Chapter 3 - Financial Statements, Cash Flows, and Taxes Flashcards
What is an annual report?
A report that firms issue to their stockholders and make available to the general public.
What are the three sections in an annual report?
- First are the financial tables, which contain financial information about the firm and its operations for the year, and an accompanying summary explaining the firm’s performance over the past year
- A corporate public relations piece discussing the firm’s product lines, its services to its customers, and its contributions to the communities in which it operates.
- Presents the audited financial statements: the balance sheet, the income statement, the statement of retained earnings, and the statement of cash flows.
What is GAAP?
A set of widely agreed-upon rules and procedures that define how companies are to maintain financial records and prepare financial reports
What is the assumption of arm’s length transactions?
The parties involved in the transaction are unrelated and are working for their own best interest.
What is the Cost Principle?
Recording of assets reflects its historical cost and is assumed to represent its fair market value of the item at the time it was acquired and is recorded as the book value.
What is the Realization Priniciple?
Revenue is recognized only when the sale is virtually completed and the exchange value for the goods or services can be reliably determined.
What is the matching priniciple?
Match revenue on the income statement with the expenses incurred to generate the revenue.
What is the balance sheet??
Reports the firm’s financial position (assets, liablilities, equity) at a particular point in time.
What are current assets?
Assets that can reasonably be expected to be converted into cash within one year.
What are common stock accounts?
A security that represents ownership in a corporation
What are the basic rights of ownership that come with common stock?
- The right to vote on corporate matters, such as the election of the board of directors or important actions such as the purchase of another company.
- The preemptive right, which allows stockholders to purchase any additional shares of stock issued by the corporation in proportion to the number of shares they currently own. This allows common stockholders to retain the same percentage of ownership in the firm, if they choose to do so.
- The right to receive cash dividends if they are paid.
- If the firm is liquidated, the right to all remaining corporate assets after all creditors and preferred stockholders have been paid.
What are retained earnings?
earnings that have been retained and reinvested in the business over time rather than being paid out as cash dividends.
Treasury Stock
Stock that the firm has repurchased from investors.
