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easoning &
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© 2014 Pacific Crest
M
athematical Language
Terms and notation
balance sheet
— also known as
statement of financial position
, the balance sheet lists the
assets and liabilities of an organization at a specific moment in time. The accounting equation,
Assets = Liabilities + Shareholder’s Equity
is used to ensure that the balance sheet balances.
assets
— all
items of value that the company has a right to use
●
current assets
—assets that can easily be converted into cash, which include the categories:
cash and cash equivalents, accounts receivable and inventory
●
long-term assets
— assets that are not easily converted to cash. These assets can be
tangible (e.g. machinery, buildings) or non-tangible (e.g. patents, copyright, patents).
liabilities
— amounts that are owed to creditors or debt owed to a third party
●
current liabilities
— debts or financial obligations that must be paid within one year of the
date on the balance sheet
●
long-term liabilities
— debts and other financial obligations that are due over one year
from the date on the balance sheet
stockholder’s equity
— the portion of the assets that the company owns free and clear. Represents
a company’s net worth; the difference between the assets and the liabilities. Can be classified
as
contributed capital
(amount paid by shareholders to purchase common or preferred stock)
and/or
retained earnings
(net income earned by the company since its incorporation and not yet
distributed as dividends to the shareholders).
retained earnings
— the part of a company’s income kept to accumulate, after dividends are paid
income statement
— also known as
P&L
(profit and loss) statement or statement of earnings, the
income statement summarizes a company’s revenues and expenses for a fiscal year
The components of the income statement include:
total revenue
— also known as net sales or revenues, the total revenue represents the money the
company receives for the sales of its goods or services
cost of goods sold (COGS)
— also known as cost of sales or cost of revenue, COGS will include
different information depending on the type of company. In manufacturing COGS represents the
expenditure on materials, labor, and overhead utilized in the production of the goods that are
sold. In retail, COGS is the purchase price of the goods that are then resold. In service related
businesses, COGS is the cost of the services rendered. In all cases, any applicable depreciation
would be listed under COGS.
gross profit
— also known as
gross income
, gross profit is the difference between the total
revenue and the COGS
operating expenses
— includes selling, general, and administrative expenses, which is why it
is also known as SG&A
operating income
— the difference between gross profit and operating expenses yields the
operating income
interest expense
— payment of the interest on any bonds etc. that are issued