabilities
Amounts that will have to be paid in cash within one year
They are generally paid by converting current assets into cash
ex. debts that will come due within one year,
Long-term liabilities
are those whose maturity dates are greater than one years’ time.
Capital Stock
(Contributed Capital)
the amount the stockholders or owners have invested since the genesis of the company.
Operating Expenses
Expenses to firm that cannot be matched one for one with goods sold
Include: Salaries of Admin. Advertising Utilities Office Supplies Travel Insurance Bad Debts Research and Development
operating paid after benefits are received
Amortization
allocation of costs for intangible assets
like a patent, trademark or goodwill
(historical cost/(useful life)
