Highpoint Electronic Financial Statements Vocabulary

Vocabulary terms and definitions based on the Highpoint Electronic income statement and balance sheet illustrations.

Contra Revenue Accounts

Accounts such as sales returns and allowances and sales discounts that are deducted from sales in the income statement to arrive at Net Sales.

Net Sales

The amount calculated by taking Highpoint Electronic's total sales of $480,000$ and subtracting sales returns and allowances of $20,000$, resulting in $460,000$.

Gross Profit

The calculation of deducting cost of goods sold ($316,000$) from net sales ($460,000$), which equals $144,000$ ($31\%$ of sales).

Net Income

The "bottom line" of a company's income statement; in the multi-step example for Highpoint Electronic, it totals $31,600$.

Multi-step Income Statement

A financial statement format that reports non-operating activities immediately after the company's primary operating activities.

Selling Expenses

A category of operating expenses that includes salaries expense ($45,000$), advertising expense ($16,000$), amortization expense ($8,000$), and freight out ($7,000$).

Administrative Expenses

A category of operating expenses including rent expense ($19,000$), utilities expense ($17,000$), and insurance expense ($2,000$).

Income from Operations

The amount remaining after total operating expenses ($114,000$) are subtracted from gross profit ($144,000$), equaling $30,000$.

Other Revenue and Gains

Non-operating activities such as interest revenue ($3,000$) and gain on sale of equipment ($600$).

Other Expenses and Losses

Non-operating activities such as interest expense ($1,800$) and casualty loss from vandalism ($200$).

Merchandise Inventory

A current asset on the balance sheet ($40,000$) reported immediately below accounts receivable because current assets are listed in the order of their liquidity.

Liquidity

The order in which current assets are listed on the balance sheet, which for Highpoint Electronic consists of cash, accounts receivable, merchandise inventory, and prepaid insurance.

Capital Assets

A balance sheet section which for Highpoint Electronic includes store equipment ($80,000$) less accumulated amortization ($24,000$) for a net value of $56,000$.