Chapter 1: Intro to Financial Statements Flashcards
sole proprietorship
business owned by one person
partnership
business owned by two or more people
corporation
separate legal entity owned by stockholders
accounting
the information system that identifies, records, and communicates the economic events of an organization to interested users
internal users (list)
marketing
human resources
finance
management
external users (list)
investors creditors IRS, SEC, FTC labor unions customers
income statement
reports the success or failure of the company’s operations for a period of time.
retained earnings statement
reports the amount paid out in dividends and the amount of net income/net loss for a specific period of time
balance sheet
shows relationship between assets and liabilities/stockholders equity.
annual report
a report prepared by corporate management that presents financial information including financial statements, a management discussion and analysis section, notes, and an independent auditors report.
assets
resources owned by a business
auditors report
a report prepared by an independent outside auditor stating the auditors opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles.
certified public accountant
an individual who has met certain criteria and is thus allowed to perform audits of corporations.
common stock
term used to describe the total amount paid in by stockholders for the shares they purchase.
dividends
payments of cash from a corporation to its stockholders.
expenses
the cost of assets consumed or services used in the process of generating revenues.
liabilities
amounts owed to creditors in the form of debts and other obligations
management discussion and analysis
a section of the annual report that presents management’s views on the company’s ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations.
net income
the amount by which revenues exceed expenses
net loss
the amount by which expenses exceed revenues.
notes to the financial statements
notes clarify information presented in the financial statements and provide additional detail.
revenue
the increase in assets or decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of business.
sarbanes-oxley act (sox)
regullations passed by Congress to reduce unethical corporate behavior.
statement of cash flows
a financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.
stockholder’s equity
the owner’s claim to assets.
Income statement
net income/loss formula
Revenues
-expenses
=net income/loss
statement of retained earnings formula
beginning retained earnings
add: net income
less: dividends
=end retained earnings
balance sheet formula
assets= liabilities+ stockholder’s equity
earnings per share (EPS)
=net income/ average common share outstanding
working capital ratio
=current asset
-current liability
current ratio
current assets/current liabilities
debt to asset ratio
total liabilities/total assets
