accounting terminology

All of the property owned by the corporation

All of the debts that the company currently has outstanding to lenders

Company's ownership's interest in company assets, after all debts have been paid

any investment that will mature within 3 months

goods kept in stock, available for sale

Amounts due rom customers for goods or services that have already been delivered

items of value that cannot be readily converted into cash

amounts due to suppliers for goods or services that have already been received

amounts due to suppliers for goods or services that have already been received

Contractual obligations due to lenders

amounts invested by the owners of the company

sum of all net income over the life of the business that has not been distributed to owners in the form of a dividend

Those assets/liabilities expected to be converted into cash within 12 months

Those assets/liabilities NOT expected to be converted into cash within 12 months

• shows a company's financial performance over a period of time (usually one year)
• AKA- profit and loss statement (P&L)

shows a company's financial situation at a point in time

sum of a company's revenue minus Cost of Goods Sold

the amount that the company paid for the goods that it sold over the course of the period

those coming from the sale of the business's primary products or services

• The expenses related to the core operation of the business
• ex. rent, employee wages, insurance premiums

reports a company's cash inflows and outflows over a period of time

• Cash flow from operating activities
• Cash flow from investing activities
• Cash flow from financing activities

• Cash resulting from the purchase/sale of investments in financial securities (bonds/stocks)
• Cash resulting from the purchase/sale of capital assets (assets expected to last longer than one year)

• Related to transactions with the company's owners and creditors
• ex: cash received from new stock being issued, dividends being paid, cash received from a loan

Current ration = Current Assets / Current liabilities

• Quick ration= (Current Assets - Inventory) / Current liabilities
• *Note: excludes inventory to show worst case scenario

= Net Income / Total Assets

Net Income/ Shareholders' Equity

• Gross profit margin = (Sales - Cost of Goods Sold) / Sales
• Used to compare similar companies to see which one operates more efficiently

• Debt ratio = Liabilities / Assets
• Shows what portion of the company's assets have been financed with debt

• Debt to equity ratio = liabilities / Owners' equity
• Shows the ratio of financing vie debt compared to financing via capitol from investors

• Show how efficiently a company uses its assets
• Most comon: Inventory turnover, and accounts receivables turnover

cost of goods sold/ average inventory

= Beg. Inventory + End. Inventory / 2

Inventory period = 365 / inventory turnover

will increase an asset account, and will decrease a liability or owner's equity account

will decrease an asset account, and will increase a liability or owners' equity account

the place where all of a company's journal entries get recorded

• Sales are recorded when cash is received
• expenses are recorded when cash is sent out
• Does not always accurately reflect the financial situation

• Revenue and expenses are recorded the moment their respective services are provided or goods are received
• Makes up for time lags between payments and providing services

• Prepaid expenses are counted as an asset under the accrual method
• (ex. three months rent paid in advance)

Revenue already received for goods/services which have not been delivered (debt)

assets are recorded at the amount paid for them (even if price increases/decreases)

the impact that the transaction will have on a company's financial statements

that the dollar is a stable measure of value (no inflation)

That the company is a separate entity from its owners

expenses must be matched to the revenues that the help generate, and must be recorded in the same period in which revenues are recorded.

spreading out the cost of a capital asset over several years

Cost of an asset is spread out evenly throughout the expected life of the asset

The value that the asset is expected to have after the planned number of years of use

• the process in which an intangible asset's cost is spread out over the asset's life
• Usually, straight line method is used over the shorter between 1) asset's expected useful life, or 2) the assets legal life
• Ex. A patent that is valid for 30 years

Keeping real-time information on inventory levels

• system in which inventory is counted at regular intervals
• Beg. Invent. + Inv. Purchases - End. Invent. = Cost of Goods Sold

• assumption that the oldest units of inventory are always sold first
• used in calculating Cost of Goods Sold

• assumption that the newest units of inventory are always sold first
• used in calculating Cost of Goods Sold

(Beg. Invent. + Purchases in dollars) / (Beg. Invent. + Purchases in units)