Chapter 3: Accounting and Finance

Question 1

international financial reporting standards (IFRS)

Answer 1

procedures for preparing financial statements

Question 2

subsidiary

Answer 2

a business controlled by another business

Question 3

statement of financial position (SFP; or balance sheet)

Answer 3

financial statement that shows the book value of the firm’s assets, liabilities, and equity as of a specific date

Question 4

book value (or carrying value)

Answer 4

value of assets or liabilities shown on the statement of financial position (balance sheet)

Question 5

fair value

Answer 5

estimated market value

Question 6

statement of comprehensive income (SCI)

Answer 6

financial statement that shows profits and other comprehensive income of a firm over a period of time

Question 7

income statement

Answer 7

financial statement that shows revenues, expenses, and profit or net earnings or net income from operations of a firm over a period of time; same as the profit section on the SCI

Question 8

statement of changes in equity

Answer 8

financial statement that explains the change from the previous period of each component of equity on the statement of financial position (balance sheet)

Question 9

statement of cash flows

Answer 9

financial statement that shows the firm’s cash receipts and cash payments over a period of time

Question 10

cash flow from assets

Answer 10

cash flow generated by the firm’s operations, after investment in working capital and operating assets

Question 11

financing flow

Answer 11

cash flow to lenders and shareholders plus increase in cash balances; also equals cash flow from assets

Question 12

free cash flow

Answer 12

another term for cash flow from assets

Question 13

marginal tax rate

Answer 13

additional taxes owed per dollar of additional income

Question 14

average tax rate

Answer 14

total taxes owed divided by total income