MGTA02H3 Chapter Notes - Chapter 9: Share Capital, University Of Toronto Scarborough, Net Profit
University Of Toronto Scarborough (UTSC) Date: March 12, 2018
Course: MGTA02 (Winter)
Professor: Chris Bovaird
Shahriyar Safavi
Week 9 – Measuring Performance: The Financial Statements
Terminology
1. Income Statement: The financial statement that shows how much revenue the business
generated, and the costs incurred, in the course of making and selling products.
2. Cost of Sales: The cost of making the product itself, and omits all of the administrative
costs of running the business.
3. Gross Profit: Revenue minus costs of sales. The profit that comes from selling products.
4. Operating Expense: The cost of running the business organisation, as opposed to the
cost of making the product.
5. Operating Profit: The profit made from operating a business that sells products.
6. Interest Expense: The interest costs of borrowing money to finance the business.
7. Net Profit: The result after all of the business’ costs and expenses are deducted from its
revenues. Net profit represents the benefit, or the return, from owning a business.
8. Depreciation: The gradual decline in an asset’s value, due to age, use or obsolescence.
9. Appreciation: The increase in the market value of an asset.
10. Accounts Receivable: Money that a business is legally owed, and is expecting to receive.
11. Inventory: Finished goods ready to be bought.
12. Intangible Asset: Any resource or possession that has little or no tangible value, but
which can be expected to bring financial benefit.
13. Owner’s Equity: The value of the capital put into a business by its owners.
14. Paid-in Capital: Capital that business owners actively pay in to the business.
15. Retained earnings: The profits that a business accumulates as it grows. These are used
to buy more assets, hire new employees and create more profit in the future.
16. Investment: A decision not to spend one’s capital for immediate consumption, but to
put it to work so that it might produce more capital in the future.
17. Liabilities: Money that a business has borrowed or money that it owes.
18. Line of Credit: An agreement between a bank and a borrowing customer that the
customer can withdraw up to an agreed amount as long as the loan is repaid in full at
some point during the year.
19. Account Payable: Money that a business legally owes, and is expecting to have to pay.
20. The Accounting Equation: Assets = Owner’s Equity + Liabilities
21. Liquidity: The ease and speed with which an asset can be converted into cash.
22. Current Assets: Assets that an organisation hopes or expects to convert into cash within
the “current year”, in other words within the next twelve months.
23. Fixed Assets: Assets that aren’t intended for immediate sale.
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University of toronto scarborough (utsc) date: march 12, 2018. Week 9 measuring performance: the financial statements. The profit that comes from selling products: operating expense: the cost of running the business organisation, as opposed to the cost of making the product, operating profit: the profit made from operating a business that sells products. Interest expense: the interest costs of borrowing money to finance the business: net profit: the result after all of the business" costs and expenses are deducted from its revenues. Taxes payable: this is money owing to a municipal, provincial or deferral government. Loans payable: these are loans that are due to be repaid in the next 12 months. Term payable: these are loans that must eventually be repaid, but not within the next. Mortgages: these are loans to pay for buildings like warehouses, offices and factories. The borrower is bound to hand over ownership of the building if payments on the loan are not made.
