Financial Accounting: Companies, Capital, and Liabilities

Historical and conceptual vocabulary regarding financial statements for companies, specifically focusing on capital structure, liabilities, and equity categories based on lecture notes featuring Macy's, Inc. financial data.

Retained earnings

The sum of a company’s net income to date, less any dividends, if any, paid to owners.

Dividends

A distribution of earnings to owners, mostly in the form of cash, which reduces retained earnings and is not considered an expense.

Corporation

A separate legal entity, distinct from its owners, featuring limited liability for shareholders and transferable ownership rights.

Share capital

The total amount of cash and other assets paid into the corporation by shareholders in exchange for shares.

Ordinary shares

The basic class of shares issued by a company; they can be issued with par value (nominal value) or no-par value.

Share premium

The amount received for the issuance of shares that exceeds their par (nominal) value.

Preference shares

An additional class of shares that has priority regarding dividend distributions and assets in the event of liquidation, though they generally do not have voting rights.

Treasury shares

A corporation’s own shares that it has issued and subsequently reacquired from shareholders but has not retired.

Outstanding shares

The number of issued shares that are currently being held by shareholders.

Declaration date

The date a corporation formally declares a cash dividend and announces it to shareholders, recognizing a legal obligation.

Record date

The date used to determine ownership of outstanding shares for dividend purposes; no accounting entry is required.

Payment date

The date on which a corporation makes cash dividend payments to shareholders of record.

Liability

A present obligation of the entity to transfer an economic resource as a result of past events.

Current liability

A debt that a company expects to pay within one year or the operating cycle, whichever is longer, such as notes payable or value-added taxes ($VAT$) payable.

Non-current liability

Obligations that a company expects to pay more than one year in the future, including bonds, long-term notes payable, and lease liabilities.

Equity financing

Obtaining long-term capital by issuing ordinary shares, which can affect shareholder control via voting rights.

Debt financing

Obtaining long-term capital by issuing bonds or notes, involving periodic interest payments that are deductible for tax purposes.

Provisions

A subset of liabilities characterized by uncertain timing or amount, recognized when an outflow of resources is probable and a reliable estimate can be made.

Legal obligation

An obligation that derives from a contract, legislation, or other operation of law.

Constructive obligation

An obligation deriving from an entity's actions where established past practice or published policies create a valid expectation that the entity will accept certain responsibilities.

Probable

Regarded as more likely than not to occur, meaning the probability is greater than $50\%$.

Contingent liability

A possible obligation arising from past events whose existence is confirmed by uncertain future events, or a present obligation not recognized because an outflow is not probable or cannot be reliably measured.