Cornerstones of Financial Accounting, 3rd Edition Ch1

economic resources representing expected future economic benefits controlled by the business (e.g., cash, accounts receivable, inventory, land, buildings, equipment, and intangible assets
balance sheet
a financial statement that reports the resources (assets) owned by a company and the claims against those resources (liabilities and stockholders’ equity) at a specific point in time
a company’s assets less its liabilities. Capital is also known as stockholders’ equity.
cash flows from financing activities
any cash flow related to obtaining resources from creditors or owners, which includes the issuance and repayment of debt, common and preferred stock transactions, and the payment of dividends
cash flows from investing activities
the cash inflows and outflows that relate to acquiring and disposing of operating assets, acquiring and selling investments (current and long-term), and lending money and collecting loans.
cash flows from operating activities
any cash flows directly related to earning income, including cash sales and collections of accounts receivable as well as cash payments for goods, services, salaries, and interest.
a company chartered by the state to conduct business as an “artificial person” and owned by one or more stockholders
the person to whom money is owed.
current assets
cash and other assets that are reasonably expected to be converted into cash within one year or one operating cycle, whichever is longer
current liabilities
obligations that require a firm to pay cash or another current asset, create a new current liability, or provide goods or services within one year or one operating cycle, whichever is longer.
current ratio
a measure of liquidity that is computed as: Current Assets ÷ Current Liabilities.
the cost of assets used, or the liabilities created, in the operation of the business.
financial accounting
accounting and reporting to satisfy the outside demand (primarily investors and creditors) for accounting information.
fundamental accounting equation
Assets = Liabilities + Stockholders’ Equity. The left side of the accounting equation shows the assets, or economic resources, of a company. The right side of the accounting equation indicates who has a claim on the company’s assets.
gross margin (gross profit)
a key performance measure that is computed as sales revenue less cost of goods sold.
income from operations
gross margin less operating expenses. This represents the results of the core operations of the business
income statement
a financial statement that reports the profitability of a business over a specific period of time.
intangible operating assets
assets that provide a benefit to a company over a number of years but lack physical substance. Examples of intangible assets include patents, copyrights, trademarks, and goodwill.
probable future sacrifices of economic benefits; liabilities usually require the payment of cash, the transfer of assets other than cash, or the performance of services.
a company’s ability to pay obligations as they become due.
long-term investments
investments that the company expects to hold for longer than one year. This includes land or buildings that a company is not currently using in operations, as well as debt and equity securities.
long-term liabilities
the obligations of the company that will require payment beyond one year or the operating cycle, whichever is longer.
management’s discussion and analysis (MD&A)
a section of the annual report that provides a discussion and explanation of various items reported in the financial statements. Management uses this section to highlight favorable and unfavorable trends and significant risks facing the company.
net income
the excess of a company’s revenue over its expenses during a period of time.
net loss
the excess of a company’s expenses over its revenues during a period of time.
net profit margin percentage
a measure of the proportion of each sales dollar that is profit, determined by dividing net income by net sales.
operating cycle
the average time that it takes a company to purchase goods, resell the goods, and collect the cash from customers.
a business owned jointly by two or more individuals. patent a type of intangible asset that grants the holder the right to manufacture, sell, or use a product. The legal life is 20 years from the date of the grant
property, plant, and equipment
the tangible, long-lived, productive assets used by a company in its operations to produce revenue. This includes land, buildings, machinery, manufacturing equipment, office equipment, and furniture.
retained earnings
the increase in assets that results from the sale of products or services.
sole proprietorship
a business owned by one person.
statement of cash flows
a financial statement that provides relevant information about a company’s cash receipts (inflows of cash) and cash payments (outflows of cash) during an accounting period.
stockholders’ equity
the owners’ claims against the assets of a corporation after all liabilities have been deducted.
working capital
a measure of liquidity computed as: Current Assets – Current Liabilities.
the process of identifying, measuring, recording, and communicating financial information about a company’s activities so decision makers can make informed decisions.

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