Financial Definitions

Front 1

Financial Statement

Back 1

Formal report of financial activities

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Components of a Financial Statement

Back 2

Balance Sheet
Income Statement
Statement of Earnings Retained
Statement of Cash Flows

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Balance Sheet

Back 3

Also referred to as statement of financial position or condition, reports on a company's assets, liabilities, and Ownership equity at a given point in time.

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Income Statement

Back 4

Also referred to as Profit and Loss statement (or a "P&L"), reports on a company's income, expenses, and profits over a period of time. Profit & Loss account provide information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state.

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Statement of Earnings Retained

Back 5

Explains the changes in a company's retained earnings over the reporting period.

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Statement of Cash Flows

Back 6

Reports on a company's cash flow activities, particularly its operating, investing and financing activities

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Define and equate: assets, liabilities, equity

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Assets future gains currently possessed as result of prior transaction; liabilities future losses currently owed as result of prior transaction; equity is the residual interest of assets after deducing liability
Equity = Assets - Liabilities
Assets = Equity + Liabilities
Liabilities = Assets - Equity

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Define revenue, expense, gain, loss

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Revenue = Inflow / resolution of liabilities as result of production; Expenses = Outflow / creation of liabilities as result of production; Gains = increase in equity except by revenue / investment by owner; Losses = decrease in equity except those from expenses or distribution to owners

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Define net income; expanded def. of assets

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Net income = Revenue - Expense + Gain - Loss
*Assets = Equity + Liabilities (+ Revenue - Expenses) (+ Gains - Losses)

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Define change in owner's equity, ending owner's equity, ending assets

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Change in owners equity = Investment by owner + revenue - expenses + gain - loss
Ending owner's equity = Beginning owner's equity + Revenue - Expenses + Gain - Loss
Ending Assets = Ending Liabilities + Ending Owner's equity

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Components of balance sheet

Back 11

Assets, liabilities, owner's equity

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Components of income statement

Back 12

Revenues, expenses, gains, losses

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Construction of balance sheet

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Debit: Assets; Credit: Liabilities, Owner's Equity; Increases reported on own side; decreases reported on opposite side

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Construction of Income statement

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Debit: Expenses, losses; Credit: Revenues, gains; Increases reported on own side; decreases reported on opposite side

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relate A, E, OE, R, L

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A+E=OE+R+L ; or debit accounts = credit accounts