Video Notes: Financial Statements Vocabulary

Vocabulary flashcards covering key terms and definitions from the lecture notes on financial statements.

Income Statement

A financial statement that reports a company’s revenues and expenses over a period (month/quarter/year) and shows net income or net loss.

Gross Profit

Revenue minus cost of goods sold; measures profit before operating expenses.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company.

Operating Income

Gross profit minus operating expenses.

Pretax Income

Operating income minus interest expense.

Interest Expense

The cost of borrowing; reduces pretax income.

Income Tax Expense

Tax expense charged on pretax income.

Net Income

Pretax income minus income tax expense; the bottom-line profit for the period.

Dividends

Distributions of earnings to shareholders; not an expense; reduce retained earnings.

Statement of Stockholders’ Equity

A financial statement that summarizes changes in common stock and retained earnings over a period.

Common Stock

Part of stockholders’ equity representing issued shares; reflects contributed capital.

Retained Earnings

Cumulative earnings kept in the business; increases with net income and decreases with dividends.

Ending Balance – Stockholders’ Equity

Ending total stockholders’ equity for the period (common stock + retained earnings).

Balance Sheet

A snapshot of financial position at a specific date; assets = liabilities + stockholders’ equity.

Assets

Resources owned by the company that have economic value.

Liabilities

Obligations to creditors; amounts the company owes.

Stockholders’ Equity

Owners’ claims to the company’s assets; = Assets − Liabilities.

Assets = Liabilities + Stockholders’ Equity

The fundamental accounting equation expressing that resources are financed by claims of creditors and owners.

Cash

Liquid asset; money on hand or in bank.

Accounts Receivable

Amounts due from customers; asset representing credit sales.

Inventory

Goods available for sale; asset.

Supplies

Consumable items used in operations; asset.

Equipment (net)

Long-term fixed assets net of depreciation; asset.

Notes Payable

A written promissory note; a liability.

Accounts Payable

Amounts owed to suppliers; a liability.

Salaries Payable

Accrued salaries; a liability.

Statement of Cash Flows

A financial statement showing cash receipts and payments categorized as operating, investing, and financing activities.

Operating Cash Flows

Cash flows from revenue and expense activities.

Investing Cash Flows

Cash flows from the purchase and sale of investments and long-term assets.

Financing Cash Flows

Cash flows from transactions with lenders and stockholders.

Comprehensive Income

Changes in equity from non-owner sources; includes items not in net income.

Nonowner Sources

Items that affect equity but are not due to transactions with owners (included in comprehensive income).

Linkages Among Financial Statements

Connections showing how net income affects stockholders’ equity, how ending equity links to the balance sheet, and how cash on the balance sheet links to the cash flow statement.

Beginning Balances

Starting balances for a period (often equal to ending balances from the previous period).