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Income Tax > Definitions > Flashcards

Definitions Flashcards

1
Q

Shareholder

A

Someone who owns stock/shares in a company

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2
Q

Stakeholder

A

Someone affected by company’s actions

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3
Q

Balance Sheet

A

Snapshot of a company’s financial health at a specific point in time. Comprised of a company’s (1) assets, (2) liabilities, and (3) Equity

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4
Q

Income Statement

A

A periodic report of a company’s financial health.
-shows what went in and what the return is

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5
Q

Balance Sheet Formula

A

Assets = Liabilities + Owners’ Equity

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6
Q

Assets
(DEF + examples)

A

Anything the business owns or controls that has economic value

E.g., Cash, Inventory, Supplies, Accounts Receivable, PP&E

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7
Q

Liabilities
(DEF + examples)

A

Anything the business owes due to business operations

E.g., Mortgage, Bonds Payable

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8
Q

What is the significance of a liability

A

Derived from past events and require the use of assets to pay off the liability in the future.

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9
Q

What are other names for Owner’s Equity?

A

Shareholder’s Equity, Net Worth, Book Value

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10
Q

What are other names for Shareholder’s Equity?

A

Owner’s Equity, Net Worth, Book Value

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11
Q

What is Owner’s Equity?

A

The portion of a company’s value owned by shareholders.

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12
Q

Owner’s Equity Formula

A

Assets - Liabilities = Owner’s Equity

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13
Q

What is a Current Asset?

A

An asset that is either cash or will be converted to cash within a year

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14
Q

What is a Long-Term Asset?

A

An asset that will take more than a year to convert to cash (e.g. Fixed Assets)

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15
Q

What are typical asset categories listed for Current Assets?

A

Cash and Cash Equivalents
Accounts Receivable
Inventories
Prepaid Expenses

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16
Q

What are Accounts Receivable?

A

money owed to the company

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17
Q

What is Inventory?

A

raw material and finished goods ready or soon to be ready for sale

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18
Q

What are Prepaid Expenses?

A

Goods or services already paid for but not yet received (coming soon)

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19
Q

What are typical asset categories listed for Long-Term Assets?

A

Long-Term Investments
Intangibles

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20
Q

What is a Long-Term Investment

A

Securities and real estate that will not or cannot be converted to cash within a year

21
Q

What are Intangibles?
(DEF and examples)

A

Assets owned by the company that are not physical
E.g., goodwill, brand recognition, patents, copyrights, trademarks

22
Q

What are typical asset categories listed for Current Liabilities?

A

Accounts Payable
Notes Payable
Accrued Expenses
Income Taxes Payable
Other Liabilities
Current Portion of Long-Term Debt

23
Q

What are Accounts Payable?

A

Money and debts owed that a company expects to be paid within a year

24
Q

What are Notes Payable?

A

Written promises to pay debt within a year

25
Q

What are Accrued Expenses?

A

Expenses incurred but not yet paid

E.g., wages and utility expenses

26
Q

What Income Taxes Payable are listed under Current Liabilities?

A

Those due within a year

27
Q

What is the Current Portion of Long-Term Debt?

A

The portion due within a year

28
Q

What are Long-Term Liabilities?
DEF and examples

A

Liabilities due in more than a year
E.g., Deferred Taxes and Long-Term Debt

29
Q

How do you calculate Owner’s Equity?

A

Total Assets - Total Liabilities

30
Q

What are Retained Earnings?

A

The cumulative net earnings or profits of a company after accounting for dividend payments

-Does it match Net Income from Balance Sheet?

31
Q

What is an Income Statement?

A

A report showing revenue and expenses over a period of time

32
Q

Net Income formula

A

Net Income = Revenue - Expenses

33
Q

What is Revenue?

A
  1. Assets gained through business operations (increases equity)
  2. Revenue from the sale of goods or services
34
Q

What are Expenses?

A

Assets spent on business operations (decreases equity)

35
Q

Net Sales

A

The amount of sales after deductions for returns and damages

36
Q

Cost of Goods Sold (COGS)

A

Direct operational costs of business
-Ideally consistent or decrease (if not, theft?)

37
Q

Gross Margin

A

Net Sales - COGS
(stability in gross margin increases potential for high net income)

** Hard to manipulate **

38
Q

What are typical Expense line items in the Income Statement?

A

Depreciation an Amortization
Selling, General and Administrative Expenses (SG&A)

39
Q

What is the line item Depreciation and Amortization?

A

The estimated decrease in capital as assets are used

40
Q

What is the line item SG&A?

A

General expenses of running the company that are not directly linked to operations

41
Q

What are typical Net Income line items in the Income Statement

A

Operating Income
Income Before Taxes
Income Taxes
Net Income

42
Q

Operating Income formula

A

SG&A - Gross Margin

43
Q

Income before income taxes formula

A

Operating Income - Interest Expenses

44
Q

Net Income formula

A

Income before Income Taxes - Income Taxes

45
Q

Cash Flow Statement

A
  1. Ties together the Balance Sheet and Income Statement
  2. Shows all cash movements over a period of time
  3. Shows what type of activities produce a given inflow or outflow
46
Q

Direct Method Cash Flow Statement

A

Cash Flows from:
1. Operating Activities
2. Investing Activities
3. Financing Activities
4. Net Change in Cash
5. Beginning of Year
5. End of Year

47
Q

Cash Method

A

Accounting method that recognizes revenues and expenses as they are accrued

48
Q

Accrual Method

A

Accounting method that recognizes revenues and expenses at the time cash is received or paid out. (upon exchange of consideration)

49
Q

What is Additional Paid-in Capital?

A

Voluntary (as opposed to mandatory) shareholder contributions

Income Tax (2 decks)

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