Chapter 3: The Balance Sheet and Financial Disclosures

These flashcards cover key concepts from Chapter 3 regarding the balance sheet, financial disclosures, and analysis methods.

Balance Sheet

A financial statement that shows a company's financial position at a specific point in time, detailing assets, liabilities, and shareholders' equity.

Assets

Resources owned by a company, which are categorized based on their liquidity into current and long-term.

Liabilities

Obligations or debts that a company owes to external parties, which can be classified as current or long-term.

Shareholders’ Equity

The residual interest in the assets of the entity after deducting liabilities; it represents the owners' claim on the business.

Liquidity

The ability of a company to convert its assets into cash quickly without a significant loss in value.

Financial Flexibility

The ability of a company to alter its cash flows to respond to unexpected investment opportunities and needs.

Current Assets

Assets that are expected to be converted into cash or used up within one year or the operating cycle, whichever is longer.

Long-Term Assets

Assets expected to be converted to cash or consumed over a period longer than one year.

Current Liabilities

Obligations that are expected to be settled using current assets or creating other current liabilities within one year.

Long-Term Liabilities

Obligations that are due to be settled in more than one year after the balance sheet date.

Paid-in Capital

Money received from shareholders in exchange for shares of stock, often referred to as initial capital.

Retained Earnings

The accumulated net income of a company that has not been distributed to shareholders as dividends.

Comparative Financial Statements

Financial statements that present data for multiple periods, enabling trend analysis.

Horizontal Analysis

A method of financial analysis that compares amounts for the same item across multiple periods.

Vertical Analysis

A financial analysis method where each item in a financial statement is expressed as a percentage of a base amount.

Ratio Analysis

A technique used to evaluate the financial condition of a company by comparing various financial statement items.

Liquidity Ratios

Measures of a company's ability to meet its short-term obligations; includes current and quick ratios.

Solvency Ratios

Ratios that assess a company's ability to meet its long-term debts and financial obligations.

Profitability Ratios

Financial metrics used to assess a company's ability to generate earnings compared to its expenses.