Stockholders' Equity and the Statement of Cash Flows: every key term you need (+ practice quiz)
25 flashcard terms for Financial Accounting Topic 8, written to match the course framework. Study them here, then drill them as interactive flashcards, or test yourself with the 15-question quiz — free, no account needed.
The basic ownership share carrying voting rights and a residual claim on assets after all creditors and preferred holders are satisfied. Its holders bear the most risk and hold the most upside.
Preferred stock
Shares with a dividend preference and a prior claim in liquidation, usually without votes. It sits between debt and common equity in risk, since its dividend is expected but not legally enforceable.
Par value
An arbitrary legal amount assigned to each share, often trivially small. It sets minimum legal capital and determines how an issuance splits between the stock account and paid-in capital.
Additional paid-in capital
The excess of issue price over par received from shareholders. It records real owner investment even though the stock account itself may carry only a token amount.
Authorized shares
The maximum number the corporate charter permits the company to issue. It is disclosed but never recorded, since no accounting event occurs until shares are actually sold.
Issued and outstanding shares
Issued shares have been sold at some point; outstanding shares are those still held by investors. The gap between the two figures is exactly the shares held in the treasury.
Treasury stock
A company's own shares reacquired and not retired. It is a contra-equity deduction, never an asset, and no gain or loss may be recorded on buying or reselling it.
Declaration date
The day the board formally commits to a dividend, creating a legal obligation. Retained earnings fall and a dividend payable arises even though no cash has yet left the company.
Date of record
The cut-off day determining which shareholders will receive the declared dividend. No journal entry is made, because ownership records simply identify who is entitled to the payment.
Payment date
The day the dividend is actually distributed, settling the liability created at declaration. The entry reduces cash and the payable with no effect on income or on retained earnings.
Stock dividend
A distribution of additional shares instead of cash. Total equity is unchanged because value merely moves from retained earnings into contributed capital, leaving each holder's percentage the same.
Stock split
Increasing share count and cutting par proportionally to lower the trading price. No account balances change, so it is recorded only as a memorandum notation in the equity records.
Cumulative preferred stock
A feature requiring that any skipped preferred dividends be paid in full before common holders receive anything. It makes the preference meaningful across lean years rather than only in good ones.
Dividends in arrears
Unpaid cumulative preferred dividends from prior years. They are not a liability until declared, so they are disclosed in the notes rather than recorded on the balance sheet.
Book value per share
Common equity divided by outstanding common shares, a balance sheet measure of the accounting claim per share. It usually differs sharply from market price because assets sit at unrecovered cost.
Earnings per share
Net income less preferred dividends divided by the weighted average common shares outstanding. Weighting matters because shares issued late in the year supported earnings for only part of it.
Accumulated other comprehensive income
An equity balance holding gains and losses that bypass net income, such as certain translation and hedging adjustments. It explains why equity can change without any income being reported.
Operating activities
Cash effects of the transactions that enter the determination of net income, including collections from customers and payments to suppliers, employees, lenders for interest and tax authorities.
Investing activities
Cash spent acquiring or received from selling long-lived assets and investments. Sustained heavy outflows here often signal expansion, while large inflows may mean assets are being sold off.
Financing activities
Cash raised from or returned to lenders and owners, including borrowing, repaying principal, issuing shares, buying treasury stock and paying dividends. Interest paid is normally excluded and shown as operating.
Indirect method
Begins with net income and adds back noncash charges, removes gains and losses on asset sales, and adjusts for changes in operating working capital to arrive at operating cash flow.
Direct method
Lists actual operating cash receipts and payments by category. It is more informative to users but is rarely used, since most systems are built to produce accrual figures first.
Noncash investing and financing activities
Significant transactions such as acquiring equipment by issuing a note or converting debt to shares. They never appear in the cash sections but must be disclosed separately.
Operating working capital adjustments
In the indirect method an increase in a current operating asset is subtracted and an increase in a current operating liability is added, because each reflects a difference between accrual and cash timing.
Free cash flow
Operating cash flow less the capital spending needed to maintain the business, and sometimes less dividends. It gauges how much cash is genuinely available for growth or debt reduction.