Financial Accounting Terms and Definitions
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Certified Public Accountant (CPA)
An individual who has met certain criteria and is thus allowed to perform audits of corporations. (p. 1-17).
Corporation
A business organized as a separate legal entity owned by stockholders. (p. 1-3).
Dividends
Payments of cash from a corporation to its stockholders.
Expenses
The cost of assets consumed or services used in the process of generating revenues. (p. 1-8).
Income Statement
A financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time. (p. 1-10).
Liabilities
Amounts owed to creditors in the form of debts and other obligations. (p. 1-7).
Management Discussion and Analysis
A section of the annual report that presents management's view on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations. (p. 1-16).
Net Income
The amount by which revenues exceed expenses. (p. 1-9).
Net Loss
The amount by which expenses exceed revenues. (p. 1-9).
Notes to the Financial Statements
Notes clarify information presented in the financial statements and provide additional detail. (p. 1-16).
Partnership
A business owned by two or more persons associated as partners. (p. 1-3).
Retained Earnings
The amount of net income retained in the corporation. (p. 1-11).
Retained Earnings Statement
A financial statement that summarizes the amounts and causes of changes in retained earnings for a specific time period. (p. 1-11).
Revenue
The increase in assets or decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of business. (p. 1-8).
Sarbanes-Oxley Act (SOX)
Regulations passed by Congress to reduce unethical corporate behavior. (p. 1-6).
Sole Proprietorship
A business owned by one person. (p. 1-3).
Statement of Cash Flows
A financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time. (p. 1-12).
Stockholders' Equity
The owners' claim to assets. (p. 1-11).