ACCT 3110 CH 5

Operating margin

(operating income divided by total revenues); indicates a company's ability to generate a profit from its operating activities after covering all of its operating costs.

Comprehensive income

the change in equity of a company during a period from transactions, other events, and circumstances relating to non-owner sources. It includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners.

Gross profit margin

(gross profit divided by total revenues); indicates a company's ability to generate revenues and control the costs of producing and delivering its products and services.

Net profit margin

(net income as a percent of total revenues); the bottom line proportion of profit per dollar of total revenues.

Cost of goods available for sale

Beginning inventory plus net purchases (includes gross purchases of inventory + freight costs + any other cost to acquire and prepare the inventory for sale - purchases returns - purchase discounts - purchase allowances)

Single-step income statement

a company classifies its items into two groups, revenues and expenses. The company computes its income from operations as the difference between the totals of the two groups.

Accrual accounting

a company records the financial effects of transactions and other events and circumstances in the periods when they occur rather than in the periods when it receives or pays cash.

Capital maintenance concept

a corporation's net income for a period of time is the amount that it could distribute to shareholders' without depleting the capital the shareholders have invested. It is the amount of money that can be distributed to shareholders as a return on capital, without being a return of capital.

Extraordinary item

an event or transaction that is unusual in nature and infrequent in occurrence.

Expenses

arise from outflows or using up assets or incurring liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that are the company's ongoing major or central operations.

Noncontrolling interests

component of equity that only arises when a parent company owns a majority of the common shares of a subsidiary company but does not own 100% of the shares.

Losses

decreases in the equity (net of assets) of a company from peripheral or incidental transactions and other events and circumstances during a period, except those that result from expenses or distributions to owners.

Rate of change analysis

frequently used to compute growth rates. Enables users to identify which items on the balance sheet and income statement are growing quickly or slowly over time.

Results from discontinued operations

included on the income statement directly after income from continuing operations. It includes the income/loss from the operations of the discounted component until the date of sale and the gain/loss from its sale, both of which are reported net of income tax.

Operating income (loss)

includes sales revenue, the various expenses related to these sales and business activities, and other income items related to operating activities.

Gross sales revenues (gross revenue)

increases in assets or settlements of liabilities from delivering or producing goods, rendering services, or other activities that are the company's ongoing major or central operations.

Revenues

increases in assets or settlements of liabilities from delivering or producing goods, rendering services, or other activities that are the company's ongoing major or central operations.

Gains

increases in the equity (net of assets) f a company from peripheral or incidental transactions and other events and circumstances during a period, except those that result from revenues or investments by owners.

Earnings per share (EPS)

investors and analysts often analyze this relative to the market price at which a stock currently is selling to determine the relative attractiveness of that stock.

Intraperiod tax allocation

involves appointing a corporation's total income tax expense for a period to the various components of its net income and other comprehensive income items (if any).

Interperiod tax allocation

involves assigning a corporation's tax obligation as an expense across various accounting periods because of temporary (timing) differences between its taxable income and pretax financial income.

Component

involves operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the company.

Return on common equity

measures the profitability of the company relative to the amount of equity capital invested by the common shareholders.

Net income

measures the results of the company's income-generating activities

Interest coverage ratio

most commonly computed coverage ratio; can be computed using operating income or cash flows from operations

Pretax income from continuing operations

operating income + or - interest expense, interest and dividend income, other gains and losses, and any unusual or nonrecurring gains and losses.

Multiple step income statement

presents income from continuing operations using various categories and subtotals, such as gross profit, operating income, and income from continuing operations.

Coverage ratios

provide insights about a company's risk and financial flexibility because they measure the ability to cover the interest charges associated with debt.

Realizable

refers to noncash resources that are convertible into cash or claims to cash, such as accounts or notes receivable that are reasonably certain to be collected.

Realized

refers to the actual exchange of noncash resources for cash or cash equivalents.

Earnings quality

refers to the extent to which a company's earnings are relevant and faithful representations of financial performance for the current period and enable financial statement users to develop reasonable expectations of future earnings.

Interim financial statements

reports for periods of less than a year. The SEC requires registrants to file interim reports on a quantity basis.

Income from continuing operations

reports the company's income from ongoing, recurring business activities.

Gain (loss) on the sale

second element of the results from discontinued operations section.

Systematic and rational allocation

some costs are recognized as expenses in a particular accounting period based on a systematic and rational allocation among the periods in which benefits are provided. This system should be based on the expected service life and the consumption of the resource

Immediate recognition

some costs are recognized as expenses in the current accounting period because the costs incurred during the period provide no probable future benefits. Ex: Management's salaries and most selling and administrative costs.

Association of cause and effect

some costs are recognized as expenses on the basis of a direct association with specific revenues. Some transactions result simultaneously in both a revenue and an expense

Cost of goods sold

the cost of the inventory items sold to customers during the period.

Net sales revenues (net revenues)

the gross sales revenues minus any sales returns or allowances given to customers and any sales discounts taken by credit customers.

Earnings management

the potential for companies to manipulate reported earnings within U.S. GAAP in order to report higher or lower earnings numbers.

Realization

the process of converting noncash resources into cash or rights to cash.

Revenue recognition

the process of formally measuring and reporting revenue in a company's financial statements. Revenue cannot be recognized until it has been earned and collection has occurred or is reasonably certain to occur.

Common-size analysis

typically expresses all of the amounts in terms of percentages of total revenues.