BURNLEY 1e: Chapter 1 Review Flashcards
Accounting equation
The equation that provides structure to the financial statements, in which assets = liabilities + shareholders’ equity.
Annual report
An annual document prepared and published by a corporation in which it reports on its business activities during the year. The report includes the corporation’s annual financial statements.
Assets
Elements of the statement of financial position that have probable future benefits that can be measured, are owned or controlled by a company, and are the result of a past transaction.
Auditor
A professionally trained accountant who examines a company’s accounting records and financial statements and provides an opinion regarding whether they fairly present the company’s financial position and operating results in accordance with accounting standards.
Board of directors
The governing body of a company elected by the shareholders to represent their ownership interests.
Canada Revenue Agency (CRA)
The federal government program providing retirement benefits to retired workers based on the premiums they and their employers paid into the plan when they were working.
Capital appreciation
The gain or increase in value in a company’s share price.
Classified statement of financial position
A statement of financial position in which the assets and liabilities are listed in liquidity order and are categorized into current (or short-term) and non-current (or long-term) sections.
Common shares
Certificates that represent portions of ownership in a corporation. These shares usually carry a right to vote.
Comparative information
Financial information showing the results of both the current period and preceding period.
Consolidated financial statement
Financial statements that represent the combined financial results of a parent company and its subsidiaries.
Creditors
Individuals or entities that are owed something by a company.
Current
An asset or a liability that will be received, realized, or consumed, or else settled or paid within 12 months from year end.
Current assets
An asset that will be turned into cash or consumed in the next year or operating cycle of a company.
Current liabilities
A liability that will require the use of cash or the rendering of a service, or will be replaced by another current liability, within the next year or operating cycle of the company.
Dividends
Payments made to shareholders that represent a portion of a company’s net income that is being distributed to shareholders. Dividends are paid only after they are declared by the board of directors.
Earnings
Synonym for net income, net earnings, and profit.
Earnings management
The practice of choosing revenue and expense methods so that earnings are increased or decreased in particular accounting periods, or smoothed over time.
Earnings per share
A ratio calculated by dividing the earnings for the period by the average number of shares outstanding during the period.
Equity
The net assets of a company (its assets less its liabilities), representing the interest of shareholders in the company. It is the sum of a company’s share capital and retained earnings. It is also sometimes used to refer simply to the shareholders’ equity section of the statement of financial position.
Expenses
The decrease in economic benefit that results from resources that flow out of the company in the course of it generating its revenues.
Financial accounting
The study of the accounting concepts and principles that are used to prepare financial statements for external users.
Financial statements
Reports prepared by the management of a company for its shareholders, creditors, and others summarizing how the company performed during a particular period. Includes the statement of financial position, the statement of income, the statement of changes in equity, the statement of cash flows, and the notes to the financial statements.
Financial statement users
Decision makers who utilize a company’s financial statements, which include the owners (shareholders) and those who have lent money to the organization.
Financing activities
A company’s activities that involve raising funds to support the other activities of the company or represent a return of these funds. The two major ways to raise funds are to issue new shares or borrow money. Funds can be returned via debt repayment, dividend payments, or the repurchase of shares.
Fiscal year
The one-year period that represents a company’s operating year.
Gains
Increases in income resulting from the sale of investments; property, plant, and equipment; or intangible assets at amounts in excess of their carrying amounts.
Gross profit
Synonym for gross margin.
Income
The inflow of resources that increase shareholders’ equity but are not the result of shareholder activities. Income includes revenues and gains.
Interest
An expense incurred on money borrowed from creditors that is incurred with the passage of time.
International Financial Reporting Standards (IFRS)
The accounting standards that must be followed by Canadian public companies and that private companies may elect to adopt.
Investing activities
Company activities involving long-term investments. Primarily investments in property, plant, and equipment, and in the shares of other companies.
Investors
Individuals or entities that acquire shares of a company as an investment.
Liabilities
An element of the statement of financial position that leads to a probable future sacrifice of a company’s resources.
Liquidity
An organization’s short-term ability to convert its assets into cash to be able to meet its obligations and pay its liabilities.
Losses
A decrease in income resulting from the sale of investments; property, plant, and equipment; or intangible assets at amounts less than their carrying amounts.
Management
The individuals responsible for running (managing) a company.
Management discussion and analysis (MD&A)
Section of a company’s annual report where management provides their perspective and analysis of the financial statements. The information is meant to complement or supplement the financial statements and be forward-looking.
Managerial accounting
The study of the preparation and uses of accounting information by a company’s management.
Market value
The amount that an item would generate if it were sold in a transaction between independent parties.
Net assets
Assets minus liabilities. Net assets are equal to shareholders’ equity. Also known as shareholders’ equity.
Net earnings
A company’s total revenues less its total expenses, plus gains, less losses. Synonym for earnings, net earnings, and profit.
Net income
A company’s total revenues less its total expenses, plus gains, less losses. Synonym for earnings, net earnings, and profit.
Net loss
What results when expenses for a period exceed the income earned.
Non-current
An asset or liability presented in financial statements that will not be received, realized, consumed, or settled or paid within 12 months from the fiscal year end.
Notes to the financial statements
Section of a company’s financial statements where management provides more details about specific items, such as significant accounting policies, the types of inventory and assets held, and so on.
Operating activities
The activities of a company that are related to selling goods and services to customers, and other basic day-to-day activities related to operating the business.
Parent company
A company that owns and controls other companies, known as subsidiaries.
Principal
The initial amount lent or borrowed.
Private company
Company whose shares do not trade on a public stock exchange.
Profit
Synonym for earnings, net earnings, or net income.
Public company
Company whose shares trade on a public stock exchange.
Retained earnings
Earnings that are kept within a company and reinvested, rather than being paid out to shareholders in the form of dividends.
Revenues
Inflows of resources to a company that result from the sale of goods and/or services.
Share capital
The shares issued by a company to its owners. Shares represent the ownership interest in the company.
Shareholders
The individuals or entities that own shares in a company.
Shareholders’ equity
The shareholders’ claim on total assets, represented by the investment of the shareholders (share capital) and undistributed earnings (retained earnings) generated by the company.
Statement of cash flows
Financial statement that summarizes the cash flows of a company during the accounting period, categorized into operating, investing, and financing activities.
Statement of changes in equity
Financial statement that measures the changes in the equity of a company over a period of time, differentiating between changes that result from transactions with shareholders and those resulting from the company’s operations. Also known as the statement of changes in shareholders’ equity, statement of shareholders’ equity, and statement of equity.
Statement of financial position
Financial statement that indicates the resources controlled by a company (assets) and the claims on those resources (by creditors and investors) at a given point in time. Also known as the balance sheet.
Statement of income
Financial statement showing a company’s revenues and expenses, indicating the operating performance over a period of time. Also known as the income statement, the statement of operations, statement of earnings, and statement of profit or loss.
Subsidiary companies
A company that is owned and controlled by a parent company.
Working capital
The liquid funds available for use in a company, calculated as current assets minus current liabilities.
