Chapter 3 Flashcards
Statement that shows a firm’s assets, liabilities, and shareholder’s equity at a given point in time. It is a snapshot of the firm’s financial position on a particular date
Balance Sheet
The value of an asset as shown on a firm’s balance sheet. It represents the depreciated historical cost of the asset rather than its current market value or replacement cost
Accounting Book Value
The ability to convert an asset into cash quickly without a significant loss of its value
Liquidity
Consists of cash, marketable securities, accounts receivable, inventories, and prepaid expenses
Current Assets
Money owed by customers who purchased goods or services from the firm on credit
Accounts Receivable
Raw materials, work in progress, and finished goods held by the firm for eventual sale
Inventories
Other short-term assets that will benefit future time periods, such as prepaid expenses
Other Current Assets
Assets such as equipment, buildings, and land
Fixed Assets
A noncash expense to allocate the cost of depreciable assets, such as plant and equipment, over the life of the asset
Depreciation Expense
The sum of all depreciation taken over the entire life of a depreciable asset
Accumulated Depreciation
The original cost of a firm’s fixed assets
Gross Fixed Assets
Gross fixed assets minus the accumulated depreciation taken over the life to date of the assets
Net Fixed Assets
Liabilities consisting of such sources as credit extended by suppliers or a loan from a bank
Debt
Stockholders’ investment in the firm and the cumulative profits retained in the business up to the date of the balance sheet
Equity
Debt due to be paid within 12 months
Current Debt (Short-term Liabilities)
Credit provided by suppliers when a firm purchases inventory on credit
Accounts Payable
Expenses that have been incurred but not yet paid in cash
Accrued Expenses
Amounts borrowed from lenders, mostly financial institutions such as banks, where the loan is to be repaid within 12 months
Short-term Notes
Loans from banks or other sources that lend money for longer than 12 months
Long-term Debt
A loan to finance real estate where the lender has first claim on the property in the even the borrower is unable to repay the loan
Mortgage
Stockholders who have claims on the firm’s income and assets after creditors, but before common stockholders
Preferred Stockholders
Investors who are the residual owners of the firm
Common Stockholders
Shares that represent ownership in the corporations
Common Stock
The arbitrary value a firm puts on each share of stock prior to its being offered for sale
Par Value
The amount a company receives above par value from selling stock to investors
Paid-in Capital
The firm’s stock that has been issued and then repurchased by that firm
Treasury Stock
Cumulative profits retained in a business up to the date of the balance sheet
Retained Earnings
A balance sheet where a firm’s assets and sources of debt and equity are expressed as a percentage of its total assets
Common-sized Balance Sheet
A firm’s total liabilities divided by its total assets. It measures the extent to which a firm has been financed with debt
Debt Ratio
The difference between a firm’s current assets and its current liabilities
Net Working Capital
A method of accounting where revenue is recorded when it is earned and expenses are recorded when they are incurred
Accrual Basis Accounting
A method of accounting where revenue is recorded when cash is actually received
Cash Basis Accounting
Statement that shows how changes in balance sheet accounts and income affect cash ands cash equivalents, and breaks the analysis down to operating, investing, and financing activities
Statement of Cash Flows
The amount of cash available from operations after the firm pays for the investment it has made in operating working capital and fixed assets. Cash available to distribute to the firm’s creditors and owners
Free Cash Flows
The amount of cash received from or distributed to the firm’s investor’s, usually in the form of interest, dividends, issuance of debt, or issuance or repurchase of stocks
Financing Cash Flows
Rules-based accounting principles, standards, and procedures, issued by the FASB, that companies use to compile their financial statements
Generally Accepted Accounting Principles (GAAP)
Principles-based set of international accounting standards, issued by the IASB, stating how particular types of transactions and other events should be reported in financial statements
International Financial Reporting Standards (IFRS)
Income from all sources, except for allowable exclusions, less and tax-deductible expenses
Taxable Income
Gains from selling any asset that is not part of the ordinary operations
Capital Gains
The tax rate that would be applied to the next dollar of income
Marginal Tax Rate
The tax rate on average that a company pays on its total taxable income
Average Tax Rate
Operating Income - Interest Exp - Income Tax
Net Income
