Financial Accounting Fundamentals and Financial Statements

Vocabulary and formulas based on financial accounting principles, financial statements, and various company reporting examples including Aqua Products, Zeta Network, and Messner Publishing.

Net Income

The result of subtracting total expenses from total revenues ($\text{Revenues} - \text{Expenses}$).

Net Loss

The result when expenses exceed revenues, as seen in the Zeta Network example where revenues of $17,000$ minus expenses of $23,000$ resulted in a loss of $(\text{\textdollar}6,000)$, often represented in parentheses.

Accounting Equation

$\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$, also expressed as $\text{Assets} - \text{Liabilities} = \text{Stockholders' Equity}$ to find the value of the owners' interest.

Income Statement

A financial statement that reports a company's revenues and expenses over a specific interval, such as the month ended January 31 for Vital Accounting Services.

Statement of Stockholders’ Equity

A statement summarizing the changes in stockholders' equity over a period, calculated as: $\text{Beginning balance} + \text{Issuance of common stock} + \text{Net income} - \text{Dividends} = \text{Ending balance}$.

Balance Sheet

A financial statement that reports a firm's assets, liabilities, and stockholders' equity at a specific point in time to demonstrate the equality of the accounting equation.

Operating Activities

Cash flow category involving primary business transactions such as cash received from customers for services/products and cash paid for advertisements, suppliers, or workers.

Investing Activities

Cash flow category involving the purchase and sale of long-term assets, such as the sale of an unused warehouse ($10,000$) or the purchase of factory equipment ($60,000$).

Financing Activities

Cash flow category involving debt and equity transactions, such as receiving a long-term loan from a bank ($75,000$) or paying dividends to stockholders ($10,000$).

Retained Earnings

The cumulative amount of net income minus dividends, which is recorded under the Stockholders' Equity section of the balance sheet.

Total Change in Cash

The sum of cash flows from three categories: $\text{Net operating cash flows} + \text{Net investing cash flows} + \text{Net financing cash flows}$.

Ending Balance of Cash

Calculated by taking the $\text{Beginning balance of cash}$ and adding the $\text{Net increase in cash}$ determined from the Statement of Cash Flows.

Dividends

Distributions of a company's earnings to its stockholders, which reduce the overall balance of Retained Earnings.

Common Stock

The account representing the total amount of investment by stockholders in the company, such as the $25,000$ beginning balance for Messner Publishing.