Accounting Definitions Flashcards
(18 cards)
Inventory
An asset help for resale or used to produce services + goods for sale
Sales Returns
Returned merchandise for FULL refund
Sales Allowances
Customer keeps merchandise but receives a credit
Consigned Goods
Goods owned by another business displayed to facilitate sales
FOB Shipping Point
Merchandise ownership changes at point of shipping
FOB Destination
Merchandise ownership changes at point of delivery
Capital Expenditures
Increase the productive life, operating efficiency or capacity of the asset
Revenue Expenditure
Maintaining the productive capacity of the asset
Contractual Interest Rate
Coupon Rate
Stated rate that determines the amount of cash interest the borrower pays to the investor
Market (effective) Interest Rate
Rate Investors demand for loaning funds
Face Value
Principal amount due at maturity
Market Value/Issue Price
A quoted percentage of the bonds face value
Discount Amortization
The difference between interest expense and interest payable when bonds are issued at a discount or premium.
Reasons for Reaquiring Shares
- Needs them to fulfill future issuance commitments
- Support the share’s current market price
- Avoid a takeover from an outside party
Stock Dividends - Purpose + Benefits
For the company: Save cash and reinvest a portion of shareholders’ equity
For shareholder: More shares to earn dividend income and future resale value as prices increase
Common Size Statements
Helps in the comparison of different companies
Cash Flow signs of Healthy Company
- Operations are major source of cash
- Investing includes more purchases than sales
- Financing is not dominated by borrowing
6 Red Flags
- Earnings problems
- Decreased cash flow
- Too much debt
- Inability to collect receivables
- Buildup of inventories
- Trends of sales, inventory and receivables
