finance topic 2

Front

What is the purpose of the Income Statement?

Back

It measures the results of a firm’s operation over a specific period, showing the firm’s profit or loss.

Front

What is the formula for calculating profits in the Income Statement?

Back

Sales − Expenses = Profits

Front

What are the three main types of financial statements?

Back

1. Income Statement 2. Balance Sheet 3. Statement of Cash Flow

Front

What does the Balance Sheet provide?

Back

A snapshot of a firm’s financial position at a particular date, including assets, liabilities, and owner-supplied capital.

Front

What is the accounting equation represented in the Balance Sheet?

Back

Assets (A) = Liabilities (L) + Owner’s Equity (E)

Front

What are current assets?

Back

Assets that are relatively liquid or expected to be converted into cash within 12 months, such as cash, accounts receivable, and inventory.

Front

What are fixed assets?

Back

Assets that will be used for more than one year, including machinery, equipment, buildings, and land.

Front

What is the definition of liabilities?

Back

Money that has been borrowed from a creditor and must be repaid at a predetermined date.

Front

What is equity in the context of a Balance Sheet?

Back

Shareholder’s investment in the firm, including preferred stock, common stock, and retained earnings.

Front

What is Net Working Capital?

Back

Net Working Capital = Current assets − current liabilities; it indicates a firm's ability to repay its debt.