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Financial Accounting Key Concepts

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  • Assets

    Resources owned by the company.

  • Liabilities

    Debts owed to outsiders.

  • Equity

    Ownership interest and reinvested earnings.

  • Revenues

    Sales from goods or services.

  • Expenses

    Costs used up in generating revenue.

  • Income Statement

    Shows profitability of a company.

  • Balance Sheet

    Shows financial position at a point in time.

  • Retained Earnings

    Net income less dividends paid to shareholders.

  • Cash Flow Statement

    Shows sources and uses of cash during a period.

  • Liquidity

    Ability to repay short-term debt.

  • Solvency

    Ability to repay long-term debt.

  • Profitability

    Ability to generate profit.

  • Annual Report

    Contains the four main financial statements.

  • Net Income Formula

    Net Income = Revenues - Expenses

  • Retained Earnings Formula

    Retained Earnings = Beginning Retained Earnings + Net Income - Dividends

  • Equity Formula

    Equity = Assets - Liabilities

  • Balance Sheet Equation

    Assets = Liabilities + Equity