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C 214: Financial Management > The Income Statement and Balance Sheet > Flashcards

The Income Statement and Balance Sheet Flashcards

1
Q

Professionally managed investment capital that typically buys entire firms at a time

A

Private Equity

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2
Q

One of the three main financial statements that covers a period of time. Starts with sales, takes out expenses, and ends with net income

A

Income Statements

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3
Q

One of the three financial statements. It is a snapshot of the firm’s assets, liabilities, and equity at any point in time

A

Balance Sheet

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4
Q

Non-cash accounting accounts representing money either owed or due, typically in the short term

A

Accruals

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5
Q

A current liability that represents any money the firm owes suppliers and other firms

A

Accounts Payable

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6
Q

Typically the firm does not pay this on accounts payable

A

Interest

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7
Q

One of the three financial statements that includes cash flow from operations, investing, and financing

A

Statement of Cash Flows

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8
Q

The income statement shows the

A

Results of operations over time

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9
Q

Think of the income statement as a ___________ for a period

A

Video Camera Tracking Performance

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10
Q

The balance sheet offers a snapshot of the

A

Firm’s assets and financing at a particular point in time

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11
Q

The Statement of Cash Flows tracks all ______ in and out of the firm

A

Cash

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12
Q

The business function responsible for creating the historical financial statements

A

Accounting

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13
Q

Backward looking and risk free

A

Accounting

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14
Q

Forward looking and involves massive uncertainty

A

Finance

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15
Q

Analyzing the past is merely a

A

springboard to understanding the future

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16
Q

Accounting system based on recording accounts based on historical prices and the matching principle

A

Accrual Accounting

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17
Q

Accrual accounting principle to match revenues and expenses in the same period

A

Matching Principle

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18
Q

Accrual Accounting and this are used interchangeably

A

Generally Accepted Accounting Principles (GAAP)

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19
Q

Typically last line of the income statement

A

Net Income aka Earnings

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20
Q

An informal metric based on cash in and out of the firm

A

Cash-based income

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21
Q

Based on the government’s definition of income, this is the amount of income the government will tax

A

Income for Tax Purposes

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22
Q

The income is calculated using accrual accounting (GAAP).

A

Accounting Income

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23
Q

The best metric for understanding the operations of the firm

A

Accounting Income

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24
Q

The most complicated metric for firm operations

A

Accounting Income

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25
Q

Revenue-expenses =

A

Net Income

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26
Q

The use of accrual accounting means that every line item on the income statement requires

A

Management to make judgements about what is reported

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27
Q

Accrual Accounting permits firms to time the recognition of sales based on certain rules

A

Revenue Recognition

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28
Q

Represents the directs costs (directs materials and direct labor) associated with production and suffers from the same recognition predicament as revenue

A

Cost of Goods Sold

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29
Q

Subtracting Cost of Goods Sold from revenue gives the company’s

A

Gross Profit

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30
Q

Typically the third line of the income statement which equals sales-COGS

A

Gross Profit

31
Q

The expenses on an income statement that fit between gross profit and EBIT

A

Operating Expenses

32
Q

Operating Expenses often include

A

Office expense
Administrative expense
Depreciation expense
Research and Development expense

33
Q

A non-cash expense used to approximate the decrease in value of an asset

A

Depreciation

34
Q

EBIT stands for

A

Earnings Before Interest and Taxes

35
Q

Subtracting operating expenses from gross profit yields

A

EBIT (Operating Profit)

36
Q

Amount owed to creditors that appears on the income statement between EBIT and earnings before taxes

A

Interest Expense

37
Q

Typically the second to the last line of the income statement right before net income, and represents income taxes paid by the firm

A

Tax Expense

38
Q

Subtracting both interest and taxes from EBIT leaves us with

A

Net Income

39
Q

Assets=

A

Liabilities + Owners Equity

40
Q

Equity=

A

Assets-Liabilities

41
Q

The sum of all equity accounts, most commonly common stock, APIC, and retained earnings

A

Owner’s Equity (OE)

42
Q

All assets must be

A

financed

43
Q

Accrual accounting principle to recorded assets, liabilities, and equity at historical levels

A

Historical Cost Principle

44
Q

The total amount of depreciation claimed against the fixed assets of the firm

A

Accumulated Deprecitation

45
Q

Assets that are expected to be liquidated within a year

A

Current Assets

46
Q

Current assets are listed in the order of

A

Liquidity

47
Q

Very liquid current asset on the balance sheet such as money markets, t-bills, etc.

A

Marketable Securities

48
Q

A type of current asset which represents any money owed to the firm for services rendered

A

Accounts Receivable

49
Q

A current asset that is typically viewed as the least-liquid current asset

A

Inventories

50
Q

This includes raw materials, work-in-process, and finished goods

A

Inventories

51
Q

Assets on the balance sheet with a lifespan greater than a year

A

Fixed Assets

52
Q

PP&E

A

Property, Plant, & Equipment

53
Q

The original cost of all non-current assets held for use by the firm

A

Gross PP&E

54
Q

Gross PP&E is offset by

A

Accumulated Depreciation

55
Q

An income statement item whereby the firm claims the expense of using up fixed assets

A

Depreciation Expense

56
Q

The accounting value recorded on the balance sheet

A

Book Value

57
Q

Liabilities on the balance sheet with a short life span (typically less than a year)

A

Current Liabilities

58
Q

A current liability that represents money borrowed for the short term, typically under 5 years

A

Notes Payable

59
Q

Money owed to suppliers as a result of purchases made on credit

A

Accounts Payable

60
Q

Involves an explicit interest-bearing arrangement with the lender

A

Notes Payable

61
Q

Represent expenses incurred but not yet paid

A

Accruals

62
Q

Wages that the company owes to employees, but has not paid yet

A

Accrued Wages

63
Q

Include debt obligations with maturity longer than one year

A

Long Term Liabilities

64
Q

A type of equity on the balance sheet which represents equity sold to common share holders at par value

A

Common Stock

65
Q

These are the last in line to receive their money back in the event of bankruptcy

A

Common Stockholders

66
Q

An equity item on the balance sheet representing the proceeds minus the par value of stock

A

Additional Paid in Capital

67
Q

Price at which stock is initially sold

A

Process

68
Q

Par value of stock is usually

A

$1 per share

69
Q

Money plowed back into the company from prior earnings

A

Retained Earnings

70
Q

There are only 2 things a company can do with net income:

A

Pay it out as dividends to shareholders
Retain it within the firm

71
Q

Net Income =

A

Dividends + Change in RE

72
Q

New RE =

A

Old RE + Change in RE

73
Q

New RE =

A

Old RE + Net Income - Dividends

C 214: Financial Management (9 decks)

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