Terminology

Question 1

Liquidity

Answer 1

The ability of a company to meet short-term obligations

Question 2

Efficiency

Answer 2

The ability of a company to efficiently generate revenues

Question 3

Solvency

Answer 3

The ability of a company to generate future revenues and meet long term obligations

Question 4

Profitability

Answer 4

The ability of a company to provide financial rewards sufficient to attract and retain financing

Question 5

Market prospects

Answer 5

The ability of a company to generate positive market expectations

Question 6

FIFO

Answer 6

First In First Out
A method where you assign the cost of inventory sold based on the assumption that the goods are sold in the order they’re purchased.
In other words, the oldest items are sold first.

Question 7

LIFO

Answer 7

Last In First Out

This is a method of assigning cost for inventory that assumes the goods purchased most recently are sold first.

Question 8

Gross Profit

Answer 8

Net Sales - Cost of Goods Sold

In other words, your sales revenue (minus discounts and returns) and then subtract the direct cost of the goods you sold (COGS)

Question 9

Accounts Receivable

Answer 9

An account where a company tracks purchases that customers made on credit.
In other words, money that the company is owed by the customers

Question 10

Par value stock

Answer 10

The stated value of the stock. The par value is determined by the company. You usually can’t issue stock for less than the par value

Question 11

Date of Declaration

Answer 11

The date the company votes that they’re going to pay dividends.
This is the day a Dividend Payable Liability is created and the cost is taken out of (debited to) Retained Earnings

Question 12

Date of Record

Answer 12

The date specified by the company that is the cutoff time for people to receive dividends.
There is NO journal entry required

Question 13

Date of Payment

Answer 13

The date when the company actually pays out the dividend and satisfies the liability which was created by the declaration.

Question 14

Preferred Stock

Answer 14

Stock that typically

• doesn’t have voting rights
• has a stated dividend rate
• has priority in dividend distribution (in other words they get paid before common stockholders)

Question 15

Cumulative preferred stock

Answer 15

This means that the stockholders have a right to their stated dividend rate every year, whether dividends are declared or not.
If the full amount owed isn’t payed, this causes dividends “in arrears” (owed) to accumulate.
Those dividends in arrears are payed before any other dividends next time dividends are declared.

Question 16

Non-Cumulative Preferred Stock

Answer 16

No dividends in arrears (owed) are created if dividends are not paid or paid less than the total dividend percentage.
That amount is just lost to the stockholder.

Question 17

Working Capital

Answer 17

Current Assets - Current Liabilities

In other words the amount of capital you have on hand after your current liabilities are met.