Assets
Things that are resources owned by a company and which have future economic value that can be
measured and can be expressed in dollars. Examples include cash, investments, accounts receivable,
inventory, supplies, land, buildings, equipment, and vehicles.
Cash
A current asset account which includes currency, coins, checking accounts, and undeposited checks
received from customers. The amounts must be unrestricted. (Restricted cash should be recorded in a
different account.)
Investments
The long term asset category of a classified balance sheet which appears immediately after the current
assets. Listed in this category would be a bond sinking fund, funds held for construction, the cash
surrender value of a life insurance policy owned by
Accounts Receivable
A current asset resulting from selling goods or services on credit (on account). Invoice terms such as (a)
net 30 days or (b) 2/10, n/30 signify that a sale was made on account and was not a cash sale.
Inventory
A current asset whose ending balance should report the cost of a merchandiser's products awaiting to be
sold. The inventory of a manufacturer should report the cost of its raw materials, work-in-process, and
finished goods. The cost of inventory should in
Prepaid Expense
A current asset representing amounts paid in advance for future expenses. As the expenses are used or
expire, expense is increased and prepaid expense is decreased.
Current Assets
Cash and other resources that are expected to turn to cash or to be used up within one year of the
balance sheet date. (If a company's operating cycle is longer than one year, an item is a current asset if it
will turn to cash or be used up within the ope
Long Term Assets
Non-current assets. Assets that are not intended to be turned into cash or be consumed within one year of
the balance sheet date. Long term assets include long term investments, property, plant, equipment,
intangible assets, etc.
Property, Plant, and Equipment
A major classification on the balance sheet. It is the second long term asset section after current assets.
Included are land, buildings, leasehold improvements, equipment, furniture, fixtures, delivery trucks,
automobiles, etc. that are owned by the comp
Goodwill
Goodwill is a long-term asset categorized as an intangible asset. Goodwill arises when a company
acquires another entire business. The amount of goodwill is the cost to purchase the business minus the
fair market value of the tangible assets, the intangib
current liabilities
Obligations due within one year of the balance sheet date. (If a company's operating cycle is longer than
one year, an item is a current liability if it is due within the operating cycle.) Another condition is that the
item will use cash or it will create
common stock
The type of stock that is present at every corporation. (Some corporations have preferred stock in
addition to their common stock.) Shares of common stock provide evidence of ownership in a corporation. Holders of common stock elect the corporation's dire
accounts payable
This current liability account will show the amount a company owes for items or services purchased on
credit and for which there was not a promissory note. This account is often referred to as trade payables
(as opposed to notes payable, interest payable,
SHORT-TERM DEBT
An account shown in the current liabilities portion of a company's balance sheet. This account is comprised of any debt incurred by a company that is due within one year. The debt in this account is usually made up of short-term bank loans taken out by a
long term liabilities
Obligations of the enterprise that are not payable within one year of the balance sheet date. Two
examples are bonds payable and long term notes payable.
LONG-TERM DEBT
Long-term debt consists of loans and financial obligations lasting over one year. Long-term debt for a company would include any financing or leasing obligations that are to come due in a greater than 12-month period. Long-term debt also applies to govern
deferral
In accounting this means to defer or to delay recognizing certain revenues or expenses on the income
statement until a later, more appropriate time. Revenues are deferred to a balance sheet liability account
until they are earned in a later period. When t
DEFERRED LONG-TERM LIABILITY CHARGES
A collection of future company liabilities that will typically be summed up and shown as one line item on the balance sheet. The charges are most often made up of deferred-tax liabilities that are to be paid more than one year in the future; depending on
SHAREHOLDERS' EQUITY
A firm's total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity represents the amount by which a company is financed through common and preferred shares.
RETAINED EARNINGS
Retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt. It is recorded under shareholders' equity on the balance sheet.
The formula calculates retain
TREASURY STOCK (TREASURY SHARES)
The portion of shares that a company keeps in their own treasury. Treasury stock may have come from a repurchase or buyback from shareholders; or it may have never been issued to the public in the first place. These shares don't pay dividends, have no vot
CAPITAL STOCK
The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents the size of the equity position of a firm and can be found on the balance sheet (or notes) of a typical financial statement. Fi
EQUITY
Equity is the value of an asset less the value of all liabilities on that asset.
FISCAL YEAR - FY
A period that a company or government uses for accounting purposes and preparing financial statements. The fiscal year may or may not be the same as a calendar year. For tax purposes, companies can choose to be calendar-year taxpayers or fiscal-year taxpa
Revenue
The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure from which costs are subtracted to determine net income.
Revenue is c
COST OF GOODS SOLD - COGS
Cost of goods sold (COGS) are the direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes
GROSS PROFIT
A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.
OPERATING EXPENSE
A category of expenditure that a business incurs as a result of performing its normal business operations. One of the typical responsibilities that management must contend with is determining how low operating expenses can be reduced without significantly
RESEARCH AND DEVELOPMENT (R&D) EXPENSES
Any expenses associated with the research and development of a company's goods or services. R&D expenses are a type of operating expense that can be deducted as such on the business tax return. This type of expense is incurred in the process of finding an
SELLING, GENERAL & ADMINISTRATIVE EXPENSE - SG&A
Reported on the income statement, it is the sum of all direct and indirect selling expenses and all general and administrative expenses of a company.
Direct selling expenses are expenses that can be directly linked to the sale of a specific unit such as c
NONRECURRING CHARGE
An entry that appears on a company's financial statements for a one-time expense that is unlikely to happen again. A nonrecurring charge is a one-time charge for an unpredictable event.
Also known as a nonrecurring item.
OPERATING INCOME
The amount of profit realized from a business's operations after taking out operating expenses - such as cost of goods sold (COGS) or wages - and depreciation. Operating income takes the gross income (revenue minus COGS) and subtracts other operating expe
INCOME
Money that an individual or business receives in exchange for providing a good or service or through investing capital. Income is consumed to fuel day-to-day expenditures. Most people age 65 and under receive the majority of their income from a salary or
EXPENSE
1. The economic costs that a business incurs through its operations to earn revenue. In order to maximize profits, businesses must attempt to reduce expenses without also cutting into revenues. Because expenses are such an important indicator of a busines
EARNINGS BEFORE INTEREST & TAX - EBIT
An indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is also referred to as "operating earnings", "operating profit" and "profit before interest and taxes (PBIT)."
EBIT = Revenue - Operating Exp
INTEREST EXPENSE
The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. It represents interest payable on any type of borrowings - bonds, loans, convertible debt or lines of credit. It is basically cal
Income B/F Taxes
An indicator of a company's financial performance calculated as revenue minus expenses, excluding tax. EBT is a line on the company's income statement that shows how much the company has earned after the cost of goods sold, interest and selling, general a
Income Tax Expense
Income tax expense is the amount of expense that a business recognizes in an accounting period for the government tax related to its taxable profit. The amount of income tax expense recognized is unlikely to exactly match the standard income tax percentag
UNCONSOLIDATED SUBSIDIARY
A company that is owned by a parent company, but whose individual financial statements are not included in the consolidated or combined financial statements of the parent company to which it belongs. Instead, this type of company appears in the combined f
MINORITY INTEREST
1. A significant but non-controlling ownership of less than 50% of a company's voting shares by either an investor or another company.
2. A non-current liability that can be found on a parent company's balance sheet that represents the proportion of its s
CONTINUING OPERATIONS
Continuing operations is a business term used to describe the segments of a company's business that it considers to be normal, and expects to operate in for the foreseeable future. We most often see continuing operations referenced in earnings reports as
DISCONTINUED OPERATIONS
A segment of a company's business that has been sold, disposed of or abandoned. Discontinued operations can range from a certain product line to an entire line of business. When operations are discontinued, this is reported on the company's income stateme
EXTRAORDINARY ITEM
Gains or losses included in a company's financial statements, which are infrequent and unusual in nature. These are usually explained further in the "notes to the financial statements.
ACCOUNTING CHANGE
A change in accounting principles, accounting estimates, or the reporting entity. A change in an accounting principle is a change in a method used, such as using a different depreciation method or switching from LIFO to FIFO. An example of an accounting e
NET INCOME - NI
1. A company's total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. This number is found on a company's income statement and is an important