Chapter 2: Financial Statements Flashcards

1
Q

transaction

A

economic interchanges between entities that are accounted for and reflected in financial statements [summarized in accounts]

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2
Q

account

A

record in which transactions affecting individual assets, liabilities, stockholders’ equity, revenues, and expenses are recorded [summarized in financial statements]

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3
Q

4 requirements for a financial statement

A
  1. financial position (balance sheet) 2. earnings (income statement) 3. cash flows (statement of cash flows) 4. investments (statement of changes in stockholders’ equity)
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4
Q

3 principle forms of business organization

A

proprietorship, partnership, corporation

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5
Q

proprietorship

A

activity conducted by an individual

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6
Q

partnership

A

a group of proprietors who have banded together (LLP)

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7
Q

corporation

A

formed by having a charter and bylaws and registered by the appropriate office in 1 of the 50 states

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8
Q

stockholder

A

owner of a corporation

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9
Q

stock

A

evidence of ownership in a corporation

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10
Q

fiscal year

A

annual period used for reporting to owners

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11
Q

balance sheet

A

list of assets, liabilities, stockholders’ equity a a point in time (snapshot of financial position)

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12
Q

accounting equation (balance sheet equation)

A

assets = liabilities + stockholders’ equity

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13
Q

balance sheet: assets

A

probable future economic benefits obtained or controlled by a particular entity as a result of past transactions/events (amount of resources controlled/owned by the entity)

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14
Q

balance sheet: liabilities

A

probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future (amount owed to other entities)

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15
Q

balance sheet: stockholders’ equity

A

ownership right of the stockholders of the entity in the assets that remain after liabilities (net assets (assets - liabilities)) (referred to as net worth, net assets, owners’ equity)

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16
Q

balance sheet: cash

A

cash on hand/in bank

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17
Q

balance sheet: accounts receivable

A

amounts due from customers

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18
Q

balance sheet: merchandise inventory

A

cost of merchandise acquired but not yet sold

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19
Q

balance sheet: equipment

A

cost of equipment purchased and used (display cases, racks, shelving, etc. (not the building)

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20
Q

balance sheet: accumulated depreciation

A

portion of the cost of equipment that is estimated to have been used up in the process of operating the business

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21
Q

balance sheet: depreciation in accounting

A

process of spreading the cost of an asset over its useful life to the entity (Not to recognize economic loss in value)

22
Q

balance sheet: other accrued liabilities

A

amounts owed to various creditors

23
Q

balance sheet: short-term debt

A

Amounts borrowed that will be repaid within one year of the balance sheet date

24
Q

balance sheet: long-term debt

A

Amounts borrowed from banks or other creditors that will not be repaid within one year from the balance sheet date

25
balance sheet: accounts receivable
Amounts due to suppliers
26
balance sheet: current assets
cash and other assets likely to be converted into cash or used to benefit the entity within a year
27
balance sheet: current liabilities
liabilities likely to be paid with cash within one year of balance sheet date
28
income statement (profit and loss statement)
The financial statement that summarizes the entity’s revenues, expenses, gains, and losses for a period of time and thereby reports the entity’s results of operations for that period of time. (Did the entity operate at a profit for the fiscal year?); link between balance sheets at the beginning and end of the year
29
income statement: gains
Increases in net assets from incidental transactions that are not revenues or investments by owners
30
income statement: losses
Decreases in net assets from incidental transactions that are not expenses or distributions to owners
31
income statement: net sales/revenue
amount of sales of merchandise to customers less cancelations, returns, etc.
32
income statement: net income
profit for the period (revenue - expenses)
33
income statement: cost of goods sold
cost of merchandise sold
34
income statement: gross profit
net sales - cost of goods (max "cushion")
35
income statement: income from operations
The difference between gross profit and operating expenses. Also referred to as operating income
36
income statement: selling, general, admin expenses
operating expenses of entity
37
income statement: interest expense
cost of using borrowed funds
38
income statement: income tax
shown after all other items
39
stockholders equity statement
The amount invested in the entity by the stockholders
40
par value
An arbitrary value assigned to a share of stock when the corporation is organized. Sometimes used to refer to the stated value or face amount of a security.
41
retained earnings
Cumulative net income that has not been distributed to the owners/stockholders of a corporation as dividends
42
common stock
number of shares authorized by corporations charter, number issued, number held by stockholders
43
dividends
distributions of earnings that have been made to stockholders reducing retained earnings
44
statement of cash flows purpose
to identify sources and uses of cash during the year
45
cash flow statement: depreciation expense
The expense recognized in a fiscal period for the depreciation of an asset. Added back to net income because it doesn't require the use of cash
46
cash flow statement: cash flows from investing activities
cash used to purchase long-lived assets
47
comparative statements
financial statements for previous year included as supplementary info in current year
48
income statement: net income ---> balance sheet: stockholders' equity
net income affects retained earnings which is a component of stockholders' equity
49
3 alternate names for income statement
statement of earnings, P&L statement, statement of operations
50
paid-in capital
total amount invested in the entity by the owners (common stock + additional paid-in capital
51
concepts related to entire model
account equation (A=L+SE), accounting entity (identified and accounted for), going concern (will continue to operate)