Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

26 Cards in this Set

  • Front
  • Back
balance sheet
a financial snapshot

of all the assets the company owns

and all the claims against those assets.
assets = ___ + ____
liabilities + shareholders' equity
current asset
any asset or liability that will turn into cash within one year. all else is long-term
measure the extent to which net sales generated during the accounting period exceeded expenses incurred in producing the sales
earnings aka
profits or income
accrual principle means
revenue is recognized

at time of sale

not when customer pays
two types of depreciation
straight line

accelerated depreciation
more depreciation in early years of asset's life
two sets of financial records
managing and reporting to shareholders

minimize taxes
net income
net profit
proverbial bottom line
total revenue less total expenses
operating income
profit from day-to-day operations excluding taxes, interest income, expense, and extraordinary items
pro forma earnings aka
core earnings
ongoing earnings
operating earnings
pro forma earnings
total revenues less total expenses, omitting any and all expenses the company believes might cloudinvestor perceptions of the true earning power of the business.
a company generates cash in two ways:
by reducing an asset

increasing a liability
cash flow statement classifies the cash flows according to
operating activities

long term investing activities

financing activities
cash is used in two ways
to increase an asset account

to reduce a liability account
sources and use statements
poor man's cash flow statement

total use must equal total source

place balance sheets side by side and see if source or use
increases in liabilities and decreases in assets are
sources of funds
increases in assets and decreases in liabilities are
uses of funds
The value of a business to a purchaser over and above its net asset value. It reflects the value of intangible assets like:

* reputation
* brand name
* good customer relations
* high employee morale

and other factors which improve the company's business.
liquidate gradually

the distribution of a single lump-sum cash flow into many smaller cash flow installments, as determined by an amortization schedule.
amortization (accounting)
gradual recognition of certain expenses associated with intangible assets

such as trademarks, copyrights, goodwill and so on,

typically over a period of several years.
cash flow
movement of money

into or out of a cash account

over a period of time
book value definition
1. The value at which an asset is carried on a balance sheet.

2. The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.
uses of book value
the accounting value of a firm.

1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated.

2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced.
What's the difference between book and market value?
Book value is the price paid for a particular asset. This price never changes so long as you own the asset.

On the other hand, market value is the current price at which you can sell an asset.

For example, if you bought a house 10 years ago for $300,000, its book value for your entire period of ownership will remain $300,000. If you can sell the house today for $500,000, this would be the market value.

Book values are useful to help track profits and losses. If you have owned an investment for a long period of time, the difference between book and market values indicates the profit (or loss) incurred.