Accounting Basics

'Cash Flow Statement'

One of the quarterly financial reports any publicly traded company is required to disclose to the SEC and the public. The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter. 

'Generally Accepted Accounting Principles - GAAP'

The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. 

'Activity-Based Costing - ABC'

An accounting method that identifies the activities that a firm performs, and then assigns indirect costs to products. An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods.       

'Audit'

1. An unbiased examination and evaluation of the financial statements of an organization. It can be done internally (by employees of the organization) or externally (by an outside firm).  
 
2. An IRS examination of a taxpayer's return or other transactions. The IRS performs this examination to verify the accuracy of these filings. 
 
'Internal Audit'

The examination, monitoring and analysis of activities related to a company's operation, including its business structure, employee behavior and information systems. An internal audit is designed to review what a company is doing in order to identify potential threats to the organization's health and profitability, and to make suggestions for mitigating the risk associated with those threats in order to minimize costs.

'Tax Lot Accounting'

A record keeping technique that traces the dates of purchase and sale, cost basis, and transaction size for each security in your portfolio, even if you make more than one trade in the same security. 
 
'Financial Accounting Standards Board - FASB'

A seven-member independent board consisting of accounting professionals who establish and communicate standards of financial accounting and reporting in the United States. FASB standards, known as generally accepted accounting principles (GAAP), govern the preparation of corporate financial reports and are recognized as authoritative by the Securities and Exchange Commission. 

'Forensic Accounting'

Forensic Accounting utilizes accounting, auditing, and investigative skills to conduct an examination into a company's financial statements. Thus, providing an accounting analysis that is suitable for court. 

'Bankruptcy'

A legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor's assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy. 

'Long-Term Assets'

1.  The value of a company's property, equipment and other capital assets, minus depreciation. This is reported on the balance sheet.  
 
2. A stock, bond or other asset that an investor plans to hold for a long period of time. 
 
'Accrual Accounting'

An accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company's current financial condition.  

'Inventory'

The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners. 

'Trial Balance'

A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit columns. A company prepares a trial balance periodically, usually at the end of every reporting period. The general purpose of producing a trial balance is to ensure the entries in a company's bookkeeping system are mathematically correct. 
 
'Gross Margin'

A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold by a company. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.

'Operating Margin'

A ratio used to measure a company's pricing strategy and operating efficiency. 
 
Calculated as:

 

  
 
Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt.  
 
Also known as "operating profit margin" or "net profit margin". 
 
'Accounting Equation'

The equation that is the foundation of double entry accounting. The accounting equation displays that all assets are either financed by borrowing money or paying with the money of the company’s shareholders. Thus, the accounting equation is: Assets = Liabilities + Shareholder Equity. The balance sheet is a complex display of this equation, showing that the total assets of a company are equal to the total of liabilities and shareholder equity. Any purchase or sale by an accounting equity has an equal effect on both sides of the equation, or offsetting effects on the same side of the equation. The accounting equation is also written as Liabilities = Assets – Shareholder Equity and Shareholder Equity = Assets – Liabilities.  

'Earnings'

The amount of profit that a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year. Earnings typically refer to after-tax net income.Ultimately, a business's earnings are the main determinant of its share price, because earnings and the circumstances relating to them can indicate whether the business will be profitable and successful in the long run. 

'Profitability Ratios'

A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well. 
 
'Hybrid Security'

A security that combines two or more different financial instruments. Hybrid securities generally combine both debt and equity characteristics. The most common example is a convertible bond that has features of an ordinary bond, but is heavily influenced by the price movements of the stock into which it is convertible.  
 
Often referred to as "hybrids". 
 
'Convertible Bond'

A bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.  
 
Convertibles are sometimes called "CVs". 
 
'Disclosure'

The act of releasing all relevant information pertaining to a company that may influence an investment decision. In order to be listed on major U.S. stock exchanges, companies must follow all of the Securities and Exchange Commission's disclosure requirements and regulations. 
 
'Insolvency'

When an individual or organization can no longer meet its financial obligations with its lender or lenders as debts become due. Insolvency can lead to insolvency proceedings, in which legal action will be taken against the insolvent entity, and assets may be liquidated to pay off outstanding debts. 
 
'Liquidation'

1. When a business or firm is terminated or bankrupt, its assets are sold and the proceeds pay creditors. Any leftovers are distributed to shareholders.  
    
   2. Any transaction that offsets or closes out a long or short position. 
    
   

 
 
 
 
 
 
 
 
 
 

List of source

1. http://www.investopedia.com
2. http://en.wikipedia.org/wiki/Accountancy
3. http://www.investorwords.com/
4. http://www.intercomp.ru/en/
5. http://www.accountingprincipals.com
6. http://www.axium.by/services-en/accountancy/accounting-under-IFRS/
7. http://www.ifrs.org