Financial statements are based on well dened accounting concepts andstandards, some of which are fairly technical and require some concentrated study tolearn and use. The following is a list of accounting terminology and concepts importantin understanding nancial statements for a manufacturing business.
Accounts receivableAccounts payable
CreditCapitalCashCommon stockContribution marginCostCurrent assets
Cost of goods soldCost of goods manufactured
DepreciationDirect costDividendsFinished goods
Gain/loss on sale
Manufacturing overheadMaterial used
Net incomeNet operating income
Net income after taxesPerpetual inventoryPeriodic inventory
Premium/discount on stockPremium/discount on bonds
Treasury stockTrade-in valueVariable cost
Hopefully, you have learned these terms in a previous accounting course andonly some review of these terms is needed.
In addition to terminology, there are some accounting concepts and conventions
of a broader nature that involve theory and even, in some cases, considerabledifferences of opinion. Some of the important concepts involved in this book areshown as follows.
Absorption costing Earned/unearned revenueAccrual basis accounting Inventory costing methods
Accounting control MatchingCash basis accounting PlanningCost Standards/principles of accounting
Control Full costing reporting
Deferred charges Contribution basis reporting
Accounting Financial Statement Relationships
In addition to important nancial statement terminology, there are a number of manufacturing nancial statement relationships critical to understanding and usingnancial statements. These relationships may be summarized as simple mathematicalequations. The most important of these relationships are the following: