Financial Statements, Taxes, and Cash Flow

These flashcards cover key vocabulary and concepts relevant to financial statements, taxes, and cash flow.

Accounting Value

The value of an asset or a firm as recorded on the balance sheet, also known as book value.

Market Value

The current value of an asset or a firm in the marketplace, typically influenced by supply and demand.

Cash Flow

The difference between the cash that comes into a firm and the cash that goes out.

Balance Sheet

A financial statement that summarizes a firm’s assets, liabilities, and shareholders' equity at a specific point in time.

Current Asset

An asset that is expected to be converted into cash or consumed within one year.

Fixed Asset

An asset with a long-term life, such as property, equipment, and intangible assets.

Liabilities

Obligations or debts that a firm owes to outside parties.

Shareholders' Equity

The residual interest in the assets of the entity after deducting liabilities.

Current Liabilities

Liabilities that are due to be settled within one year.

Long-term Liabilities

Obligations that are not expected to be settled within the coming year.

Net Working Capital

The difference between a firm’s current assets and its current liabilities.

Liquidity

The ease with which an asset can be converted into cash.

Financial Leverage

The use of debt in a firm's capital structure.

Cash Flow Identity

The assertion that cash flow from assets equals the cash flow paid to creditors and stockholders.

Operating Cash Flow

Cash generated from a firm’s normal business operations.

Capital Spending

Net spending on fixed assets during a specific period.

Depreciation

An accounting method of allocating the cost of a tangible asset over its useful life.

Average Tax Rate

Total taxes paid divided by total taxable income.

Marginal Tax Rate

The tax rate applicable to the next dollar earned.

Net Capital Spending

The cost of fixed asset purchases less the income from the sales of fixed assets.

Cash Flow to Creditors

Interest payments to creditors minus net new borrowing.

Cash Flow to Stockholders

Dividends paid out to stockholders minus net new equity raised.

Income Statement

A financial statement summarizing a firm’s performance over a specific period, including revenues and expenses.

GAAP

Generally Accepted Accounting Principles, standard framework of guidelines for financial accounting.

Noncash Items

Expenses that are charged against revenues but do not involve actual cash outflows.

Product Costs

Costs that are directly associated with the manufacturing of goods.

Period Costs

Costs that are incurred during a specific period of time and are typically reported as expenses.

Cash Flow Summary

A comprehensive view of all the cash inflows and outflows of a firm over a certain period.

Balance Sheet Equation

The fundamental equation stating that Assets = Liabilities + Shareholders' Equity.

Income Statement Equation

The equation that represents how income is calculated: Revenues - Expenses = Net Income.

Tangible Asset

Physical assets that can be touched and have a form, such as machinery or buildings.

Intangible Asset

Non-physical assets, like trademarks or patents, with value.

Equity

The value of ownership interest in a firm after liabilities have been deducted.

Financial Statement

A formal record of the financial activities and position of a business.

Tax Code

The system of laws and regulations that govern how taxes are collected.