19. Accounting principles consist of (a) general and (b) specific principles. General
principles are the basic assumptions, concepts, and guidelines for preparing
20. Revenue (or sales) is the amount received from selling products and services.
21. Net income (also called income, profit or earnings) equals revenues minus expenses
22. The four basic financial statements are: income statement, statement of retained
earnings, balance sheet, and statement of cash flows.
23. An income statement reports a company’s revenues and expenses along with the
resulting net income or loss over a period of time.
24. Rent expense, utilities expense, administrative expenses, advertising and promotion
25. The statement of retained earnings explains the changes in equity from net income
or loss, and from any dividends over a period of time.
26. The balance sheet describes a company’s financial position (types and amounts of
assets, liabilities, and equity) at a point in time.
27. The statement of cash flows reports on the cash inflows and outflows from a
company’s operating, investing, and financing activities.
28. Return on assets, also called return on investment, is a profitability measure that is
useful in evaluating management, analyzing and forecasting profits, and planning
activities. It is computed as net income divided by the average total assets. For
example, if we have an average annual balance of $100 in a bank account and it