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| the system of recording, classifying and reporting financial information. the language of business |
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| snapshot of the current financial situation of a business |
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| what the company currently has available for use. Can be money, land, liabilities, inventory, shareholder equity... |
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| a promise to pay a supplier. Transfer of goods has happened but transfer of cash has not |
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| what owners (shareholders, business owner) take out for personal use. Basically the business gives the stockholders a cash payment. its considered the only way for the stockholders to benefit without giving up their portion of the company |
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stockholders equity
formula |
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Definition
portion of assets free from liabilities.
assets-liabilities = stockholder equity |
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| Amount contributed by stock holders to purchase stock. |
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| net income since incorporation that wasnt distributed as dividends |
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| selling to gain net income |
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| the need for investing in property, equipment or even other companies |
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Definition
| how a company finances its assests |
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Definition
| rules for privately geld companies for preparing financial statements. Use historical cost principle |
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| Historical cost principle |
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Definition
| the idea that assets should be recorded at a price originally paid for them instead of current worth. Criticized for being outdated |
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| statement of stockholder equity |
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Definition
| shows whether net income for a particular period is distributed as dividends or kept as retained income |
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| reports inflow and outflow of cash for a particular period |
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Definition
| rules with the intention of forming a single set of global standards. |
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Definition
| amount of assets (shown as a %) funded by liabilities. L/A = DR |
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Definition
how efficiently a company uses its assets
sales ratio/total assets = asset turnover |
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return on sales ratio
formula |
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Definition
| measures the profitability of each dollar of revenue. shown as %. Net income/ sales revenue= return on sales ratio |
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return on assets ratio
formula |
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Definition
shows how efficently assets are used to generate profit. Net income/total assets=return on assets ratio= asset turnover/return on sales
depends on controlling expenses to keep income high. the broadest measure of profitability |
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Term
trend analysis
formula of trend index |
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Definition
compares figure of a particular year to a base year.
(current amount/base amount) x100= trend index |
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Term
| common size income statement |
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Definition
| compares all revenues and expenses of one particular year to those of a current year. shows income statement as a % of revenue |
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| common size balance sheet |
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Definition
| compares liabilities and equity of 1 year to total assets of the same year as a % for that year |
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