Finance & Accounting Flashcards
What is a balance sheet?
Shows what the company owns, what it owes and what its worth.
What is an **income statement?*
Shows what a company has earned, what it has paid and what is the resulting profits or losses over a certain period of time
What is a **statement of cash flow?*
Shows how much cash the company has brought in, and how much it is paid out.
What is shareholders equity?
Common stock + retained earnings i.e. net income
What does it mean by ‘a balance sheet must always balance’?
The maxim that assets must = liabilities + shareholder’s equity
What are accounts payable and accounts receivable?
Accounts payable: Amounts owed by company to suppliers. For example, goods delivered by suppliers that have yet to be paid.
Accounts receivable: Amounts owed to the company by its customers. For example, inventory delivered to customers on credit.
What is the difference between current and non-current assets?
Current assets are a company’s short-term assets: those that are expected to be used within one year or so. They include cash and inventory.
Noncurrent assets are long-term and have a useful life of more than a year, such as machinery, land and valuable IP rights.
What is gross profit?
Revenues after deducting direct operating costs (e.g. cost of goods sold)
What is operating income?
Also known as Earnings Before Interest and Taxes (EBIT)
Revenues after deducting direct (e.g. costs of goods sold) and indirect operating costs (e.g. R&D costs).
How is net income calculated?
Net Income = Revenue - Direct (e.g. Cost of producing goods) and Indirect Operating Costs (e.g. R&D costs) - Cost of Debt Finance (e.g. interest) - Taxes
What are accrued expenses and accrued income?
Accrued expense: Expenses incurred, but yet to be paid.
Accrued income: Revenue earned, but yet to be received.
What are prepayments?
A current asset: an upfront payment, which will be used within the next year.
What is the key difference between a cash flow statement and an income statement?
Cash flow statement records only revenue received and expenses paid, while income statement records accrued earnings (revenue earned but yet to be received) and accrued expenses (expenses incurred but yet to be paid)
