Chapter 1 - Overview of Corporate Financial Reporting Flashcards
define shareholder
The individuals or entities that own shares in a company. People who have invested resources in the company in exchange for a share of its ownership
define creditor
Creditors are those who lend money or otherwise extend credit to a company rather than invest in it directly as investors do.
regarding the three categories of business activates
define financing activates
A company’s activities that involve raising funds to support other activities or that represent a return of these funds. A company’s financing comes from (1) investors (2) creditors
Additional Information:
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.
define capital appreciation
The gain or increase in value in a company’s share price.
define 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.
Synonym for net assets.
regarding the three categories of business activates
define investing activates
Company activities involving long-term investments, primarily investments in property, plant, and equipment, and in the shares of other companies
regarding the three categories of business activates
define Operating activities
The activities of a company that are related to developing, producing, marketing, and selling the company’s goods and/or services to customers, and other basic day-to-day activities related to operating the business.
define financial accounting
the process by which information on the transactions of an organization is captured, analyzed, and used to report to decision makers outside of the organization’s management team.
define Common Shares
Certificates that represent portions of ownership in a corporation. These shares usually carry a right to vote.
what are the 5 components of the financial statements:
- Statement of income
- Statement of changes in equity
- Statement of financial position
- Statement of cash flows
- Notes to the financial statements (probably not tested)
What are synonyms for profit
Profit, which is also known as
net income,
net earnings, or
earnings,
What are the other names for statement of income
(unsure if we should include)
Statement of operations
Statement of net earnings
Statement of earnings
Statement of profit or loss
what is the Gross Profit Formula
It is equal to the difference between the revenue received from the sale of the goods and the amount these goods cost the seller.
What is Net earnings (net income or profit)
the amount of the company’s revenue that remains after paying all of its expenses, such as product costs, wages, store operating costs, interest, and income taxes.
What is Earnings per Share
Basic earnings per share is the company’s net income divided by the average number of common shares that are outstanding (owned by shareholders of the company) during the year.
(net income) / (average # of common shares)
- If the number of shares has changed over the reporting period (due to stock issuance or buybacks), you typically use the weighted average of the shares outstanding during the period.
What Is the Reporting Objective of the Statement of Income?
The objective of the
statement of income is to present the results of the company’s operating activities for a month, a quarter, or a year
What Is the Reporting Objective of the Statement of Changes in Equity?
The statement will explains the changes in the company’s retained earnings during the year, which will be equal to the net income for the period less any dividends that the company’s board of directors declared during the period; that is, the amount of earnings that has been retained rather than distributed.
Share capital
(can delete)
The shares issued by a company to its owners. Shares represent the ownership interest in the company.
define Retained Earnings
Retained Earnings are the earnings or income that have been “retained” by the company and reinvested into the business.
Formula for Retained Earnings
Opening Retained Earning + Net Income - Dividends = Ending Retained Earning
Define Share capital
Represents the funds received when the shares were initially issued by the company to investors. There can be different types of shares (common shares and preferred shares). There can also be different classes of shares; in other words, shares that have different rights and privileges.
Define 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.
Define Current items
Current items are those that will be received, realized, or consumed, or else settled or paid within 12 months from the year end
Define Non-current Items
non-current are items that will not be received, realized, or consumed, or settled or paid within 12 months from the year end.
What is Working capital
The liquid funds available for use in a company, calculated as current assets minus current liabilities (For assets that are cash or will become cash within the next 12 months and liabilities that will be settled within 12 months)
Formula: Working Capital = Current Assets − Current Liabilities
Formula for the The Accounting Equation
Assets = Liabilities + Shareholders’ Equity
What are the 3 characteristics of an asset
- It is an economic resource controlled by an entity.
- The company expects future economic benefits from the use or sale of the resource.
- The event that gave the company control of the economic resource has already happened.
What are the 3 characteristics of a liability
- It is a present obligation of the entity.
- The company expects to settle it through an outflow of economic resources.
- The obligation results from an event that has already happened.
What are Share Capital
The first component, share capital (some companies use the term common shares), records the amount that the investors originally paid (invested) for the shares that the company issued.
What are the 3 subsections in a cashflow statement
- Cash flow from operating activities
- Cash flow from investing activities
- Cash flow from financing activities
What types of activities do Operating Activities include?
Operating activities include all inflows and outflows of cash related to the sale of goods and services. They are the activities that the company performs in its normal operations.
What type of activities do Investing Activities include?
Investing activities generally involve the purchase and sale of long-term assets such as property, plant, and equipment, and investments in other companies.
What type of activities do Financing activities include?
Financing activities are transactions that either result from new funds being received from investors or creditors or from the return of funds to these two groups.
Define Notes to the financial statements
It is a 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.
