Chapter 6: Financial Statements

bank reconciliation

the process of comparing the actual state of the bank account with the bank nominal code in the accounts

cash in hand

the amount of liquid equity held by an entity at a certain point of time

cross-check

verify by comparing two sets of data

draft

a first version

invoice

the written record of a payment due, which is sent to the customer before payment

irregularities

Defects, failures of mistakes

keep track of

follow, or pay attention to (particularly in changeable situations)

ledger control

a process in which totals from subsidiary nominal accounts are entered into a control account to make it easier to interpret the data

ledgers

accounting books in which accounts were prepared

meticulously

very careful, paying attention to every detail

notes to the accounts

additional information added at the end of the accounts to give a full understanding of the company’s situation

receipt

the written record of a payment made, which is given to the customer after payment

retain

keep in one’s possession

to file

officially submit a document to a legal entity

to post

enter or record (a financial transaction)

assets

are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

comprehensive income

is the change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

distribution to owners

are decreases in net assets of a particular enterprise resulting from transferring assets, rendering services, or incurring liabilities to owners. _____ decrease ownership interest or equity in an enterprise

equity

is the residual interest in the assets of an entity that remains after deducting its liabilities. In a business entity, _____ is the ownership interest

expenses

are outflows or other uses of assets or incurring of liabilities during a period from delivering or producing goods or rendering services, or carrying out other activities that constitute the entity's ongoing major or central operation.

gains

are increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owner.

investment by owners

are increases in net assets of a particular enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interest (or equity) in it.

liabilities

are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

losses

are decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from expenses or distributions to owners.

revenues

are inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

intangible assets

An asset which does not have a physical nature (such as a trademark or a patent)

consolidated affiliates

The holding company owns a minority interest (less than 50%), but the accounts are nevertheless consolidated.

total liabilities

The total legal obligations of a company to pay other parties.

common stock

The ordinary shares held by the owners, who therefore are the last to receive their money back in the event of liquidation.

current receivables

Amounts that will be collected in the normal course of business within one year

retained earnings

Profit which is not paid out to shareholders in the form of dividends, but instead is kept by the company to reinvest or pay off debts

accumulated gains

The amounts affecting common stockholders, but not from movements in the stock of the company (e.g. currency translation adjustments)

profit and loss account

This is a financial statement which shows the difference between the revenues and expenses of a period

non-profit organization

_____ such as charities, public universities and museums generally produce an income and expenditure account

surplus

If non-profit organizations have more income than expenditure this is called a _____ rather than a profit

turnover/total sales revenue

the total amount of money received during a specific period.

cost of goods sold

the costs associated with making the products that have been sold, such as raw materials, labour, and factory expenses

gross profit

The difference between the sales revenue and the cost of sales is _____

selling, general and administrative expense (SG&A)

There are many other costs or expenses that have to be deducted from gross profit, such as rent, electricity and office salaries, grouped together as _____

EBITDA

earnings before interest, tax, depreciation and amortization

EBIT

earnings before interest and tax

net profit/bottom line

After all the expenses and deductions is the _____

cash flow statement

This gives details of cash flows — money coming into and leaving the business

operations

day-to-day activities

operations

means making money by selling goods and services

operations

It is better for the company if it can pay for future growth out of money from operations , without having to use financing

investing

buying or selling property, plant and equipment, spending cash, for the business's future growth, including cash acquired by selling assets

financing

issuing or repaying debt, or issuing shares; involves raising money by issuing stocks and bonds (and also paying dividends and interest and repaying bonds)

funds flow statement

The cash flow statement shows how effectively a company generates and manages cash

statement of total recognized gains and losses (STRGL)

any gains and losses that are not included in the profit and loss account, such as the revaluation of fixed assets