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40 Cards in this Set

  • Front
  • Back
Accounting Relation
An equation that expresses components of financial statements in terms of other components. 33
The way that financial statements relate to each other. 40
An investment that is expected to produce future payoffs. 34
Capital Gain
The amount by which the price of an investment changes. 46
Comprehensive Income
The total income reported (in the income statement and elsewhere in the financial statements). 39
Conservative Accounting
The practice of recording relatively low values for net assets on the balance sheets, or omitting assets altogether. 50
Dirty Surplus Accounting
Accounting that books income in the equity statement rather than the income statement. 39
A value given up in earning revenue that is recognized in the financial statements. 34
Fair Value
The term that accountants use for the value of an asset or liability. This terms means the market value, or an estimate of market value when a liquid market does not exist. 44
Changes in stocks between two points in time in financial statements. Compare with stocks. 40
Historical Cost Accounting
Records assets and liabilities at their historical cost, then (in most cases) amortizes the cost over periods to the income statement. 44
Intangible Asset
An asset without physical form. 45
A claim on payoffs from the firm other than by the owners. 34
Mark-to-market Accounting
Records assets and liabilities at their market value. 44
Market value added
The amount by which shareholder wealth increases in the market, plus any dividend received. It is equal to the stock return. 46
Matching Principle
The accounting principle by which expenses are matched with the revenues for which they are incurred. 46
Net Payout
Cash distributed to shareholders. 39
Reliability Criterion
The accounting principle that requires assets, liabilities, revenues, and expenses to be booked only if they can be measured with reasonable precision based on objective evidence. 49
Value received from customers that is recognized in the financial statements. 34
Revenue recognition principle
The accounting principle by which revenues are recognized in the income statement. 46
Shareholder value added
The (intrinsic) value added to shareholders' wealth during a period. 44
Stock return
the return to holding a share, equal to the capital gain plus dividend. 46
Stockholders' equity
The claim on payoffs by the owners (the stockholders) of the firm. 34
Balances at a point in time in the financial statements. Compare with flows. 40
Shareholder’s equity
= Assets – Liabilities
Net income
= Revenue – Expenses
Net revenue – Cost of goods sold =
= Gross margin
Gross margin – Operating expenses =
= Earnings before interest and tax (ebit)
Earnings before interest and tax – Net interest expense =
= Income before taxes
Income before taxes – Income taxes =
Income after taxes (and before extraordinary items)
Income before extraordinary items + Extraordinary items =
=Net income
Net income – Preferred dividends =
=Net income available to common
Cash from operations + Cash from investment + Cash from financing =
=Change in cash
Ending equity =
=Beginning equity + Total (comprehensive) income – Net payout to shareholders
Comprehensive income =
= Net income + Other comprehensive income
Intrinsic premium =
= Intrinsic value of equity – Book value of equity
Market premium =
Market price of equity – Book value of equity
Value added for shareholders =
= Ending value – Beginning value + Dividend
Articulation of the Financial Statements
Accounting Relations