Concepts and Definitions Flashcards
Annual Report
A comprehensive report on a company’s activities throughout the preceeding year.
Auditing
An unbiased examination and evaluation of the financial statement sof an organiztion. Can be internal or externa.
Auditors
Ensure the fiscal accuracy and responsibility of organizations.
Balance Sheet
A financial statement that summarizes a company’s assets, liabilities and shareholder’s equity at a specific point in time. Unually fiscal year end, but can be done at another specified time.
Cash Flow Statement
A financial report that provides aggregate data regarding all cash inflows a company receives from both its ongoing operatins and external investment sources as well as cash outflows used to pay for business activities and investments. Public companies must disclose to SEC and public quarterly.
Financial Statements
Constitute the balance sheet, income statement, cash flow statement and statement of shareholder’s equity.
Form 10K
An annual report required by the SEC. It includes information such as company history, organizational structure, executive compensation, equity, subsidiaries, and audited financial statements.
Form 10Q
A quarterly report similar to the 10K except it is unaudited and less detailed. Also mandated by the SEC.
GAAP
Generall accepted accounting principles. Rules and principles applicable for the practice of accounting.
GAAS
Generally accepted auditing standards which are standards applicable to the practice of auditing.
Income Statement
The financial statement that provies the fiscal year’s revenue, expenses, and net income including earnings per share data.
MD&A
The management discussion and analysis section of the financial statement. Important section, but it is unaudited.
Notes to the financial statements
Notes that clarify, augment or provide additional details concerning the financial representations in the financial statements, including details on accounting policies.
Private Company
A company whose securities are not publicly traded and are held privately by a group of investors.
Public Company
A company whose securities are publicly traded
Qualified auditor opinion
An audit report stating that the auditor could not certify that all material aspects of the audit satisfied accounting standards or that the auditor could not verify as such. It indicates a material problem was uncovered in the audit.
Unqualified auditor opinion
Is the auditor’s opinion that the financial statements comply in all material respects with generally accepted accounting principles. It is the report of a clean audit.
Statement of shareholder’s equity
Is the financial statement that records changes in the shareholder’s equity during the fiscal year including retained earnings, shares issued and bough back, and dividends.
Additional Paid in Capital (APIC)
The amount of consideration paid to the company in a stock issuance that exceeds the par value of the stock. For example, if a company issues stock at a price of $10.00 per share, and the par value is $0.01 per share, APIC is $9.99 - these are recorded separately on the balance sheet.
Asset
A probable future economic benefit obtained from a past transaction.
Balance sheet formula
Assets = Liability + Equity
Book Value
The value recorded on the balance sheet which is generally the acquisition cost of the asset.
Capital Assets
The longterm assets that are used to generate earnings and that should be funded by longterm capital, either debt or euqity or a combination of both.
Common Stock
The security in a corporation representing the equity interest, which is the residual claim in the corporation’s earnings and assets.
Creditor
One who is owed a debt or obligation from the company, and thus is the person holding the claim associated with the firm’s liabilities.
Current Assets
Cash and other assets that a firm expects to turn into cash within the firm’s operating cycle or one year.
Current Liabilities
Debt or other obligations that a firm must discharge withing the firm’s operating cycle or one year.
Equity
A concept of a residual claim on the firm’s earnigns and asets remaining after other contractual claimants, such as employees and creditors, have been paid. It is considered the owner’s economic interest in the firm.
Equityholder
The holder of the equity. Equityholders have various names depending on the specific business organization: for example, shareholders, partners, and members.
Fair Market Value
The market value of an asset as determine by market prices. What a ready, willing and able buyer will pay.
Historical Cost
The cost at which an asset is purchased.
Intangible Asset
Assets without physical form which include, intellectual property, goodwill, leases, rights and permits.
Liabilities
The probable future sacrifice of economic benefits arising from past transactions or events.
Long-term debt
A noncurrent debt obligation, which is a liability from the issuance of debt that is not expected to mature within a year.
Marked to market
The process of valuation and accounting where assets, securities, or financial transactions are periodically revalued at market prices. Distinguish from historical cost.
Market capitalization
The market value of equity securities, which is calculated as the stock price multiplied by the shares outstanding.
Member’s interest
The equity held by members of limited liability companies.
Negatyive equity
The difference between liabilities and assets when the value of the liabilities exceeds the value of the assets. Negative equity is possible because the balance sheet equation states that assets must always equal liabities plus equity.
Net Assets
Is synonymous with equity and net worth. It is assets net of liabilities.
Net Asset value
Refers to the value of the net assets. It is sometimes stated as NAV per share.
Net Worth
Is synonymous with equity and net assets. It is worth net of liabilities.
Noncurrent (long term) assets
Assets that a firm does not expect to turn into cash withing the firm’s operating cycle or one year. They are assets held for the long term.
Noncurrent (long term) liabilities
Liabilities that are debts or obligations whose maturities are beyond one year.
Partner’s capital
The equity in a partnership.
Partner’s capital account
The account item in a partnership that keeps track of each partner’s equity capital in the partnership.
Price to book ratio (P/B)
The ratio of market capitalization to book value
Property plant and equipment (PP&E)
Long term tangible assets that are used in the business
Residual claim
The claim of the equityholder, and it includes both the net income (the after-tax income attributable to equityholders) and the net assets (asset remaining after liabilities are paid).
Retained earnings
The net profits that have not been distributed to shareholders and thus retained by the company. It is an equity component in the balance sheet.
Shareholder’s equity
The equity in the corporation.
Tangible asset
Assets having a physical form.
Treasury stock
Stock that was issued, but has been bought back by the issuer; thus, it is stock that has been issued, but is no longer outstanding.
Working capital
The measure of the firm’s liquity; its ability to pay its current obligations. Working capital = current assets - current liabilities
Accelerated depreciation
Several accounting methods provided by GAAP that permit a firm to recognize more depreciation expense for an asset in the earlier period of the asset’s life. Accelerated depreciation has several implications. It reduces profit in the early periods, and thus may reduce tax liabiity as well. However, cash flow is unaffected because depreciation is a noncash expense.
Accural accounting
Is the accounting principle that recognizes revenue and expenses at the time of the transaction irrespeciv eof the receipt or payment of cash. As a result, cash flow may not exactly match revenue and expenses, whcih is the reason whyt he cash flow statement is important.
Amortization
The expense recognizing the decline in value of an intangible asset, such as intellectual property. In a more generic sense, it connotes the concept of writing off the cost of an asset.
Capitalized cost
Expenditures associated with improvements in property, plant and equipment (PP&E) such that the expenditure is not recognized immediately as an expense flowing into the income statement, but instead is recognized as an increase in assets in the balance sheet.
Cash Accounting
The accounting system based on recognition of revenue and expense upon the receipt or payment of cash. it is not a broadly applicable principle of GAAP accounting, but may have use for certain limited purposes such as regulatory oversight of businesses where cash balance and solvency are important.
COGS
The direct cost for the production of goods or the provision of services.
D&A
The sum of depreciation and amortization expenses which constitute the firm’s noncash expenses. D&A is added to EBIT to calculate EBITDA.
Depreciation
The expense recognizing the decline in the value of a tangible asset, such as property, plant and equipment.
Dividend
A payment, usually in cash, to shareholders made from earnings or surplus.
Earnings
Synonymous with net income, profit, and net profit. Unmodifeid, it refers to the net profit.
EBIT
Earnings before interest and tax is the profit before interest and tax items are deducted.
