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Accounts payable Equity Retained earnings (income statement)


Accounts receivable Financial statements Revenue
Accumulated depreciation Fixed assets Sales
Amortization Goodwill Share capital
Assets Income statement Share premium
Balance sheet Intangible fixed assets Shareholders equity
Capital Inventory Shareholders funds
Capital assets Liabilities Shares
Capital employed Loan capital Statement of earnings
Capital in excess of par value Net book value Stock
Capital stock Tangible fixed assets
Cash flow statement Turnover
Common shares N, O, P, R 5 Working capital

Net earnings
C, D, E 3 Net income
Operating profit
Common stock Ordinary shares
Contributed surplus Payables
Creditors Preference shares
Current assets Preferred stock
Current liabilities Profit and loss account
Debt Profit before interest and income taxes
Debt capital (PBIT)
Debtors Receivables
Depreciation Reserves
Dividends Retained earnings (balance sheet)
Earnings before interest and income taxes
(EBIT)

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Definitions
Accounts payable Amounts owed by an organization to Capital assets See tangible fixed assets.
Synonyms: payables, others for goods or services received.
creditors Buying from suppliers on credit will Capital employed Capital employed represents the
generate accounts payable. Synonyms: capital funds provided to an organization in
the form of equity or debt.
Accounts receivable Amounts due to an organization
Synonyms: receivables, for goods delivered or services Capital in excess of See contributed surplus.
debtors rendered. Selling to customers par value
on credit will generate accounts
receivable for a business. Capital stock There are two types of stock -
Synonyms: stock, shares, common stock and preferred stock.
Accumulated See depreciation. share capital Most shares tend to be common
depreciation stock and generally carry one vote
each and carry an equal right to a
Amortization See depreciation. proportionate share of dividends.
Capital stock is not a liability in the
Assets Resources owned and employed by sense of other sources of funds (e.g.
an organization which confer future bank loans) since it is not generally
economic benefits. paid back to shareholders unless the
company is wound up.
Balance sheet The balance sheet is a snapshot of
an organizations assets and Cash flow statement The cash flow statement is a
liabilities on a particular date. The summarized bank statement that
balance sheet shows the sources of shows an organizations sources
funds provided to an organization of cash during the financial year
(called the capital employed and and the ways in which the cash has
normally either equity or debt) and been used during that period (e.g.
how those funds have been used investments, fixed asset purchases,
by the organization to invest in fixed etc.).
assets (assets the organization
intends to keep for more than one Common shares See common stock.
year) and working capital (money tied
up in the day to day operations of the
business).

Capital See capital employed.

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Definitions
Common stock Most shares tend to be common Debt capital See debt.
Synonyms: common stock carrying one vote each and
shares, ordinary shares with an equal right to a proportionate Debtors See accounts receivable.
share of dividends. Common stock
dividends tend to rise as profits grow. Depreciation Depreciation of fixed assets is the
This is in contrast to preferred stock Synonyms: amortization process of allocating part of the
where the dividend tends to be fixed. cost of fixed assets to a particular
accounting period. Depreciation
Contributed surplus Most stock is originally issued with is normally charged to the income
Synonyms: share premium, a nominal / par value attached to statement on a straight line basis
capital in excess of par it (e.g. 1 share in ABC Inc. has a (although there are alternative
value nominal value of $1.00). However, methods available). For example, if
if shareholders buy shares from the a car is bought for $15,000, has an
company for more than the nominal expected life of 5 years, and has a
value (e.g. $1.50) the excess is called residual value (expected scrap value)
the contributed surplus. of $5,000, then the depreciation
expense in the income statement will
Creditors See accounts payable. be $2,000 per year for 5 years. The
value of the car in the balance sheet
Current assets Current assets are all assets other would start at $15,000 but would
than fixed assets. They are either be reduced by $2,000 a year. At
cash or assets expected to be the end of year 1 the net book value
converted into cash or consumed in (NBV) of the car in the balance sheet
the business during the year. Current would be $13,000. At the end of year
assets include items such as cash, 2, the NBV would be $11,000. The
accounts receivable and inventory. accumulated depreciation for the car
at the end of year 2 would be
Current liabilities An organizations liabilities due within $4,000.
one year. Current liabilities include
items such as short term loans, any Dividends A share of a companys net profits
element of long term loans due within distributed by the company to a class
one year, and accounts payable. of its stockholders.

Debt Capital used to finance an Earnings before See operating profit.


Synonyms: debt capital, organization that is subject to interest and income
loan capital payment of interest over the life of the taxes (EBIT)
loan, at the end of which the loan is
normally repaid.
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Definitions
Equity Total assets less total liabilities. Also Income statement The income statement is an
Synonyms: shareholders called shareholders equity, net worth Synonyms: profit and loss organizations financial history
equity, shareholders funds or book value. account, P & L statement, book and summarizes the revenue,
statement of earnings expenses and operating profit for the
Financial statements Statements, in financial terms, of financial year. It also shows the tax
the financial position of an entity at charged against profit, how much of
a given date, or of the results of its the profit for the year has been paid
operations for a given period. The out in dividends and how much has
statements are normally prepared in been retained in the business.
one of a number of standard formats.
Most commonly, when people refer to Intangible fixed Intangible fixed assets have no
financial statements, they mean the assets physical presence. Examples
income statement, the balance sheet, include patents, goodwill, trademarks
the cash flow statement and the and brand names.
related notes to the accounts.
Inventory Inventory normally refers to items
Fixed assets Assets intended for use on a held for resale and may include
continuing basis in an organizations raw materials, work in progress and
activities (normally defined as assets finished goods.
an organization intends to keep for
more than one year). There are three Liabilities Money owed, or other financial
categories of fixed assets: intangible, obligations to other organizations
tangible and investments. Liabilities and individuals.

Goodwill When one company buys another Loan capital See debt.
company it typically pays more than
the book value of the net assets Net book value Net book value typically refers
acquired (because it is acquiring to property plant and equipment
staff, name / reputation, and customer (PP&E). The net book value of PP&E
relationships). This excess of the is calculated by taking the total
purchase price over the fair book gross cost of PP&E and deducting
value of the net assets is called total accumulated depreciation /
goodwill. Goodwill is normally amortization.
included in the balance sheet as an
intangible fixed asset.

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Definitions
Net earnings The profits retained by an Preferred stock Preferred stock has preferential rights
Synonyms: net income, organization after all expenses Synonyms: preference over common stock to both dividends
retained profit for the year, including interest expenses, taxes shares and also to assets in the event that a
retained earnings for the and dividends. The retained company is wound up (i.e. preferred
year
profits / earnings for a given year are stock holders are paid out before
reinvested in the business (hopefully common stock holders). Typically
making the organization grow, and preferred stock dividends are fixed
increasing the value of its shares) and (e.g. 6 percent preferred stock) and
are added to retained earnings in do not increase with rising profits.
the balance sheet (which represent
all retained profits accumulated over Profit and loss See income statement.
an organizations entire life to date account
which have been reinvested in the
business). Profit before interest See operating profit.
and income taxes
Net income See net earnings. (PBIT)

Operating profit Sales revenues less all operating Receivables See accounts receivable.
Synonyms: earnings before expenses. Operating profit is
interest and income taxes calculated before financing costs and Reserves Reserves are part of shareholders
(EBIT), profit before interest taxes. It is often referred to as EBIT. equity. Reserves are subdivided
and income taxes (PBIT)
into revenue reserves (e.g. retained
earnings), which are available to
Ordinary shares See common stock. be distributed to the shareholders
by way of dividends, and capital
Payables See accounts payable. reserves (e.g. contributed surplus),
which for various reasons are not
Preference shares See preferred stock. distributable as dividends.

Retained earnings Retained earnings in the balance


(balance sheet) sheet represent all retained profits
Synonyms: P & L reserve, accumulated over an organizations
Retained earnings reserve entire life to date which have been
reinvested in the business. As the
retained earnings ultimately belong
to shareholders, they are included as
part of shareholders equity.

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Definitions
Retained earnings See net earnings. Working capital Working capital is normally defined
(income statement) as money tied up in the day to day
operations of an organization. It is
Revenue Revenue includes both cash sales approximately equal to current assets
Synonyms: sales, sales and credit sales of goods and less current liabilities. However, many
revenue, turnover services, but does not include the analysts will define working capital
sale of fixed assets. more explicitly as inventory and
accounts receivable less accounts
Sales See revenue. payable (and exclude other current
assets / liabilities such as cash and
Share capital See capital stock. non-trade receivables and payables).

Share premium See contributed surplus.

Shareholders equity See equity.

Shareholders funds See equity.

Shares See capital stock.

Statement of See income statement.


earnings

Stock See capital stock.

Tangible fixed Tangible fixed assets are fixed assets


assets that have physical presence and
Synonyms: capital assets include things like land, buildings,
machinery, equipment, computers
and so on.

Turnover See revenue.

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