Financial Statements for a Corporation

Capital Stock

a stockholders’ equity account

stockholder’s equity

the value of the stockholders’ claims to the corporation

retained earnings

the portion of net income not distributed to the stockholders

comparability

information can be compared from one fiscal period to another

reliability

refers to the confidence users have that the financial information is reasonably free from bias and error

relevance

the requirement that all information that would affect the decisions of financial statement users be disclosed in the financial reports

full disclosure

financial reports include enough information to be complete

materiality

relevant information should be included in financial reports

net sales

amount of sales for the period less sales discounts, returns, and allowances

net purchases

all costs related to merchandise purchased during the period

gross profit on sales

the profit made before operating expenses are deducted

operating expenses

costs of the goods and services used to earn revenue

selling expenses

incurred to sell or market the merchandise sold

administrative expenses

related to the manage of the business

operating income

the excess of gross profit over operating expenses

vertical analysis

each dollar amount reported on a financial statement is also reported as a percentage of another amount appearing on that same statement

statement of retained earnings

reports changes in the Retained Earnings account

horizontal analysis

the comparison of the same items on financial statements for two or more accounting periods or dates and the determination of changes

base period

a period, usually a year, that is used for comparison

cash inflows

receipts of cash

cash outflows

payments of cash

operating activities

all transactions that occurred during the accounting period

investing activities

loans, payments, purchase and sale of plant assets, and investments

financing activities

the borrowing activities needed to finance the company operations and the repayment of these debts