1.4 Financial Statements

Financial statements

Formal accounting reports that summarize a company's financial activities and financial position.

Income statement

A financial report showing revenues and expenses to determine net income or net loss over a period of time.

Revenue

Amounts earned by a business from providing goods or services.

Consulting revenue

Amounts earned specifically from providing professional consulting services.

Rental revenue

Amounts earned from allowing customers to use property, equipment, or facilities.

Expense

A cost incurred to operate a business and help generate revenue.

Rent expense

The cost incurred for using rented property or facilities during a period.

Salaries expense

The cost of employee services used during a period.

Total revenues

The sum of all earnings generated from providing goods or services during a reporting period.

Total expenses

The sum of all operational costs incurred during a reporting period.

Net income

The amount by which total revenues exceed total expenses; also called profit or earnings.

Net loss

The amount by which total expenses exceed total revenues.

Profit

Another common term for net income.

Earnings

Another term often used for net income or profit.

Statement of retained earnings

A financial report showing how accumulated net income minus dividends changed during a reporting period.

Retained earnings

Cumulative net income kept in the business minus dividends distributed to shareholders.

Cumulative

Building up or accumulating over time.

Beginning retained earnings

The balance of accumulated profit kept in the business at the start of a reporting period.

Ending retained earnings

The balance of accumulated profit kept in the business at the close of a reporting period.

Dividend

A distribution of cash or other assets from a corporation to its shareholders.

Dividend distribution

The payout of cash or other assets by a company to its shareholders.

Reporting period

The span of time covered by a financial report, such as a month, quarter, or year.

Prior period

The reporting span immediately preceding the current period.

Balance sheet

A financial statement reporting a company's assets, liabilities, and equity at a specific point in time.

Financial position

The status of a company's assets, liabilities, and equity at a particular point in time.

Asset

A resource owned or controlled by a business that is expected to provide future benefits.

Liability

An obligation owed by a business to another party.

Equity

The owners' claim on business assets after liabilities are subtracted.

Common stock

Ownership contributed to a corporation by shareholders in exchange for shares of stock.

Accounts payable

Amounts a business owes to suppliers or other creditors.

Total assets

The sum of all resources owned or controlled by a business on the balance sheet.

Total liabilities

The sum of all obligations owed by a business to external parties.

Total equity

The complete residual claim of owners reported on the balance sheet.

Total liabilities and equity

The combined amount of obligations and owner claims, which must equal total resources.

Accounting equation

$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Account form

A balance sheet format with assets on the left and liabilities and equity on the right.

Report form

A balance sheet format that lists assets first, followed vertically by liabilities and equity.

Statement of cash flows

A financial report showing cash inflows and cash outflows during a reporting period.

Cash inflow

Money coming into a business.

Cash outflow

Money leaving a business.

Receipt

Cash received by a business.

Payment

Cash paid by a business.

Operating activities

Cash flows involving normal day-to-day business operations.

Cash received from clients

Money collected from customers for goods or services.

Cash paid for expenses

Money paid for operating costs such as rent, salaries, and supplies.

Net cash provided by operating activities

Operating cash inflows minus operating cash outflows when the result is positive.

Investing activities

Cash flows from buying and selling long-term assets such as land and equipment.

Long-term asset

A resource expected to benefit a business for longer than one year.

Financing activities

Cash flows involving owners and lenders, including investments, borrowing, repayments, and dividends.

Cash investment from shareholders

Money contributed to a corporation by its owners in exchange for ownership.

Cash dividends to shareholders

Money distributed from a corporation to its equity owners.

Net cash provided by financing activities

Financing cash inflows minus financing cash outflows when the result is positive.

Net increase in cash

The amount by which total cash inflows exceed total cash outflows during a period.

Cash balance

The total amount of cash held by a business at a particular time.

Beginning cash balance

Funds available at the start of the reporting period.

Ending cash balance

Funds available at the end of the reporting period.

Reconcile

To compare or connect amounts to make sure they agree.

Statement heading

The header of a financial report that identifies the company, report title, and date or period covered.

Period of time

A time span such as a month or year; used by the income statement, statement of retained earnings, and statement of cash flows.

Point in time

One specific date; used by the balance sheet.

Ruled line

A single accounting line generally indicating that amounts above it are being added or subtracted.

Double underline

Two lines beneath an amount indicating a final total.

Unadjusted financial statements

Accounting reports prepared before certain end-of-period adjustments are recorded.

ESG

Environmental, Social, and Governance; a framework for evaluating and reporting a company's environmental impact, social practices, and governance.

Environmental

The category in sustainability frameworks dealing with a company's impact on the natural world.

Social

The category in sustainability frameworks dealing with how a company affects employees, customers, communities, and society.

Governance

The category in sustainability frameworks dealing with how a company is managed, controlled, and held accountable.

Sustainable practices

Business operations intended to meet current needs while reducing long-term harm to resources and the environment.

Socially responsible activities

Business actions intended to have a positive effect on employees, customers, communities, or society.

Carbon emissions

Greenhouse gases released into the atmosphere by a company's activities.

Carbon footprint

The total greenhouse gas emissions associated with a person, company, product, or activity.

Renewable energy

Energy from sources that naturally replenish, such as solar or wind power.

Labor management

How a company manages and treats its workforce.

Human rights

Basic rights and protections that should be respected for employees, suppliers, customers, and other people.

Privacy and data security

Protecting personal or confidential information from improper access, use, or loss.

Business ethics

Standards for determining responsible and acceptable behavior in business.

Internal audit

An independent review within an organization of its controls, records, and operations.

Accounting controls

Procedures used to help ensure financial information is accurate and assets are protected.

Tax transparency

How openly and clearly a company reports its tax practices and obligations.

Risk management

Identifying, evaluating, and responding to uncertainties or threats that could harm a company.

Legal compliance

Following applicable laws, rules, and regulations.

Fiduciary duties

Legal and ethical responsibilities requiring leaders to act in the best interests of those they serve.

ESG reporting

Collecting and disclosing information about a company's environmental, social, and governance activities.

Risk factor

A condition or uncertainty that could negatively affect a business.

Legal proceeding

A lawsuit, investigation, hearing, or other formal legal action involving a company.

Management's Discussion and Analysis (MD&A)

A section of company reporting in which leadership explains important trends, events, risks, results, and uncertainties.