Chapter 2 Flashcards
(44 cards)
Financial Statements
Accounting reports issued by a firm periodically that present past performance information and a snapshot of the firm’s assets and the financing of those assets
Annual report
The yearly summary of business, accompanying or including financial statements, sent by U.S. public companies tot heir stockholders
Generally Accepted Accounting Principle (GAAP)
common set of rules and a standard format for public companies to use when they prepare their reports. This standardization also makes it easier to compare the financial results of different firms.
Auditor
A neutral third party, which corporations are required to hire, that checks a firm’s annual financial statements to ensure they are prepared according to GAAP, and provides evidence to support the reliability of the information
Balance sheet
lists the firm’s assets and liabilities (Assets on the left side, liabilities on the right side)
Assets
Firm’s cash, inventory, property, pant and equipment, and any other investments the company has made
Liabilities
shows the firm’s obligations to its creditors
Stockholders’ equity
the difference between the firm’s assets and liabilities, is an accounting measure of the firm’s net worth
Common stock and paid-in surplus
the amount that stockholders have directly invested in the firm through purchasing stock from the company
Retained earnings
profits made by the firm, but retained within the firm and reinvested in assets or held as cash
The Balance sheet identity
Assets = Liabilities + Stockholder’s Equity
Current assets
either cash or assets that could be converted into cash within one year
Marketable securities
which are short-term, low-risk investments that can be easily sold and converted to cash (such as money market investments, like government debt, that mature within a year)
Accounts Receivable
the amounts owed to the firm by customers who have purchased goods or services on credit;
Inventories
composed of raw materials as well as work-in-progress and finished goods
Long-term Assets
Assets that produce tangible benefits for more than one year
Depreciation
A yearly deduction a firm makes from the value of it fixed assets (other than land) over time, according to a depreciation schedule that depends on an asset’s life
Book Value
The acquisition cost of an asset less its accumulated depreciation
Current Liabilities
Liabilities that will be satisfied within one year
Accounts payable
The amounts owed to creditors for products or services purchased with credit
Notes payable, short term debt
Loans that must be repaid in the next year
Net working capital
The difference between a firm’s current assets and current liabilities that represents the capital available in the short term to run the business
Long-term debt
Any loan or debt obligation with a maturity of more than a year
Book value of equity
The difference between the book value of a firms assets and its liabilities, also called shareholders’ equity and stockholders’ equity, it represents the net worth of a firm from an accounting perspective
