Term
| How are financial statements used by business? |
|
Definition
| They are used by the business for internal control of finacne. Datoa from statements are sued to rack the company's record, present status, and future financial direction. |
|
|
Term
| Compare variable and fixed expenses. |
|
Definition
| Variable expenses are expenses that we have control over as individuals. Fixed expenses for the individual are contractual in nature such as mortgage payments, insurance payments, and lease payments; and we have little or no control over them. Variable expenses from the business view are related costs of goods sold. Fixed expenses for a business are normally considered to be operating expenses. |
|
|
Term
| Describe the basic format on an income statement, listing all its sections. |
|
Definition
| The income statement has a beginning and end date, the name of the company, and provides information from total revenues subtracting all expenditures until we arrive at net income. Its sections include Gross Sales, Returns and Allowances, Net Sales, Cost of Goods Sold, Operating Expenses, Operating Income, Interest Expense, Taxes (for a corporation), and Net Income. |
|
|
Term
| What is the primary difference between the income statement of a sole prorietorship or partnership and the incmoe statement of a corporation? |
|
Definition
| The primary difference is that the incmoe statement for a sole proprietorship or partnership does not show a line for income taxes as they flow through to the owner's individual tax return. The corporate income statement shows an entry for taxes, which are the corporate income taxes paid by the corporation |
|
|
Term
| What is a personal statement of financial position? |
|
Definition
| It is a personal balance sheet that lists all items that are owned (assets) by the individual and all items that are owed (liabilities) by the individual at a specific point in time (as of date) as a result, net worth can be determined. |
|
|
Term
| What is the difference between the time periods listed on an income statement and on a balance sheet? |
|
Definition
| An income statement has a beginning and an ending date and a balance sheet has an as of date. Expample: Income statmeetn from Jan. 1 through Dec. 31, 2006. Balance sheet as of December 31, 2006. |
|
|
Term
| What is the importance of liquidity? |
|
Definition
| Liquidity is a measure of how fast an asset can be converted to cash. If a business does not have sufficient liquidity it will not be able to pay off short-term creditors on time. This affects the busuiness' cretdit rating and ability to borrow funds. |
|
|
