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40 Cards in this Set
- Front
- Back
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Accounting Relation
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An equation that expresses components of financial statements in terms of other components. 33
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Articulation
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The way that financial statements relate to each other. 40
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Asset
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An investment that is expected to produce future payoffs. 34
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Capital Gain
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The amount by which the price of an investment changes. 46
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Comprehensive Income
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The total income reported (in the income statement and elsewhere in the financial statements). 39
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Conservative Accounting
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The practice of recording relatively low values for net assets on the balance sheets, or omitting assets altogether. 50
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Dirty Surplus Accounting
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Accounting that books income in the equity statement rather than the income statement. 39
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Expense
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A value given up in earning revenue that is recognized in the financial statements. 34
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Fair Value
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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
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Flows
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Changes in stocks between two points in time in financial statements. Compare with stocks. 40
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Historical Cost Accounting
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Records assets and liabilities at their historical cost, then (in most cases) amortizes the cost over periods to the income statement. 44
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Intangible Asset
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An asset without physical form. 45
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Liability
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A claim on payoffs from the firm other than by the owners. 34
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Mark-to-market Accounting
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Records assets and liabilities at their market value. 44
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Market value added
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The amount by which shareholder wealth increases in the market, plus any dividend received. It is equal to the stock return. 46
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Matching Principle
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The accounting principle by which expenses are matched with the revenues for which they are incurred. 46
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Net Payout
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Cash distributed to shareholders. 39
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Reliability Criterion
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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
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Revenue
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Value received from customers that is recognized in the financial statements. 34
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Revenue recognition principle
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The accounting principle by which revenues are recognized in the income statement. 46
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Shareholder value added
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The (intrinsic) value added to shareholders' wealth during a period. 44
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Stock return
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the return to holding a share, equal to the capital gain plus dividend. 46
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Stockholders' equity
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The claim on payoffs by the owners (the stockholders) of the firm. 34
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Stocks
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Balances at a point in time in the financial statements. Compare with flows. 40
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Shareholder’s equity
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= Assets – Liabilities
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Net income
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= Revenue – Expenses
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Net revenue – Cost of goods sold =
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= Gross margin
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Gross margin – Operating expenses =
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= Earnings before interest and tax (ebit)
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Earnings before interest and tax – Net interest expense =
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= Income before taxes
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Income before taxes – Income taxes =
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Income after taxes (and before extraordinary items)
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Income before extraordinary items + Extraordinary items =
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=Net income
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Net income – Preferred dividends =
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=Net income available to common
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Cash from operations + Cash from investment + Cash from financing =
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=Change in cash
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Ending equity =
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=Beginning equity + Total (comprehensive) income – Net payout to shareholders
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Comprehensive income =
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= Net income + Other comprehensive income
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Intrinsic premium =
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= Intrinsic value of equity – Book value of equity
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Market premium =
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Market price of equity – Book value of equity
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Value added for shareholders =
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= Ending value – Beginning value + Dividend
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Articulation of the Financial Statements
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Accounting Relations
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