Financial Statements

Vocabulary

asset

economic resource of value that a business owns and that is expected to provide future benefits

balance sheet

financial statement that provides a snapshot of the assets, liabilities, and equity of a business at a point in time

capital expenditure

cost incurred to purchase a fixed asset, enhance an existing fixed asset, or extend its useful life, benefiting future periods

cash flow

total volume of money that moves into and out of a company during a given period

cash flow statement

financial statement that represents an organization's cash receipts and payments by operating, investing, and financing activity

current assets

company's cash, investments, and items of value that can be converted to cash within a year

current liabilities

amounts owed by a business to payees that are expected to be paid within one year or during the operating cycle, whichever is longer

depreciation

process of allocating the cost of a fixed asset to an expense account over the life of the asset

dividend

distribution of a corporation's earnings in the form of cash, stock, or property to the stockholders as voted on by the board of directors

expense

cost of buying materials, paying employees, or any other type of purchase used to generate revenue; total equates to the cost of doing business

Financial Accounting Standards Board (FASB)

organization that develops, establishes, and communicates rules and practices for financial accounting and reporting, most notably generally accepted accounting principles, in the United States

fixed asset

tangible piece of property used in the normal course of business to generate revenue, such as property, plant, or equipment

free cash flow

discretionary funds that remain after a company has paid its operating expenses and capital expenditures

goodwill

premium paid over the market value of net assets (market value of identifiable assets minus market value of identifiable liabilities) in a completed acquisition

gross revenue

total amount of sales recognized for a reporting period, prior to any expenses

income statement

summary of a business's revenues and expenses over a period of time

International Accounting Standards Board (IASB)

independent body that develops a single set of globally accepted accounting guidelines

international financial reporting standards (IFRS)

high-quality, understandable, enforceable, and globally accepted guidelines based on clearly articulated principles established by the IASB

liability

obligation or amount owed to another individual or entity as a result of a past transaction

net income

receipts left after all expenses have been deducted

net sales

gross revenue minus the cost of sales returns, allowances, and discounts

retained earnings

undistributed portion of an organization’s net income over its entire history

revenue

net sales or total receipts

revenue recognition

principle on which the adjusting process is based; the aim is to record income in the accounting period in which it is earned regardless of when the cash is actually received

statement of shareholders' equity

summary of changes in a business's equity account over a period of time

U.S. generally accepted accounting principles (GAAP)

combination of accounting rules, standards, and procedures that govern the preparation of financial statements in the United States