Basic Vocabulary

Front

What does the income statement measure?

Back

Revenue and expenses over a period of time.

Answer explanation

The income statement measures a company's revenue and expenses over a period of time to determine profitability.

Front

What is the top number on the income statement?

Back

Sales or revenue.

Answer explanation

The top number on the income statement is the company's sales or revenue during the period.

Front

How is net income calculated?

Back

Revenue minus all expenses.

Answer explanation

Net income is calculated by subtracting all expenses from revenue.

Front

What does the balance sheet answer?

Back

Assets, liabilities, and shareholder's equity.

Answer explanation

The balance sheet answers the question "What is your net worth?" by listing assets, liabilities, and shareholder's equity.

Front

What is the master accounting equation?

Back

Assets = liabilities + shareholder's equity.

Answer explanation

The master accounting equation is assets = liabilities + shareholder's equity.

Front

How does revenue impact the balance sheet if paid in cash?

Back

Increases cash balance.

Answer explanation

If revenue is paid in cash, it increases the company's cash balance on the balance sheet.

Front

How does revenue impact the balance sheet if paid on credit?

Back

Increases accounts receivable.

Answer explanation

If revenue is paid on credit, it increases accounts receivable on the balance sheet.

Front

What is cost of goods sold?

Back

Costs directly related to producing the product.

Answer explanation

Cost of goods sold includes all costs directly related to producing the sold product.

Front

How can cost of goods sold impact the balance sheet if paid in cash?

Back

Decreases cash balance.

Answer explanation

If cost of goods sold is paid in cash, it decreases the company's cash balance on the balance sheet.

Front

How can cost of goods sold impact the balance sheet if paid using inventory?

Back

Decreases inventory balance.

Answer explanation

If cost of goods sold is paid using inventory, it decreases the company's inventory balance on the balance sheet.