Financial Accounting Chapter 10-12 terms – Flashcards

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Statement of Cash Flows
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A statement that complements an accrual-based income statement by providing information on a company's cash flows from operatin, investing and financing activities.
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Net Income
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The financial statement that reports the "bottom line" for a business.
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Cash equivalent
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Assets readily convertible to a determinable amount of cash, with a maturity date of three months or less.
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Operating Activities
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Activities concerned with the acquisition and sale of products and services.
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Investing Activities
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Activities concerned with the acquisition and disposition of long-term assets.
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Financing Activities
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Activities concerned with the raising and repaying of funds in the form of long-term debt and equity.
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Direct Method
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For preparing the operating activities section of the statement of cash flows, the approach in which cash receipts and cash payments are reported.
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Indirect Method
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For preparing the operating activities section of the statement of cash flows, the approach in which the net income is reconciled to net cash flow from operation.
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Cash Flow Adequacy
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A measure intended to help bankers and creditors with a company's ability to meet its principal and interest obligations.
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Liquidity
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The nearness to cash of the assets and liabilities.
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Solvency
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The ability of a company to remain in business over the long-term.
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Profitability
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How well management is using company resources to earn a return on the funds invested by various groups.
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Earnings Per Share
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A company's bottom line stated on a per-share basis.
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Price/Earnings (P/E) Ratio
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The relationship between a company's performance according to the income statement and its performance in the stock market.
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Dividends
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Net income distributed to owners.
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Retained Earnings
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Net income kept in the business (not distributed as dividends)
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Capital Stock
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Amounts contributed by the owners of a corporation.
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Authorized Shares
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The maximum number of shares of stock a corporation may issue as indicated in the corporate charter.
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Par Value
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An arbitrary amount stated on the face of the stock certificate. It represents the legal capital of the corporation. Stock is recorded at this amount times the number of shares of stock issued.
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Additional Paid-In Capital
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The amount received for the issuance of stock in excess of the par value of the stock.
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Treasury Stock
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Issued stock that is repurchased by the issuing firm.
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Issued Shares
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The number of shares sold or distributed to stockholders.
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Outstanding Shares
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The number of shared issued less the number of shares held as treasury stock.
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Preferred Stock
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Capital stock that offers a preference to dividends declared.
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Cumulative Feature
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A feature of preferred stock gives the stockholder the right to receive unpaid dividends from previous years before current year dividends are distributed to common stockholders.
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Common Stock
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Capital stock that provides voting rights and rights to earnings after dividends are distributed to preferred stockholders.
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Stock Split
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The creation of additional shares of stock with a reduction of the par value of the stock.
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Statement of Stockholders' Equity
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Reflects the differences between beginning and ending balances for all accounts in the stockholders equity section of the balance sheet. It replaces the Statement of Retained Earnines.
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Dividend Payout Ratio
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The annual dividend amount divided by the annual net income.
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Market Value Per Share
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The selling price of the stock as indicated by the most recent transactions.
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Debt Financing
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Financing by borrowing from banks or other creditors.
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Equity Financing
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Financing by issuing stock.
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Long-Term Liability
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An obligation that will not be satisfied within one year and may include bonds, notes, leases, deferred taxes, pensions, and mortgages.
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Bond
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A security of financial instrument that allows firms to borrow cash and repay the loan over a long period. The issuer is obliged to pay periodic interest at the face rate and to repay the principal (face value) at a later date.
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Face Value
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The principal amount of the bond as stated on the bond certificate. This is also referred to as the Par Value.
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Debenture Bonds
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Bonds that are not backed by specific Collateral.
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Collateral
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Assets that back the bonds in case the issuer cannot make the interest and principal payments.
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Term bonds
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Bonds that mature on the same date.
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Serial Bonds
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Bonds that mature at various dates.
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Callable Bonds
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Bonds that may be redeemed before their specified due date.
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Face Rate of Interest
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The rate of interest on the bond certificate. Used only to determine interest payments.
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Market Rate of Interest
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The rate of interest that investors could obtain by investing in other bonds that are similar to the issuing firm's bond. Used to determine the bond issue price.
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Bond Issue Price
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The present value of the annuity of interest payments plus the present value of the principal (Face Value).
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Premium
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The excess of the issue price over the face value of bonds.
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Discount
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The excess of the face value over the issue price of bonds.
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Effective Interest Method of Amortization
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The process of transferring a portion of the premium or discount to interest expense; this method results in a constant effective interest rate.
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Carrying Value
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The face value of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.
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Gain or loss on Redemption
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The difference between the carrying value and the redemption price and the time bonds are redeemed.
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Capital Lease
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A lease that is recorded as an asset by the lessee.
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Debt-to-Equity Ration
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Total liabilities divided by total Stockholders' Equity.
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Times Interest Earned Ratio
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Income before interest and tax divided by interest expense.
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