Chapter 2: Financial Statements Vocabulary

Vocabulary practice flashcards covering asset classifications, liability types, stockholders' equity, income measures, cash flows, and comprehensive income from Chapter 2 notes.

Assets

Economic resources of a company representing present economic benefits controlled by the entity.

Current Assets

Cash and other assets expected to be converted to cash or used up within one year or within the normal operating cycle of the business if longer than one year.

Operating Cycle

The period of time from the purchase of inventory until the time the company collects cash from a customer from the sale of inventory.

Long-term Assets

Assets expected to provide economic benefits for greater than one year.

Historical Cost

An asset measurement method based on the original cost to acquire the asset.

Amortized Cost

The historical cost of an asset adjusted for the depreciation or amortization accumulated over its lifetime.

Net Realizable Value

The net amount of cash which would be received when selling an asset in the ordinary course of business.

Fair Value

The price that would be received to sell assets in an orderly transaction between market participants on a given date.

Liabilities

Economic obligations representing debts or claims owed to other entities.

Current Liabilities

Obligations due within one year of the balance sheet date or one operating cycle, whichever is longer.

Accounts Payable

Obligations to suppliers of merchandise or services purchased on account, usually due in 30 to 60 days.

Accrued Liabilities

Obligations created when expenses have been incurred but not yet paid, such as Salaries Payable, Interest Payable, and Taxes Payable.

Deferred Revenues

Cash received from a customer for goods or services to be provided in a future period, recognized as revenue when redeemed or expired.

Current Maturities of Long-term Debt

The portion of long-term notes, loans, mortgages, and bonds payable that becomes payable within the next year or is payable in installments.

Long-term Liabilities

Financial obligations that are expected to be paid in the future, but not within the next year.

Stockholders' Equity

Ownership claims on a company, calculated as total assets minus total liabilities ($\text{Assets} - \text{Liabilities} = \text{Stockholders' Equity}$), also known as net assets or book value.

Contributed Capital

The proceeds from the initial sale of stock, comprising common stock at par value and additional paid-in capital.

Retained Earnings

Cumulative earnings and income retained in the business and not distributed to shareholders as dividends.

Accumulated Other Comprehensive Income (AOCI)

An equity component reflecting specialized adjustments for foreign currency translation, pension obligations, gains or losses on available-for-sale securities, or fair value of cash flow hedges.

Income Statement

A financial report measuring a company's profit or loss during a particular period, such as a year or quarter, by tracking inflows and outflows.

Accrual Basis Accounting

An accounting approach where revenue is recognized when goods/services are delivered and cost of goods sold is recognized when inventory is sold on account, regardless of cash collection or payment.

Cash Basis Accounting

An accounting method where revenue is recognized when cash is collected from customers and expense is recognized when cash is paid to suppliers.

Revenues

The amount of resources resulting from providing goods or services to customers.

Expenses

Costs incurred in providing goods and services in order to generate revenue.

Gains and Losses

Increases or decreases in income from peripheral or non-core transactions rather than core operations, such as selling equipment or investments.

Gross Profit

An intermediate measure of income calculated as net sales revenues minus cost of goods sold.

Operating Income

Income measure calculated as gross profit minus additional expenses related directly to the operating activities of the company.

Pre-tax Income

The sum of operating income and nonoperating income prior to deducting income tax expense.

Net Income

The total amount of all revenues and gains minus the total of all expenses and losses, including income tax expense.

Basic Earnings Per Share (Basic EPS)

The net income generated per common share, calculated as $\text{Basic EPS} = \frac{\text{Net income}}{\text{Weighted-average number of common shares outstanding}}$.

Dilution

The reduction in earnings per share that occurs as the number of common shares outstanding increases upon exercising options or converting convertible securities.

Single-step Income Statement

An income statement format that groups all revenues and gains from continuing operations into one subtotal and all expenses and losses into another.

Multiple-step Income Statement

An income statement format that reports a series of intermediate subtotals such as gross profit, operating income, nonoperating income, and pre-tax income.

Discontinued Operations

Results of a component or group of components of an entity that has been sold, disposed of, or held for sale, reported separately below income from continuing operations.

Statement of Cash Flows

A primary financial statement presenting cash receipts and cash disbursements grouped into operating, investing, and financing activities.

Operating Activities

Cash inflows and outflows that result directly from activities reported on the income statement.

Investing Activities

Cash inflows and outflows related to the acquisition and disposition of long-term operational assets and investment securities.

Financing Activities

Cash inflows and outflows resulting from external transactions with owners and creditors for borrowing and stock issuance/repurchase.

Statement of Stockholders' Equity

A financial report detailing the causes of changes in each stockholders' equity account over the reporting period.

Comprehensive Income

The total change in equity during a period from nonowner sources, defined as $\text{Comprehensive Income} = \text{Net Income} + \text{Other Comprehensive Income}$.

Fundamental Accounting Equation

The foundational principle of balance sheet accounting expressed as $\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$.