Comprehensive Definitions Flashcards
(293 cards)
Asset
-Something of value
*An asset is a resource with economic value than an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit
Liability
An obligation between one part and another not yet completed or paid for
Equity
The ownership of a public company or an asset
Shareholders equity
Equity, typically referred to as shareholders’ equity (or owners’ equity for privately held companies), represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt was paid off in the case of liquidation. In the case of acquisition, it is the value of company sales minus any liabilities owed by the company not transferred with the sale.
Stockholders equity = total assets - total liabilities
What is the difference between equity and shareholders equity?
Equity typically refers to the ownership of a public company, and shareholders equity is the net amount of a company’s total; assets and total liabilities, listed on the balance sheet
Financial capital
Financial capital is the monetary assets required for a business to provide goods and services. Economic capital is commonly calculated through risk management strategies and determines the capital required to cushion a business from losses.
Revenue
Revenue is the money generated from normal business operations, calculated as the average sales price times the number of units sold. It is the top line (or gross income) figure from which costs are subtracted to determine net income. Revenue is also known as sales on the income statement.
Gross profit
Revenue less COGS
Taxable income
Taxable income is the portion of your gross income used to calculate how much tax you owe in a given tax year. It can be described broadly as adjusted gross income (AGI) minus allowable itemized or standard deductions. Taxable income includes wages, salaries, bonuses, and tips, as well as investment income and various types of unearned income.
Aka gross income minus allowable deductions
Adjusted gross income
Adjusted Gross Income or AGI is the starting point for what the IRS uses to determine your income tax liability. First you take your gross income, which is income from whatever source derived, and then you subtract certain adjustments, which are also know as above the line deductions. THese adjustments are expenses paid for with income that the IRS deems non-taxable. This results in your AGI.
Formal: Adjusted gross income (AGI) is the figure that the Internal Revenue Service (IRS) uses to determine your income tax liability for the year. It is calculated by subtracting certain adjustments from gross income, such as business expenses, student loan interest payments, and other expenses. After calculating a taxpayer’s AGI, the next step is to subtract deductions to determine their taxable income.
Gross income
All income from whatever source derived
Standard deduction
The term standard deduction refers to the portion of income not subject to tax that can be used to reduce your tax bill. The Internal Revenue Service (IRS) allows you to take the standard deduction if you do not itemize your deductions using Schedule A of Form 1040 to calculate taxable income. The amount of your standard deduction is based on your filing status, your age, and whether you are disabled or claimed as a dependent on someone else’s tax return.
Fair market value
Fair market value (FMV) is the price a product would sell for on the open market assuming that both buyer and seller are reasonably knowledgeable about the asset, are behaving in their own best interests, are free of undue pressure, and are given a reasonable time period for completing the transact
Net present value (NPV)
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time
Capitalize a cost
To capitalize is to record a cost or expense on the balance sheet for the purposes of delaying full recognition of the expense. In general, capitalizing expenses is beneficial as companies acquiring new assets with long-term lifespans can amortize or depreciate the costs. This process is known as capitalization.
Capitalization is an accounting method in which a cost is included in the value of an asset and expensed over the useful life of that asset, rather than being expensed in the period the cost was originally incurred
Depreciation
the using up of an asset
Accounting depreciation is the process of allocating the cost of an asset over the course of its useful life so as to align its expenses with revenue generation
Net income
Net income is synonymous with a company’s profit for the accounting period. In other words, net income includes all of the costs and expenses that a company incurs, which are subtracted from revenue. Net income is often called “the bottom line” due to its positioning at the bottom of the income statement.
Although many items can be listed on a company’s income statement, depending on the company’s industry, usually net income is derived by subtracting the following expenses from revenue:
Operating expenses
Interest on debt and loans
Overhead or selling, general, and administrative expense (SG&A)
Income taxes
Depreciation, which is the allocation of the costs of fixed assets, such as equipment, over their useful life or life expectancy
Additional income sources are also included in net income. For example, companies often invest their cash in short-term investments, which is considered a form of income. Also, proceeds from the sale of assets are considered income.
Deduction
The formal deduction is “an amount allowable by Congress,” but in practicality a deduction is an amount that you have subtract from your gross income, which will then lower your taxable income.
Formal:A tax deduction is an amount that you can deduct from your taxable income to lower the amount of taxes that you owe. You can choose the standard deduction—a single deduction of a fixed amount—or itemize deductions on Schedule A of your income tax return.
Net cash flow
The difference between cash inflows and outflows over a specific period of time
Cash receipts
When money is collected from an external source and recorded as an increase to the cash account
Dividend
A payment in cash or stock that public companies distribute to their shareholders
Net operating income
Revenue less operating expenses
It is a calculation used to analyze the profitability of income generating real estate investments, and is a before tax figure
Operating expenses
An expense that a business incurs through its normal business operations.
Includes: rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and R&D costs.
Amortization
An accounting technique used to periodically lower the book value of a loan or an intangible asset over a period of time.
