FA1 Flashcards
Assets
VALUE
Liability + Shareholders’ Equity
A = L + SE
anything a company owns or controls created from past transaction that gives a future economic benefit
Account Receivable
Asset
money a company’s customers owe for goods or services they have received but not yet paid for
Inventory
Asset
any physical property, merchandise, or other sales items that are held for resale, to be sold at a future date
Property, Plant, and Equipment (PPE)
Asset
property - land, real estate
plant - buildings
equipment - machines, computer
Liabilities
OWE
a debt or any future financial obligation that a business owes
Accounts Payable
Liability
a company’s short-term debt to its suppliers for products received before payment
Notes Payable
Liability
written agreements in which one party agrees to pay the other party a certain amount of cash
Bank loans, student loans, mortgages, promissory note
Shareholders’ Equity
SE = Asset - Liabilities
the total amount of money that would be returned to shareholders if a company were liquidated and all debts paid off
Retained earnings
part of Shareholders’ Equity
How much profit is kept in company
the amount of a company’s net income left over after paying dividends and other distributions
Common Stock/Shares
Shareholders’ Equity
a security that represents ownership in a corporation
- buying shares –> buying equity of a company
Revenues
Earn
the amount of money a company generates from its operations over a set period of time
- sales
- income
Expenses
Cost
the cost required for something; the money spent on something.
Dividends
a distribution of a company’s profits to its shareholders
- shareholders pulling profits from company’s retained earnings
Accumulated deficit
negative retained earnings
a company pays more dividends than it earns in total net profit
Current term Asset
Expected to be liquidated or used within 1 year or less
ex: inventory, cash
Long term Asset
Expected to use or liquidate beyond normal operating cycle of 12 months
ex: PPE, patents, trademarks, long term investments (real estate, stocks, bonds)
Income Statement
Net Income = Revenue - Expenses
how profitable was the company?
- statement of operations
- p & l (profit and loss)
Statement of Changes In Equity
list shareholders of equity accounts
- what happened?
- begin, change, end
- common shares
- retained earnings
Balance Sheet
lists all company assets, liabilities, and shareholders’
equity accounts
Cash Flow Statement
cash: begin, change, end
- hard to manipulate cash
- cash flow numbers thought as trustworthy
- companies need cash to survive
Current Ratio
Current Assets / Current Liabilities
> 1.5 safe
< 1.5 riskier
below 1 - not enough money to pay bills
does company have enough short term assets to cover short term debts?
Debt Ratio
Total Liabilities / Total Assets
percentage of a company’s assets that are provided via debt
bigger is riskier
want lower debt ratio
Equity Ratio
Total Shareholders’ Equity / Total Assets
sold assets, paid debts,
percentage of the money afterwards that goes to shareholders
want higher equity ratio
